Can You Get Your Deposit Back in Ontario Real Estate?

1

TL;DR

① Conditional offer, conditions not met → deposit is refundable — but both parties must sign a mutual release.
② Firm offer, buyer walks away → deposit is forfeited to the seller, and further damages may apply.
③ Seller backs out → deposit returned in full, and buyer can sue for losses.

In Ontario real estate, the deposit is a good-faith payment made by the buyer after an offer is accepted. It signals commitment — and it’s one of the first things a seller looks at when comparing offers.

The deposit is typically 5% of the purchase price, and it must be delivered — usually within 24 hours of acceptance — to the seller’s brokerage. Crucially, it goes straight into a regulated trust account. That money does not belong to the seller, the agent, or the brokerage — it’s held in trust until closing.

On a $900,000 purchase, that’s $45,000 sitting in trust for weeks or months until the deal closes. It will count toward your down payment at closing — it’s not an extra charge on top of your purchase price. But for the interim, it’s locked. Knowing the rules around that lock is what this article is about.

A conditional offer includes one or more conditions — most commonly a financing condition (the buyer secures a mortgage) or a home inspection condition. If those conditions are not satisfied within the agreed timeframe, the buyer has the right to terminate the agreement and get their deposit back.

But here’s what many buyers don’t realize: you can’t just say “conditions didn’t work out” and expect your money back the next day. Both the buyer and seller must sign a Mutual Release — a formal document that terminates the agreement and authorizes the brokerage to return the deposit. Without that document, the money stays in trust.

There’s also an important legal concept called bad faith. If a buyer invokes a financing condition but made no genuine effort to arrange a mortgage — say, they never actually applied, or deliberately caused the lender to decline — the seller can refuse to sign the mutual release and argue the condition was used as an escape hatch rather than a legitimate protection. Courts have upheld sellers in these situations. Conditions only protect buyers who act in good faith.

In 2026’s GTA buyer’s market, I’ve seen more deals fall through at the condition stage than at any point in recent memory. Buyers are exercising their rights — which is entirely their prerogative — but the process has to be followed correctly.

A firm offer — no conditions — is a binding contract the moment both parties sign. There is no safety net. If you walk away after signing a firm offer, the legal consequences are significant.

If the buyer defaults: The deposit is forfeited to the seller. That’s not the worst of it. If the seller has to relist and ultimately sells for less, they can sue the original buyer for the difference. On a million-dollar home, that gap can easily reach tens of thousands of dollars. The deposit is not a “cancellation fee” — it’s the floor of what you owe, not the ceiling.

If the seller defaults: The deposit is returned to the buyer in full. Beyond that, the buyer can sue for actual damages — legal fees, temporary housing costs, moving expenses, price difference if they had to buy a comparable property at a higher price. Sellers who accept an offer and then try to back out because they got a better deal elsewhere are taking on real legal exposure.

If neither party signs a mutual release: The deposit stays locked in the brokerage’s trust account indefinitely. It cannot be released without a signed mutual release or a court order. These disputes can drag on for years, and the legal costs can rival the deposit itself.

The market has shifted. In 2026, you don’t need to write firm offers just to be competitive in most GTA areas. Sellers are negotiating. You have leverage. Use it.

Keep your financing condition. Even with a mortgage pre-approval, the lender’s final decision depends on the property appraisal, your current income at the time of closing, and the lender’s internal policies. Pre-approval is not a guarantee — the condition is your real protection.

Take your inspection seriously. If you invoke an inspection condition to exit the deal, you need an actual inspection report from a licensed home inspector. “I changed my mind” is not a valid reason under an inspection condition.

Document everything. Your emails with your mortgage broker, your inspection report, any written communication with the seller — all of this becomes evidence if a dispute arises over whether you acted in good faith.

Understand the mutual release process before you need it. If conditions aren’t met, your agent needs to act quickly. Deadlines in the condition clause are real — let them pass without proper notice and you may lose your right to terminate.

What Happens to the Deposit

Arthur’s Note

AZ