Buyer Walks Away From a House in Ontario: Who Keeps the Deposit?

by Ana Bastas

Can a Seller Keep the Deposit if a Buyer Walks Away in Ontario?

Yes. In Ontario, a seller may be entitled to keep a buyer's deposit if the buyer defaults on a firm Agreement of Purchase and Sale without a valid legal justification. The seller may also have a claim for additional damages.

However, a deposit is not automatically forfeited every time a transaction fails.

The agreement, its conditions, the reason for the failure and the conduct of both parties all matter.

Imagine selling your home in Burlington for $1,250,000.

You accept an offer, the buyer provides a $60,000 deposit, and you begin preparing to move.

Then, one week before closing, the buyer advises that their mortgage financing has fallen through.

What happens to the deposit?

And what happens if you now have to sell the property for less?

What Is a Firm Real Estate Agreement?

A firm Agreement of Purchase and Sale is a binding contract where the applicable conditions have been satisfied, waived or otherwise resolved.

Once the agreement is firm, the buyer generally cannot walk away simply because:

They found another property.
They changed their mind.
Interest rates changed.
They no longer like the purchase price.
Their lender declines the mortgage.
They are concerned about changing market conditions.

Unless a valid contractual or legal justification applies, failure to complete the purchase may constitute a breach of contract.

What Happens if the Buyer Cannot Get a Mortgage?

The answer depends on the financing provisions in the agreement.

With a Valid Financing Condition

If the buyer properly relies on an unfulfilled financing condition within the required timeframe, the agreement may terminate without buyer default.

The buyer may then be entitled to the return of the deposit, subject to the agreement's terms.

Without a Financing Condition

If the buyer submits a firm offer and the lender later declines financing, the buyer generally remains responsible for completing the transaction.

A financing problem does not automatically excuse performance.

This is one reason I encourage buyers to understand the difference between a mortgage pre-approval and final lender approval.

Can the Seller Keep the Deposit Even if the Home Resells?

Potentially, yes.

Ontario courts have recognized that a genuine real estate deposit can be forfeited following buyer default even when the seller does not prove a corresponding financial loss.

A significant Ontario Court of Appeal decision, Redstone Enterprises Ltd. v. Simple Technology Inc., confirmed the importance of deposits as security for contractual performance.

However, courts retain limited discretion to grant relief from forfeiture in exceptional circumstances.

The size of the deposit, the parties' conduct and the circumstances of the transaction may all be relevant.

Can a Seller Sue for More Than the Deposit?

Yes, depending on the circumstances.

Consider this hypothetical example:

Transaction	Amount
Original agreed purchase price	$1,250,000
Buyer's deposit	$60,000
Subsequent resale price	$1,150,000
Difference in sale prices	$100,000

The seller may seek damages resulting from the buyer's breach, subject to the applicable legal rules.

However, the $100,000 difference is not automatically the final damages award.

A court may consider the appropriate valuation date, mitigation, recoverable expenses, causation and how the deposit is credited against any damages.

The buyer's total exposure may exceed the original deposit.

What if the Seller Is Responsible for the Failed Sale?

If the seller breaches the agreement or cannot fulfill their obligations, the buyer's legal rights may be different.

The buyer may be entitled to recover the deposit and potentially pursue other remedies.

However, the reason the transaction failed must be carefully assessed.

Disagreements about fault often become deposit disputes.

Does the Seller Automatically Receive the Deposit?

No.

Even if the seller believes the buyer clearly defaulted, the brokerage holding the deposit generally cannot simply transfer disputed trust funds to the seller.

Appropriate written authorization or a court order may be necessary.

Entitlement to the deposit and actual disbursement are separate issues.

Frequently Asked Questions

1. Can a buyer back out of a firm offer in Ontario?

A buyer can refuse to complete the transaction, but doing so without a valid legal justification may breach the contract and expose the buyer to significant financial liability.

2. Does the buyer automatically lose the deposit if financing falls through?

Not always. A valid financing condition may protect the buyer. Without one, financing failure may result in buyer default.

3. Can a seller keep a deposit if they resell for more money?

Potentially. Deposit forfeiture does not necessarily require the seller to establish a financial loss. The particular circumstances and possible relief from forfeiture must still be considered.

4. Is the deposit the maximum amount a buyer can lose?

No. A buyer who defaults may face additional damages beyond the deposit, depending on the seller's losses and the agreement.

5. Can a seller keep a $100,000 deposit?

Possibly. There is no universal rule that every deposit of a particular amount must be forfeited. The agreement and circumstances determine the legal outcome.

6. Can the seller relist the property if the buyer fails to close?

The seller should obtain legal advice before taking steps that could affect the existing agreement or available remedies. The proper course depends on the transaction and the parties' conduct.

7. What should a buyer do if they know they cannot close?

Contact their real estate lawyer and representative immediately. Early legal advice may help identify available options, including a negotiated extension or resolution.

What Ontario Sellers Should Do Before Accepting an Offer

Price is important, but it is not the only consideration.

Sellers should evaluate the offer's conditions, deposit, closing date and other terms.

A high purchase price means little if the transaction cannot close.

Ana's Advice: Protect the Transaction, Not Just the Price

As a Listing Specialist, I believe sellers should assess offers strategically.

That means considering the overall strength of the agreement—not simply selecting the highest number.

For buyers, it means understanding your obligations before signing and never treating a firm agreement as an informal reservation.

Buying or Selling in Halton, the GTA or Niagara?

The Ana Bastas Real Estate Team provides strategic real estate representation, market guidance and experienced negotiation support.

Experience the Ana Bastas Advantage™

Ana Bastas, ABR®, SRS®, SRES®, RENE®
Founder & Team Leader | Listing Specialist
Real Broker Ontario Ltd., Brokerage

Phone: (289) 670-5888
Email: ana@anabastas.ca
Website: www.anabastas.ca

What Happens to Your Deposit When a Real Estate Deal Falls Through?
Seller Won't Sign the Mutual Release? What Happens Next?
7 Ways to Protect Your Real Estate Deposit Before Making an Offer

Legal Reference

Redstone Enterprises Ltd. v. Simple Technology Inc., 2017 ONCA 282.

Disclaimer: This article provides general Ontario real estate information, not legal advice. Buyers and sellers should consult an Ontario real estate lawyer regarding default, deposit forfeiture and damages.