When Real Estate Deals Die, Deposits are Often Held Hostage

There has been a surge in the number of buyers pulling out of their deals to purchase homes, but Ontario industry insiders say home sellers may be in for a long wait if they hope to collect on the deposits made to secure the sale.

At issue is a little-understood set of rules and practices at the real estate brokerage level that can deadlock the release of a deposit if a transaction fails.

“People do not understand how deposits actually work,” said Matthew Wilson, a lawyer who leads the real estate department of London, Ont.-based Siskinds LLP. He’s heard of buyers who were shocked they couldn’t get their deposits back when a deal fails, and sellers shocked that they can’t immediately collect the deposit when a buyer breaks a sales contract. The standard Ontario Real Estate Association agreement of purchase and sale form doesn’t outline what happens to the deposit if the deal collapses. “It’s not really described anywhere,” Mr. Wilson said. “This goes back to the obligations on the real estate agents. Especially if it’s a listing agent, they should be explaining to the seller.”

Lawyers who deal with disputes over failed real estate sales say requests for advice and counsel are the highest they’ve been in years.

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