An simple breakdown of real estate deposit rules and trust accounts in Ontario, along with the recent Real Estate Council of Ontario (RECO) developments that are changing how these funds are safeguarded.
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Every buyer feels a moment of hesitation when handing over a deposit. The agreement is signed, the money leaves their account, and it enters a system they cannot see. The safety of that money influences confidence more than many market trends. When people worry about how deposits are handled, the trust that supports the real estate process begins to weaken.
Ontario has entered a period where concerns about deposit protection receive far more attention. The iPro Realty case, where $8M in trust funds were allegedly misused, revealed a weakness that many suspected but could not clearly point to. In response, the provincial government took full control of the Real Estate Council of Ontario (RECO), the body that oversees the industry. This type of intervention rarely happens in Canadian real estate and shows a renewed focus on consumer protection.
Understanding how real estate deposits and trust accounts work has become important for buyers, sellers, agents, and investors. The system is being rebuilt. The rules are becoming stricter. Brokerages will face higher expectations. The province is preparing for a more demanding form of oversight because confidence is the foundation of a healthy housing market. This blog helps you do so.
What a Real Estate Deposit Actually Is
The purpose of the deposit
A real estate deposit shows the buyer is committed to the purchase. It gives the seller confidence that the deal is moving forward. The money sits in a safe place while both sides work through conditions and prepare for closing. In most Ontario transactions, the deposit is between 5-10 per cent of the purchase price. In competitive markets it can be higher.
Deposit and down payment
Many buyers mix these terms together. A deposit is money paid early in the process and held until the deal closes. A down payment is the larger amount the buyer brings at closing. The deposit counts toward the down payment, but it has a specific role during the offer period. It protects both sides while the agreement is still active and helps keep the transaction on track.
Where the deposit goes
The buyer gives the deposit to the listing brokerage unless the agreement states something different. The brokerage must place the funds in a trust account that is separate from its business accounts. The money cannot be used for rent, salaries, or any other expense. The rules exist to make sure the deposit is always available when the deal closes or if the agreement ends. It is meant to stay safe from the moment it arrives until the transaction is complete.
How Trust Accounts Work in Ontario
How trust accounts work
A trust account is a special account that keeps client money separate from the brokerage’s own funds. The purpose is simple. The deposit must stay safe and untouched until the deal closes or ends. The brokerage records every deposit that comes in and checks the balance regularly to make sure the money is exactly where it should be.
Why separation matters
Trust accounts cannot mix with day to day business accounts. This separation is the main protection for buyers and sellers. If a brokerage uses client money for its own expenses, even for a short period, the deposit becomes unsafe. Proper separation keeps the funds available at all times and reduces the risk of loss.
How trust money is monitored
Regulators check trust accounts through routine audits. These audits confirm that deposits are recorded correctly and that the account balances match the transaction records. The process is meant to catch problems early and ensure the brokerage is following the rules. When the system works well, trust funds stay secure from start to finish.
What Went Wrong in the iPro Realty Case
A failure of timing and oversight
RECO found problems with a brokerage’s trust accounts in May but did not freeze assets or close the brokerage until August. This gap created more risk for buyers, sellers, and agents who continued to deal with the firm during that period. An independent audit by Dentons later showed that normal procedures were not followed. Important information was not shared with the board and key steps were delayed. These issues revealed weaknesses in how the regulator handled trust account problems and raised concerns about the safety of client funds. My video on the topic, explains this and more:
The government response
The province decided the regulator could not fix these problems on its own. A formal letter to RECO’s leadership made this clear. An outside administrator will take control early December with full authority to review processes, rebuild systems, and set new standards for oversight. This type of intervention does not happen often. It represents a major shift in how real estate regulation will work in Ontario.
Real Estate Deposit Rules in Ontario
The 24 hour deposit requirement
When an offer is accepted, the buyer usually has 24 hours to deliver the deposit. This helps the seller feel confident that the deal is moving forward. The listing brokerage must place the deposit into the trust account as soon as it arrives. This keeps the money protected from the very beginning of the transaction.
What happens when a deal falls through
If a deal does not close, the deposit stays in the trust account until both the buyer and seller agree to release it. If they cannot agree, the funds remain in trust until a court or arbitrator provides direction. This rule makes sure the money stays safe while the disagreement is resolved.
How Buyers and Sellers Can Protect Themselves
Questions to ask your agent or brokerage
Consumers should feel comfortable asking where the deposit will be held, how the trust account is managed, how reconciliation is performed, and how often the account is audited. A reputable brokerage will provide straightforward answers. Transparency is a marker of professionalism.
Red flags to watch for
Unusual delays, vague explanations, or reluctance to confirm trust arrangements should prompt further scrutiny. The events of the past year show that trust must be earned through clear and consistent disclosure.
The Future of Deposit Protection in Ontario
Ontario’s decision to step in marks the start of a stricter approach to oversight. The rules for trust accounts will become tighter. Problems will be addressed faster. Brokerages will need to meet higher compliance standards and follow more detailed reconciliation steps. Agents may receive new training on ethics and proper handling of client funds. These changes reflect a growing understanding that confidence depends on clear systems that protect clients at every stage of a transaction.
Conclusion
Deposits are the quiet pillar of every real estate transaction. They support the weight of buyer intent, seller expectations, and the legal framework that holds both together. When deposit security is uncertain, the entire market feels the strain. Ontario’s recent actions acknowledge this reality. The reforms now underway will reshape the way trust accounts operate and will introduce a more disciplined era of consumer protection.
Real estate relies on confidence. It is earned slowly, damaged quickly, and restored through transparency and structure. Buyers and sellers deserve to know that their money is secure. The safeguards being introduced in Ontario are intended to strengthen that assurance and to rebuild the trust that the system requires.
Frequently Asked Questions (FAQs)
1. What are real estate deposits in Ontario?
Real estate deposits in Ontario are upfront payments a buyer provides after an accepted offer. The deposit shows commitment and is held in a trust account until the deal closes or ends. It becomes part of the buyer’s down payment at closing.
2. How do real estate deposits work during a home purchase?
Real estate deposits are given to the listing brokerage, which must place the funds in a regulated trust account. The money stays separate from the brokerage’s business funds and remains protected until the transaction is complete.
3. Are real estate deposits protected in Ontario?
Yes. Real estate deposits are protected through strict trust account rules. Brokerages must separate client funds, perform regular reconciliations, and meet detailed reporting requirements. These safeguards help keep deposits secure.
4. Who holds real estate deposits in Ontario?
In most transactions, the listing brokerage holds real estate deposits in its trust account. The agreement can name a different holder, but the deposit must always remain in a regulated trust account.
5. What happens to real estate deposits if a deal falls through?
Real estate deposits stay in trust until the buyer and seller sign a mutual release. If they disagree, the deposit remains in trust until a court or arbitrator decides where the funds go. This protects the money during a dispute.
6. How much are typical real estate deposits in Ontario?
Real estate deposits in Ontario often range from five to ten per cent of the purchase price. Hot markets sometimes push the amount higher, especially when multiple buyers compete for the same property.
7. Do real estate deposits count toward the down payment?
Yes. real estate deposits form part of the buyer’s down payment. The deposit is held in trust during the offer period and then applied to the total amount due at closing.
8. When must real estate deposits be paid?
Real estate deposits are usually due within twenty four hours of an accepted offer. This helps move the transaction forward and ensures the funds enter the trust account quickly.
9. Are real estate deposits refundable?
Real estate deposits can be refunded if both parties agree. Without mutual consent, the deposit stays in trust until a legal decision is made. Refundability often depends on the terms of the offer and whether conditions were met.
10. What recent developments at RECO should buyers and sellers know about?
The provincial government has taken direct control of RECO after problems were found in how trust accounts were monitored. An outside administrator is now reviewing systems and raising oversight standards. These changes matter for real estate deposits because they will lead to stricter rules and stronger protection for client funds.
ABOUT THE AUTHOR
Daniel Foch is the Chief Real Estate Officer at Valery, and Host of Canada’s #1 real estate podcast. As co-founder of The Habistat, the onboard data science platform for TRREB & PropTx, he has helped the real estate industry to become more transparent, using real-time housing market data to inform decision making for key stakeholders.
Daniel is a trusted voice in the Canadian real estate market, regularly contributing to media outlets such as The Wall Street Journal, CBC, Bloomberg, The Globe and Mail, Storeys and Real Estate Magazine (REM). His expertise and balanced insights have garnered a dedicated audience of over 100,000 real estate investors across multiple social media platforms, where he shares primary research and market analysis.
