December 12, 2023

Legal corner: Deposits play an important role in a real estate transaction

Note to reader: This matter was prosecuted under the Real Estate and Business Brokers Act, 2002.

Case Summary

Two neighbours decided to sell their properties at the same time. They listed their properties for sale with the same real estate agent and brokerage.

The real estate agent of the sellers also represented the buyer who was trying to purchase both properties.

The agreements for each property indicated that the buyer was to deliver a deposit of $10,000 for the property. The buyer did not deliver the deposit as agreed and at no time did the real estate agent advise the sellers that the deposits had not been received.

The buyer requested two separate date extensions to the conditions in the agreements. Although the agent was aware that no deposit had been received, the sellers were counseled to add a clause to their agreements indicating that the deposit would be forfeited to the sellers immediately if the terms of the agreements were not met. The buyer elected not to proceed with the agreements and there was no deposit on-hand to be forfeited.


The discipline panel found that the real estate agent breached sections 4,5,6(1), 21(1) and 39 of the REBBA Code of Ethics by counselling the sellers to accept an extension of the conditional period without disclosing to the sellers that the deposits had not been received and failing to ensure clarity surrounding how the deposits were to be paid. The discipline committee ordered a fine of $12,000.

Learning opportunity

A deposit in a real estate transaction is a very important step because it provides security to the seller that the buyer has a stake in the agreement. It is a gesture of good faith and demonstrates to the seller that the buyer is serious about purchasing the home and has enough funds to finalize the transaction on the pending completion date. Additionally, real estate agents are required to promote and protect the best interests of their clients and must keep them informed of all significant developments regarding their transactions.

If a deposit is not received, the seller’s agent must inform their client without delay. A buyer’s agent should also advise their clients that entering into an agreement is binding and not delivering the deposit does not automatically mean a deal is cancelled or nullified. A failure to deliver a deposit is a breach of the agreement and could have serious legal and financial consequences. The seller could end up cancelling the deal altogether and even pursuing legal action against the buyer. There are many civil cases that support a seller’s right to do this, and many have resulted in significant penalties for those who tried to walk away from their signed deal.