The Closing Day Holdback Nobody Warned You About
A holdback keeps part of your sale proceeds in a lawyer’s trust account on closing day instead of paying it to you. In Ontario it is not something a buyer can impose. It has to be negotiated and agreed to by both sides. If one lands on your closing day over something nobody mentioned at the final walkthrough, you are allowed to say no.
Three times this year I have had the same thing happen on a closing, with three different lawyers, on three unrelated deals. I was representing the seller each time.
Everything is done. The buyer has been through the house on their final visit. Nobody has said a word about a problem. Then closing day arrives and the buyer’s lawyer calls the seller’s lawyer and says: we are holding back money.
Once is a bad day. Twice is bad luck. Three times is a pattern, and I think sellers should know it exists before it happens to them.
What is a holdback, and when is it legitimate?
Start with the honest version, because holdbacks are a real and useful tool and I am not arguing they should not exist.
A holdback is a slice of the purchase price that does not get paid to the seller on closing. It sits in a lawyer’s trust account until some condition is met, and then it gets released. Lawyers in Ontario hold that money under Law Society trust account rules, so the funds are not going anywhere.
There are perfectly good reasons to use one:
The seller agreed in the contract to fix something and it is not finished yet.
Construction or a renovation is incomplete on the closing date.
A permit or a final inspection report has not come through in time.
A genuine deficiency turned up that both sides agree needs resolving.
In all of those, the holdback is doing its job. It lets a deal close instead of blowing up over an open item.
A holdback is not a right under Ontario law. It has to be negotiated and agreed to. A buyer’s lawyer can ask on closing day, and there are situations where a seller should say yes. But asking is not the same as taking, and arriving late does not create an entitlement.
What actually happened on my three closings
Here is the most recent one, and it is the clearest.
A $2.2 million home. The deal was clean. The buyers had already done their final visit to the property, walked the whole thing, and raised nothing.
Closing day, the buyer’s lawyer goes to the seller’s lawyer:
“Yeah, we’re doing a $1,000 holdback because there are some wires sticking out of the wall for this round sound.”
Speaker wire. On a $2.2 million transaction. After a walkthrough where nobody said anything.
My response was the obvious one:
“But hold on. You guys just had your final walkthrough. You didn’t say a thing to us.”
Then I did the thing that turned this from an annoyance into something I now watch for. I called the buyer’s agent.
The buyer’s own agent had no idea it was happening. Not on that deal, and not on the other two either. The agent representing the buyer, the person whose job it is to know what is happening on their client’s file, was out of the loop entirely.
That is the detail that stayed with me. On closing day the lawyers talk to each other, and the agents on both sides can be nowhere near the conversation.
Why is this happening now?
Here is my read, and I want to be careful about how I put it, because I am describing a pattern I saw across three files and not the conduct of a profession.
The Toronto market is the slowest I have seen it since the 1990s. Volume is down. And in a real estate transaction, the lawyer is generally not the best paid person at the table.
“Because lawyers typically in the transaction compared to mortgage brokers and real estate agents don’t get paid as much.”
When files get thin, the incentive to find work inside the file you already have gets stronger. A holdback that turns into a dispute is billable. That is my inference about motive and I could be wrong about it. What I am not wrong about is the sequence: clean walkthrough, silence, then a demand on the day the money moves.
The other consistent feature is who it happens to.
“Especially with first-time buyers, they’ll really stick it out with first-time buyers because first-time buyers are really nervous, more than your average home buyer. And they don’t understand. They’ve never been through this before.”
A first-time buyer does not know what is normal. Tell them a holdback is standard practice and they will believe you, because they have nothing to compare it to. That cuts both ways, which is why I think this post is as useful to buyers as it is to sellers. If you are the buyer and your lawyer is doing this in your name without telling your agent, you should know that too.
A deficiency discovered at the final walkthrough and raised the same day is a normal part of a transaction. The same deficiency raised for the first time on closing day, after a walkthrough where nothing was said, is a different thing. Both may be genuine. Only one of them is well timed.
How a clean deal turns into a closing day standoff
What to do if it happens to you
Do not agree to anything immediately. The pressure of the day is the leverage. Slowing down costs you almost nothing and removes most of it.
Ask for it in writing, with the specific deficiency named and the amount justified.
Ask when it was first raised. If the buyer walked the property and said nothing, say so, in writing.
Get both agents on it. Your agent may know the history of that exact item. On my files, looping in the buyer’s agent changed the conversation.
Then make a commercial decision with your lawyer. Sometimes a small holdback is cheaper than the fight. That should be your choice, made with advice, not a reflex.
What to do before closing day, which is where you actually win this
Photograph the property at the final walkthrough, or have your agent do it. Date stamped photos of the condition the buyer accepted are the cheapest insurance in the transaction.
Ask to be copied on closing correspondence. You are the client. If your lawyer is negotiating on your behalf on the day, you and your agent should know it is happening.
Close out every promised repair in writing. If you agreed to fix something, get confirmation it was accepted as done. An open item is the legitimate doorway a thin claim walks through.
There are no solutions, only trade-offs
This came up on my podcast with Lauren Cohen, a lawyer licensed in Canada and the U.S. who spends her time helping Canadians move south. She was describing how Florida hands realtors far more of the legal work than Ontario does, with a 63 hour licensing course behind them.
It reminded me of Thomas Sowell’s line: there are no solutions, there are only trade-offs.
“If you’re going to have real estate agents doing more legal work, you’re going to have problems. If you’re going to have lawyers doing more of the legal work, they’ll create… there’s always different problems.”
Ontario chose the lawyer heavy version. Most of the time that protects people, and I would not trade it for the Florida model. But every system has a failure mode, and this is ours: the professional with the most authority on closing day is also the one with the most room to introduce a problem that did not exist the day before.
Knowing the failure mode is most of the defence.
Frequently Asked Questions About Closing Day Holdbacks
What is a holdback on closing in Ontario?
Can a buyer force a holdback on closing day?
What should I do if a holdback is demanded on my closing day?
Why does the final walkthrough matter so much?
Does my real estate agent know if my lawyer is negotiating a holdback?
Related Reading
- 3 Things to Know When Selling Your Home, the groundwork that keeps a closing boring.
- Home Seller Checklist, including the promised repairs worth closing out in writing.
- Should I Buy or Sell First?, which is really a question about how much closing day pressure you can absorb.
- What a Home Inspector Actually Looks For, so real deficiencies surface early instead of on the day.
Watch the Full Episode
This came out of my conversation with Lauren Cohen on Supply and Demand. She is a lawyer licensed in Canada and the U.S. and a fourth generation Torontonian who moved to Florida 25 years ago. We also get into what Canadians ask before they sell and move south, and why a real estate licence takes 63 hours in Florida and roughly 18 months here. Listen on Apple Podcasts or Spotify.
You can find Lauren Cohen at Investing Across Borders.
If you are selling in Toronto or York Region and you want a closing where this kind of thing gets caught early rather than on the day, that is most of what representation is actually for. Happy to walk you through how we handle it.
Written by Adam Nadler, a licensed REALTOR serving Toronto and York Region with RE/MAX Your Community Realty, Brokerage. Nothing here is legal advice and no solicitor client relationship is created by reading it. The experiences described are the author’s own observations on his own files, and the views about motive are his opinion. Holdback practice, timing and remedies depend on the specific agreement of purchase and sale. Always retain your own lawyer and rely on their advice for your transaction.