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Real Estate Deposit Rules BC
In Episode 8 of the First Time Home Buyers guide, we discussed Price on the Contract of Purchase and Sale. On this page, we’re going to review in detail about the real estate deposit rules BC Realtors and buyers adhere to in a real estate purchase agreement.
Updated September 5, 2023 by Mike Stewart Realtor
What is a Real Estate Deposit?
The Cambridge Dictionary defines a deposit as follows:
“A sum payable as a first installment on the purchase of something or as a pledge for a contract, the balance being payable later.”
Real estate deposits, often termed “earnest money,” have been integral to property transactions for centuries.
They signify a buyer’s commitment, providing sellers assurance against non-serious inquiries.
Historically, these deposits protected sellers from potential losses if buyers reneged.
Over time, regulations evolved, ensuring both parties’ interests were safeguarded, making deposits a standard practice in real estate deals today.
Purchasing a home is very different from purchasing most other things in life.
Most people live in their homes (or have tenants living there if its a rental property) and when selling their property, often need time to find a new home (or give proper notice to their tenants) and to prepare to move out.
Typically, there are several weeks to several months from when the buyer and seller agree to terms in the form of an accepted offer and the time when ownership of the property actually changes hands (referred to as the Completion Date).
Why are there real estate deposits for property purchases?
We have deposits in real estate transactions to ensure the buyers and the sellers will do what they promised in the contract. The idea is that if the buyer does not do what they agree to move forward with the purchase in a timely manner as laid out in the accepted offer, the seller can take the deposit and keep it.
Sellers almost always require buyers to submit a deposit with an accepted offer or within 5-7 days depending on how the offer is structured.
In real estate in British Columbia, deposits are referred to as “consideration” in a purchase contract and does the following:
- Deposits are meant to guarantee performance of the contract by the buyer.
- Keeps the buyers focused on moving forward with the transaction as they could lose their deposit if they do not complete the purchase. The deposit money is held (typically in the buyers agents brokerage trust account) so that the seller could take this money if the buyers do not move forward with the purchase as the buyers agreed to in the purchase contract.
- Gives the parties to the contract a clear idea of what the minimum amount of money a buyer would lose if that buyer does not move forward with the purchase. We say minimum here because depending on the situation, the sellers may be able to get more money from the defaulting buyers. For more information on this topic, please consult a qualified lawyer.
- Gives sellers confidence that the buyers are not wasting the sellers time and will move forward as the buyers have money ie the deposit at risk if the buyers do not complete the transaction.
How Can I pay a Home Deposit?
When a real estate purchase offer is written (real estate can only be transacted in BC with written offers), a good faith deposit is almost always offered when a Buyer submits an offer or Contract of Purchase and Sale to buy a residential property in Vancouver.
This deposit money is typically paid in the form of a bank draft or wire transfer. This money is typically held in the Buyers Agent’s brokerage trust account to ensure the Buyer is committed to the transaction and will go forward with the deal on the Completion Date.
This deposit money forms part of and is included in the purchase price of the property.
Home estate deposits are sometimes referred to as a goodwill deposit to denote the buyers goodwill to move forward with the terms of the purchase agreement. Deposit funds are also sometimes referred to as a security deposit as the funds it secures the property for the buyer and give the seller security in their conviction the buyer will move forward with the transaction.
Are Cheques or Certified Cheques suitable Deposits for Real Estate in Vancouver?
No, personal and certified cheques are not acceptable as home deposits in BC.
Can you Buy Real Estate in Canada with a Cash Deposit?
Cash deposits are technically acceptable according to BCFSA, but in practice Realtors do not accept cash deposits to the regulatory risk, hassle & expense.
Deposit on a House in BC – What form is the deposit paid in?
Bank Drafts are Typically Used for a Deposit on a House in BC.
A bank draft and a certified cheque are both guaranteed payment methods by a bank.
A bank draft is drawn directly from the bank’s funds after deducting from the purchaser’s account, ensuring payment.
A certified cheque, on the other hand, is a personal cheque verified and stamped by the bank, confirming sufficient funds exist.
Here is an example of what a bank draft for the home deposit looks like:
To get a bank draft for a home deposit, you need to go into the bank and pay for the draft. Typically a bank draft is going to cost under $10.
What does a Real Estate Deposit look like in the BC Contract of Purchase and Sale?
Here is an example of the deposit section of BCREA purchase contract that is used in BC:
On page 1 of 7 Section 2 on the sample offer or Contract of Purchase and Sale (see below) beneath Section 1 Price, you will find the amount of the deposit and the details on how and when it will be paid and held.
When is a real estate deposit paid in Vancouver?
In most cases the deposit is NOT PAID upon acceptance of the offer!
In the Vancouver region and across B.C. the deposit is usually paid on or within 24 hours of the subject removal date.
The subject removal date is typically 7 days (or 5 business days) after acceptance of the offer, once the buyer is completely satisfied with the property and removes their subject conditions (making the contract legally binding on the buyer as well as seller) which in the example below would be April 19, 2019.
With our sample offer below, Anne Buyer offers a $25,000 deposit payable within 24 hours of subject removal, ie when the Buyer is 100% satisfied and decides they want to go forward with the deal on the Completion Date.
We typically have deposits payable within 24 hours of final subject removal for offers that are subject to.
Allowing for the deposit to come in 24 hours after subject removal allows the buyer time to go to the bank to get the draft. Some Realtors have the deposit payable upon subject removal. There is variation in Vancouver real estate market in how this handled.
Deposits can be paid upon the acceptance of an offer, but typically this only happens when a buyer submits a subject free offer. A subject free offer is when a buyer buys a property with no subject conditions and so once there is an agreement on terms and price the contract legally binding on buyer (now after the end of the new Home Owner Rescission Period of 4 days as of January 3, 2023) and seller, a deposit is required.
Subject free offers with deposit included are often used by buyers in multiple offer situations to improve a buyers chances of getting a property.
Please note – there is variation to all of this. If you are thinking of buying a property please do consult with a qualified Realtor and/or Lawyer.
Can I submit a deposit on a house late?
The simple answer is no.
Late payment of a home deposit represents repudiation of the purchase contract. Basically, this means if a buyer submits the deposit late, they may not be able to buy the property and the seller may be able to bring a legal action against the buyer.
This is because in real estate contract “Time is of the essence” (see clause 12 in the BCREA Contract of Purchase & Sale) which essentially means that if things that are set out in the contract do not happen when they are supposed to happen, there will be consequences for the parties to the contact who do not do what they are supposed to do at the time they are supposed to do it.
Pro tip – When buying a property, make sure you have organized and confirmed how and when the money for the deposit will be available. If not, you may waste a lot of time and could get sued if the deposit is late.
Can I submit a deposit on a house purchase later than agreed?
Time is of the essence is a common and extremely common term in real estate.
Time is of the essence essentially means that things need to happen when they are supposed to happen and if they do not happen when they are supposed to happen, bad things can happen to those who are late.
By submitting a deposit on a house purchase later than specified in the accepted purchase and sale agreement, a buyer could find themselves in one of the following situations:
- Breach of contract which could result in the contract being voided.
- Getting sued.
- Worse things that a qualified lawyer would gladly help with at high personal cost to you.
In a situation where a buyer bought a property in a multiple offer situation and the seller could easily re-sell the property to another buyer submitting an offer late might allow the seller the opportunity to sell it to another buyer for more money.
Likewise in a soft market situation, a seller may sue a buyer for not submitting a deposit on a subject free contract of purchase and sale that could be successful causing the buyer huge headaches as well as potentially a lot of money.
If you are in a situation were you feel you may be late in paying a deposit, let your Realtor know and they might be able to get you an time extension from the sellers in the form of an addendum to the contract.
It is also advisable to consult with a qualified lawyer if there is
How much is the amount of the deposit amount in the Vancouver real estate market?
The standard deposit amount in the British Columbia and Vancouver area real estate market is 5% of the initial asking price.
That said, the buyer can propose any deposit amount they want. The buyer can also alter when the deposit is paid depending on the circumstances of the transaction.
Often buyers will offer more than the typical 5% if they are competing with other buyers in a multiple offer situation.
Buyers submit a larger deposit to make their offer more attractive as a bigger deposit shows that the buyer is serious as they are putting more money at risk to lose if they do not move forward with the purchase.
Buyers needing a long period of time to complete also may offer a bigger deposit to make their offer more attractive. This works to make the feel sellers more comfortable in the knowledge a large deposit is potentially available if the buyer does not complete allowing the sellers to offset losses.
Sellers may require a larger deposit from a buyer to be compensated for risk if they are unsure the buyer will complete on a sale. The largest deposits I have seen in my career was 30%, but I have heard of higher deposits.
At the end of the day, a purchase deposit will be what ever buyers and sellers agree to and feel comfortable with, but typically it is 5% in standard practice.
Who is a deposit made out to?
In British Columbia, the purchase deposit can only be submitted in the form of a bank draft (AGAIN – No personal cheques or certified cheques) or wire transfer and is typically made out to the buyers agents office name followed by the words “In Trust”.
So if I am representing the Buyers, a Buyers house purchase draft made out to “Oakwyn Realty LTD. In Trust”.
The fact that it says “In Trust” means the deposit can only be submitted into the buyers agents brokerages trust account and not the brokerages general account.
There are variations as to whom and when a house purchase deposit is paid and this usually to do with the type of transaction and how the deal is structured. Generally with most transactions, deposits will be made out in the manner above.
In some cases the deposit may be paid directly to the sellers with an accepted offer or upon subject removal and will therefore be made out in the names of the sellers.
Also, in some situations a deposit may be submitted to the sellers agents trust account or to a lawyers trust account, but this is quite rare.
Real estate offers ARE NEVER supposed to be made out to a Realtor who is representing a client in the transaction.
house purchase draft made out to
How is a real estate deposit paid in Vancouver?
In most transactions, the bank draft is submitted to the buyers agents office as soon as its received.
If a deposit is late, this could be seen as a breach of contract. See above for more explanation of a late deposit on a house
If there is a wire transfer, the buyer and seller need confirmation that the wire was sent and received.
Can a buyer lose their deposit when buying a property?
If the Buyer removes their subjects and the Buyer does not Complete the transaction on the Completion Date or move forward with the deal, there may be a chance the Seller could keep the Buyers deposit (confirm this with a lawyer).
An example of this situation would be as follows:
A buyer gets an accepted offer on a property, they remove their subjects on the purchase contract.
In the run up to the completion date the buyer’s lender tells them they cannot get a mortgage.
The buyers cannot borrow money from anyone else and cannot complete the purchase of the property on the completion date.
In that situation, the seller could take the (Please consult with a qualified lawyer if you are in this situation) buyers deposit.
The key to avoiding this situation is to hire a qualified Realtor and/or lawyer to assist in the purchase of a property and to work with a reputable lender if a mortgage is required.
Who holds the deposit on a house purchase?
Whoever the buyer and seller agree to hold the deposit on a house will hold it.
That said, in British Columbia the deposit money in a property purchase is typically held by the buyers agents Real Estate office.
The real estate office of the buyers agents office hold the deposit in their Trust Account.
The buyers real estate office does not hold the deposit funds on behalf of the buyers or the sellers, but as a neutral stakeholder.
Deposits can also be given directly to sellers with an accepted offer or on subject removal or can held by lawyers assisting the parties to the contract.
In the vast majority of real estate transactions after subject removal, deposits held by the buyers real estate office trust account until completion. Upon completion these funds are released to the lawyers conveying title from seller to buyer.
Is the buyers deposit safe when putting a deposit on a property?
In real estate brokerage trust accounts, deposits are quite safe and are vigorously regulated by the British Columbia Financial Services Authority (BCFSA).
Money held by a real estate office’s trust account can only be released under three circumstances:
- The Contract of Purchase and Sale Completes (ie the deal goes through) at the Land Titles Office and the property in question is sold to the buyer. The deposit money held in the Trust Account will be released to the Seller along with the rest of the purchase price.
- The Contract of Purchase and Sale does NOT complete (ie the deal does not go through) due to the fault of the seller and the buyer may be able to get their deposit back (confirm this with a lawyer).
- If there is a legal dispute that goes to Court between Buyer and Seller the Deposit can be paid into Court.
Why is the real estate deposit held in Trust?
Deposits are held in the trust account to protect the funds from theft and loss and to make sure they are still available upon Completion or when required by the Contract.
The deposit money is held in the trust account at the buyers agents office even if the buyers agents office shuts down, goes bankrupt, or in any way ceases to exist or do business.
Deposits given directly to sellers upon subject removal or with with an accepted offer may not be as safe as having the deposit held in the buyers agents trust account.
The risk in this situation is that if a seller decides not to complete on a sale, the buyer may be forced to use legal means to have the seller move forward with a transaction or to get the deposit back with can be extremely expensive and time consuming.
What if the Buyer Fails to Pay the Deposit?
Lets say a buyer gets involved in a multiple offer situation and in the heat of the moment pays a very high price for a property. The offer submitted was a subject free offer. The seller accepts and there is a legally binding contract between buyer and seller. The purchase contract stipulates that the buyer submit their offer within 24 hours of an accepted offer. That evening the buyer speaks to a trusted friend who questions the price paid for the property. The next day when the buyer is required to pay their deposit, they decide not to submit their deposit and want to kill the deal because they paid too much.
This is very risky course of action for the buyer and could result in the buyer being successfully sued by the seller for the deposit amount.
If you are in this situation it is strongly advised you seek qualified legal advice as the situation could turn very nasty very quickly for the buyer.
What is the difference between a deposit and a down payment in a home purchase?
A deposit is an initial payment near the start of the transaction to make the purchase legally binding and the ensure the buyer has enough skin in the game to make the seller comfortable to hold the property off the market until the completion date.
A down payment is typically the amount of cash a buyer comes up with in a purchase distinct from the mortgage money or other money borrowed to purchase the property. Most people buyer property with mortgages and the down payment is the buyers contribution to the purchase that is not borrowed in the form of a mortgage. The down payment is money is paid by the buyer to the lawyer/notary near the end of the transaction just before the completion date in the form of a bank draft or wire transfer. The down payment forms part of the money given to the seller in exchange for ownership of the property.
Does the deposit form part of the down payment?
Absolutely it does.
The deposit gets added to and forms part of the down payment amount the notary/lawyer who is conveying the title (the legal process of swapping title for money) gives to the seller as part of the purchase price paid by the buyer.
What happens to the Deposit when buying a House?
The deposit becomes part of the buyers down payment on the property, which as explained above the money the buyer brings to the purchase as distinct from money borrowed like a mortgage. The deposit, down payment, and all other fund including mortgage money goes to the seller on the completion in exchange for the ownership of the property.
Can the seller keep the deposit if the buyer does not complete?
There is strong chance the seller can take the buyers deposit if the buyer does not complete. If the seller already has the deposit because it was released to the seller by the buyer, the seller could possibly keep the deposit and sell the property to another buyer.
Confirm with a qualified lawyer, but the seller may be able to sue the buyer for not completing on the purchase agreement to get more money from the buyer or to force the buyer to complete the sale.
When does the seller get the deposit?
Typically, the seller gets the deposit for a real estate purchase in British Columbia on the Completion Date. The deposit money gets transferred from the buyers agents trust account to the conveyancing lawyers trust account. The deposit funds then get transferred onto the sellers agents conveyancers trust account along with the rest of the sale proceeds. Once Completion is confirmed, the seller gets a bank draft from their conveyancer for the sale proceeds.
In some cases the buyer may release the deposit to the sellers upon an accepted offer or upon subject removal or at another time. This strategy may be used when the buyer is in a multiple offer situation or other situation. Releasing the deposit to the seller before the Completion Date is not common, but does occur.
If a real estate deal falls through who gets the deposit?
This depends on who is at fault in most cases (confirm with a qualified lawyer for more details). If the buyer is the reason the deal falls through and the seller has done nothing wrong, the buyer, according to a recent clarification by the B.C. Court of Appeal, will lose their deposit and the seller will be able to keep it.
If the seller is the reason the deal collapses, the buyer may be able to get their deposit back. Please note – we are not lawyers and are not qualified to give legal advice, please consult with a qualified lawyer for to confirm exactly what happens to deposits if a real estate transaction falls through.
The Home Buyer Rescission Period (HBPR) and Real Estate Deposits Rules in BC
The BC Home Buyer Rescission Period (HBPR), effective from January 3, 2023, offers homebuyers in British Columbia a three-day “Cooling Off Period” after signing a residential real estate contract. If a buyer chooses to rescind their offer within this window, they’re obligated to pay a rescission fee of 0.25% of the agreed sale price to the seller.
The key financial implication revolves around the deposit. If a buyer has already paid a deposit and exercises their right of rescission, the seller’s portion of the rescission fee (0.25% of the sale price) is deducted from this deposit by the holding brokerage. The remaining balance is then returned to the buyer. If the buyer hasn’t yet paid a deposit, they must promptly pay the rescission fee to the seller, specifically within 14 days after exercising their rescission right.
This regulation, while providing a safety net for buyers, introduces new financial considerations, especially concerning the deposit. Both buyers and sellers need to be acutely aware of these implications when navigating the BC real estate market.
Are presale deposits the same as the deposit on a house?
Presale condo condo deposits are very different and are governed by some legislation called REDMA.
Real Estate Deposit Rules BC – What Happens When They are Broken?
In British Columbia (BC), real estate transactions are guided by stringent rules and regulations to ensure fairness and transparency for all parties involved. One crucial aspect of these transactions is the deposit, which signifies a buyer’s serious intention to purchase and is typically held in trust until completion.
If a buyer breaches the contract, the seller may be entitled to retain the deposit as a form of compensation. The deposit may be forfeited even if the seller has not suffered any quantifiable damages. This can act as a significant deterrent for buyers who might consider backing out of a deal without a valid reason.
On the other hand, if a seller wrongfully withholds the deposit or violates other contract terms, they could face legal consequences and may have to return the deposit with possible additional damages to the buyer. The British Columbia Financial Services Agency and the Real Estate Services Act provide oversight and establish guidelines to ensure ethical conduct for both Realtors and buyers in terms of the real estate deposit rules BC requires.
Breaking deposit rules can lead to disputes. In such cases, mediation or litigation might be necessary to resolve the matter. Both buyers and sellers are advised to understand these rules thoroughly and seek legal advice to navigate complexities.
Deposit on a House in BC FAQ
What is a real estate deposit?
- A deposit is an initial payment made by the buyer to signify their commitment to the property purchase. It provides assurance to the seller against non-serious inquiries.
Why are there deposits for property purchases?
- Deposits ensure both buyers and sellers fulfill their promises in the contract. If a buyer doesn’t proceed as agreed, the seller might keep the deposit.
How can I pay a deposit?
- Deposits are typically paid via bank draft or wire transfer and are held in the Buyer’s Agent’s brokerage trust account.
Are personal or certified cheques acceptable for deposits in BC?
- No, they are not acceptable.
Can I use cash for a deposit in Canada?
- Technically, yes, but in practice, Realtors often don’t accept cash deposits due to regulatory risks and other hassles.
When is a deposit typically paid in Vancouver?
- The deposit is usually paid on or within 24 hours of the subject removal date.
Can I submit deposit late?
- No. Late payment can lead to repudiation of the purchase contract and potential legal actions.
How much is the typical deposit amount in the Vancouver real estate market?
- The standard deposit amount is 5% of the initial asking price, but this can vary based on negotiations.
Who holds the deposit during a house purchase?
- Typically, the buyer’s agent’s real estate office holds the deposit in their Trust Account.
Is the buyer’s deposit safe?
- Yes, deposits in real estate brokerage trust accounts are regulated by the British Columbia Financial Services Authority (BCFSA) and are released only under specific circumstances.
What’s the difference between a deposit and a down payment?
- A deposit is an initial payment to make the purchase binding, while a down payment is the buyer’s cash contribution to the purchase, excluding borrowed funds like a mortgage.
Does the deposit form part of the down payment?
- Yes, the deposit is added to and forms part of the down payment amount.
What happens if a real estate deal falls through?
- Depending on who’s at fault, the deposit might be returned to the buyer or kept by the seller. It’s essential to consult with a qualified lawyer in such situations.
Check out the Next Episode First Time Home Buyers Guide 10 – Completion, Adjustment, and Possession Dates with Video
In our previous Episode, we discussed Price on the Contract of Purchase and Sale
First Time Buyer? Questions? Call Mike Stewart at 604-763-3136 or send an EMAIL!
Looking for New Presale Investment Condos in Vancouver? Check out these Presales in Vancouver!
Need Advice on Selling a Condo in Vancouver? Check out Mike’s Advice for Selling a Vancouver Condo!