Earnest Money and Escrow: Trust Account Rules for the Alberta Real Estate Exam

Last updated: April 2026

When preparing for your real estate licensing journey in Alberta, navigating industry terminology is just as important as understanding the law. You have likely heard the terms "earnest money" and "escrow" used frequently in real estate media, podcasts, and online forums. However, for the purpose of the provincial licensing exam, you must understand how these concepts legally translate into Deposits and Trust Accounts under the rules established by the Real Estate Council of Alberta (RECA).

This mini-article will break down the strict regulatory frameworks governing how client funds are handled in Alberta. For a broader look at your overall exam preparation, be sure to bookmark our Complete Alberta Real Estate Associate Exam Exam Guide.

Demystifying the Terminology: Earnest Money vs. Deposits

In many parts of the United States, the funds a buyer puts forward to demonstrate their serious intent to purchase a property are called "earnest money." In Alberta, the Real Estate Act and standard industry forms refer to this exclusively as a Deposit.

The deposit serves as a show of good faith. When a buyer writes an offer on a standard Alberta Real Estate Association (AREA) Residential Purchase Contract, they will outline the exact amount of the initial deposit and the timeline for when it will be delivered. If the buyer defaults on the contract after all conditions are waived, the seller may be entitled to keep this deposit as liquidated damages.

How Much is a Typical Deposit in Alberta?

While there is no legally mandated minimum deposit required by the Real Estate Act, industry norms dictate that a deposit should be substantial enough to show genuine intent. It typically ranges from 1% to 5% of the purchase price, though this fluctuates based on the market conditions (e.g., higher deposits are common in multiple-offer scenarios).

Typical Real Estate Deposits by Property Value in Alberta

Note: The deposit forms the very first portion of the buyer's overall down payment. To understand how deposits factor into final mortgage calculations, review our guide on Alberta Associate Loan-to-Value and Down Payment Calculations.

Escrow in Alberta: Understanding Brokerage Trust Accounts

Similar to "earnest money," the term "escrow" is rarely used in official Alberta real estate legal documentation. When Americans talk about a property being "in escrow," they are referring to a neutral third party holding funds and documents until closing. In Alberta, this function is performed through strictly regulated Trust Accounts maintained by real estate brokerages or real estate lawyers.

Under the Real Estate Act Rules, any money received by a real estate brokerage in trust for a client or another party must be deposited into a designated brokerage trust account. This ensures that client funds are completely insulated from the brokerage's general operating funds. Commingling (mixing) trust funds with general operating funds is a severe violation of RECA rules and can result in immediate license suspension.

Timelines for Depositing Trust Funds

As a real estate associate, you are the front line of compliance. When you receive a deposit cheque or a bank draft from a buyer, you cannot hold onto it indefinitely. The rules require strict adherence to timelines:

Delivery to Brokerage: Associates must turn over trust funds to their brokerage in a timely manner (often immediately or within 24 hours).
Deposit into Trust: The brokerage must deposit the funds into the trust account within the timeframe specified in the purchase contract. The standard AREA contract typically requires the deposit to be delivered "upon acceptance" or within a specified number of days (e.g., 2 or 3 business days) after acceptance.

Interest on Trust Accounts and the AREF

A common exam question revolves around what happens to the interest generated by millions of dollars sitting in brokerage trust accounts. According to the Real Estate Act, unless otherwise agreed to in writing by the parties, the interest earned on real estate brokerage trust accounts does not go to the buyer, the seller, or the brokerage.

Instead, the interest is remitted to the Alberta Real Estate Foundation (AREF). The AREF uses these funds to support industry research, education, law reform, and housing initiatives across the province.

Disbursement of Trust Funds: When Can Money Be Released?

One of the most critical concepts you will be tested on during the Alberta Real Estate Associate Exam is the rules surrounding the disbursement (release) of trust funds. A brokerage cannot simply release a deposit because one party demands it. Under RECA rules, trust funds can only be disbursed under three specific conditions:

Successful Completion of the Transaction: The transaction closes successfully, and the deposit is forwarded to the seller's lawyer to form part of the purchase price.
Mutual Consent: Both the buyer and the seller sign a mutual release agreement (often an AREA form) explicitly instructing the brokerage on how to disburse the funds. This happens if a deal falls through due to an unfulfilled condition (e.g., a failed home inspection) and both parties agree the buyer gets their money back.
Court Order: If the buyer and seller cannot agree on who gets the deposit (e.g., the buyer defaults, but refuses to release the funds to the seller), the brokerage must leave the money in the trust account. The funds can only be released once a judge issues a court order, or the parties eventually reach a mutual agreement.

Practical Exam Scenario: The Collapsed Deal

To help you prepare for the situational questions you will encounter, consider the following scenario:

Scenario: Buyer Bob enters into a purchase contract with Seller Sue. Bob provides a $15,000 deposit, which is placed in the buyer brokerage's trust account. The contract is subject to a financing condition. Bob fails to secure financing by the condition day and provides written notice that he will not be waiving the condition. Sue is angry and demands the brokerage give her the $15,000 deposit for wasting her time.

Exam Application: Can the brokerage release the funds to Sue? No. Because the contract fell through based on a legitimate, un-waived condition, the contract is at an end, and the deposit legally belongs to Bob. However, the brokerage still needs a signed mutual release from both Bob and Sue to disburse the funds. If Sue stubbornly refuses to sign the release, the brokerage must hold the funds in trust until a court orders the release, or Sue eventually signs.

Preparing for the Exam Structure

Understanding the nuances of trust accounts, deposits, and RECA's regulatory framework is vital for passing the exam. These topics are heavily featured in the practice and law portions of the test. To better understand how these questions will be presented to you, take a moment to review our guide on the Alberta Associate Exam Format and Structure Overview.

Frequently Asked Questions (FAQs)

1. Does the buyer have to provide the deposit on the exact day they write the offer?

Not necessarily. The timing of the deposit is entirely negotiable and is stipulated in the residential purchase contract. It is common to see deposits due within 2 to 3 business days of the contract being accepted, giving the buyer time to transfer funds or obtain a bank draft.

2. Can a real estate associate hold the deposit cheque in their personal bank account temporarily?

Absolutely not. This is considered commingling of funds and is a severe breach of the Real Estate Act Rules. All trust funds must be handled exclusively through the brokerage's designated trust account.

3. What happens if a deposit cheque bounces?

If a deposit cheque is returned due to non-sufficient funds (NSF), the brokerage must immediately notify the seller's representative. A bounced cheque is a breach of the contract terms, and the seller may choose to terminate the contract or demand immediate replacement funds (usually via certified cheque or bank draft).

4. Can a seller's brokerage hold the deposit instead of the buyer's brokerage?

Yes. While it is standard practice in Alberta for the buyer's brokerage to hold the deposit in trust, the parties can agree in the purchase contract that the seller's brokerage, or even a real estate lawyer, will hold the funds in trust.

5. Will the exam use the word "Escrow" or "Trust Account"?

The Alberta Real Estate Associate Exam is strictly based on Alberta legislation and RECA guidelines. Therefore, the exam will use the terms "Trust Account" and "Deposit." You should understand what escrow and earnest money mean to communicate with out-of-province clients, but stick to Alberta terminology for the exam.