Mastering Earnest Money and Escrow (Trust Accounts) in British Columbia

Last updated: April 2026

For candidates preparing for the BC Real Estate Broker Licensing Exam, understanding how funds are handled during a real estate transaction is absolutely critical. In British Columbia, the concepts commonly referred to internationally as "earnest money" and "escrow" are legally defined as deposits and statutory trust accounts. Because mishandling client funds is one of the most severe violations under the Real Estate Services Act (RESA), the BC Financial Services Authority (BCFSA) tests this topic rigorously.

This guide will break down the regulatory framework governing deposits and trust accounts in BC, providing the exact knowledge you need to pass your exam. For a broader overview of exam topics, be sure to review our Complete BC Real Estate Broker Licensing Exam Exam Guide.

Understanding Earnest Money (Deposits) in British Columbia

In BC real estate practice, "earnest money" is simply referred to as the deposit. It is a sum of money provided by the buyer to demonstrate their sincerity (good faith) in purchasing the property. When a buyer writes an offer using the standard Contract of Purchase and Sale (CPS), the deposit solidifies their commitment.

The Legal Purpose of a Deposit

Legally, a deposit is not strictly required to make a contract binding in British Columbia—the exchange of mutual promises (to buy and to sell) is sufficient consideration. However, practically speaking, sellers will rarely accept an offer without a deposit. The deposit serves as a form of liquidated damages; if the buyer breaches the contract and fails to complete the purchase, the seller may be entitled to claim the deposit without having to prove actual financial loss.

Standard Deposit Amounts in BC

Deposit amounts are negotiable, but regional norms dictate standard practices. In highly competitive markets like Greater Vancouver, a 5% deposit is standard. In less volatile or rural markets, deposits may be lower.

Typical Real Estate Deposits in BC (% of Purchase Price)

When the transaction successfully completes, the deposit forms part of the buyer's down payment. If you need to understand how the deposit affects the buyer's final financing requirements, check out our guide on loan-to-value and down payment calculations.

The Role of "Escrow" (Statutory Trust Accounts) in BC

In many US jurisdictions, earnest money is held by a neutral third-party "escrow company." In British Columbia, this function is typically fulfilled by the buyer's real estate brokerage, which holds the funds in a statutory real estate trust account. Alternatively, funds may be held in trust by a lawyer or notary public.

The Stakeholder Provision

A fundamental concept tested on the BC Broker Exam is the stakeholder provision. Under RESA, when a real estate brokerage receives a deposit in respect of a real estate transaction, the brokerage holds that money as a stakeholder, not as an agent for either the buyer or the seller.

This means the brokerage is a neutral custodian of the funds. Even if the seller demands the money because they believe the buyer breached the contract, the brokerage cannot unilaterally release the funds to the seller. The release of funds is strictly governed by Section 28 of RESA.

Regulatory Framework: RESA and BCFSA Rules

As a managing broker, you are ultimately responsible for the brokerage's trust accounts. You must be intimately familiar with the following rules under the Real Estate Services Act.

Timing of Deposits

According to RESA, any money received by a licensee in relation to real estate services must be paid into the brokerage trust account promptly. The definition of "promptly" is generally interpreted as the next business day after receipt.

However, the timing of when the buyer must pay the deposit is dictated by the Contract of Purchase and Sale. Common scenarios include:

Upon acceptance: The deposit is paid within 24 hours of the seller accepting the offer.
Upon subject removal: The deposit is paid within 24 hours of the buyer declaring all conditions (subjects) fulfilled or waived.

Interest on Trust Funds (Section 29 of RESA)

What happens to the interest earned on millions of dollars sitting in brokerage trust accounts? This is a classic exam question.

Under Section 29 of RESA, interest earned on statutory trust accounts must be paid to the Real Estate Foundation of BC (REFBC). The REFBC uses these funds to support real estate-related initiatives, education, and law reform.

Exception: The buyer and seller can agree in writing (via a separate agreement) that the deposit will be held in an interest-bearing trust account for the benefit of one of the parties (usually the buyer). However, because of the administrative burden, this is rarely done unless the deposit is exceptionally large and the completion date is far in the future.

Releasing Trust Funds (Section 28 of RESA)

A brokerage can only release trust funds under specific, legally defined circumstances. Section 28 of RESA states that money held in a trust account may only be withdrawn if:

The transaction completes (funds are forwarded to the conveyancing lawyer/notary to finalize the sale).
There is a written agreement signed by all parties (buyer and seller) authorizing the release.
There is a court order dictating who receives the funds.
The money was paid into the trust account by mistake.

If a deal collapses and the buyer and seller refuse to sign a mutual release, the deposit remains locked in the brokerage trust account indefinitely until a court resolves the dispute.

Practical Scenario: Managing the Deposit to Completion

Let’s walk through a standard BC real estate transaction scenario to see how these rules apply:

Step 1: The Offer. A buyer makes a $1,000,000 offer on a property in Kelowna, with a $50,000 deposit payable within 24 hours of subject removal.

Step 2: Subject Removal. On May 1st, the buyer removes their financing and inspection subjects. On May 2nd, the buyer delivers a $50,000 bank draft to the buyer's agent's brokerage.

Step 3: Trust Deposit. The managing broker ensures the $50,000 is deposited into the brokerage's statutory trust account promptly on May 2nd. The brokerage now holds this money as a stakeholder.

Step 4: Completion Day. Completion is set for June 15th. A few days prior, the brokerage transfers the $50,000 deposit to the buyer's conveyancing lawyer. The lawyer will use this deposit, along with the buyer's mortgage funds and remaining down payment, to pay the seller. During this conveyancing process, the lawyer will also make necessary financial adjustments. To understand how these adjustments work, review our guide on proration calculations step-by-step, as well as property tax calculation methods.

Frequently Asked Questions

1. Can a BC real estate brokerage release a deposit to the seller if the buyer wrongfully backs out of the deal?

No. Under the stakeholder provision of RESA, the brokerage cannot act as a judge. Even if the buyer is clearly in breach of contract, the brokerage cannot release the funds to the seller without either a written mutual release signed by both the buyer and seller, or a valid court order.

2. Who gets the interest earned on a real estate deposit in BC?

By default, interest earned on a brokerage's statutory trust account is remitted to the Real Estate Foundation of British Columbia (REFBC). It does not go to the buyer, the seller, or the brokerage, unless a specific written agreement was made prior to the deposit to hold it in a separate interest-bearing account for a specific party.

3. Is a deposit legally required to make a Contract of Purchase and Sale binding in BC?

No. In British Columbia contract law, the mutual exchange of promises (the promise to transfer the title and the promise to pay the purchase price) constitutes sufficient legal consideration. A contract without a deposit can still be legally binding, though it is highly unusual and risky for the seller.

4. What happens if a buyer's deposit cheque bounces?

If a deposit cheque is returned NSF (Non-Sufficient Funds), the brokerage must immediately notify all parties to the contract (the seller, via their agent). The buyer is technically in breach of the contract terms. The seller may choose to collapse the deal or grant the buyer an extension to provide certified funds.

5. Can a deposit be paid directly to the seller instead of a trust account?

While a buyer and seller can legally agree to have the deposit paid directly to the seller, it is highly discouraged and rarely done in BC. If the deposit is paid directly to the seller and the seller defaults on the contract, the buyer's money is at severe risk, as it is not protected by a statutory trust account.