Do You Lose Your Deposit If You Back Out of an Alberta Home Purchase?

You signed an offer, paid a deposit, and now you are having second thoughts. Maybe the inspection turned up problems, maybe the financing fell through, or maybe your plans changed. The first worry is usually the same: is the deposit gone?

The answer depends on what your contract says and why you want out. This article explains where the deposit sits, how it can be released, and what to check before you act.

This article covers the law of Alberta.

Who holds the deposit?

In many purchases, the deposit goes to a real estate brokerage, which must treat it as trust money. A licensee must deposit trust money in an interest-bearing account at a bank, loan corporation, trust corporation, credit union or treasury branch, in the licensee's name and designated as a trust account. The licensee must also keep it separate from their own money.

Trust money must be deposited within 3 business days of receipt, and for money received with an offer to purchase, those 3 business days run from acceptance of the offer. Trust money must generally be kept on deposit in Alberta, with an exception for licensees with business premises in Lloydminster, who may use a local trust account.

If you bought a new home from a builder and paid the deposit to the builder, the rules differ. In that case, a buyer who paid a deposit to the builder may register a caveat on the land title to protect it.

Why the brokerage cannot just hand it back or pay it out

A brokerage may pay out trust money only in accordance with the Rules and the terms of the trust. Those terms must be in writing and agreed to by the licensee and all other parties. In practice, release follows the written terms, such as the purchase contract or a written direction, rather than one side's request.

This is why a deposit can sit in trust during a dispute. If you and the seller disagree, the brokerage generally cannot decide the matter for you. A waiver or release by the person the licensee acts for, of the trust-account duties, is void.

When is a deposit refundable, and when can the seller claim it?

The Real Estate Act and its regulation do not set a minimum condition period, and they do not say who keeps a deposit if a buyer defaults. That depends on the signed contract and on court decisions. Be wary of anyone who gives you a flat answer without reading your contract.

Some points are worth looking at in your own paperwork:

• Whether your contract has conditions, such as a home inspection or financing, and whether they are still open. Alberta government guidance says it is not unusual for a residential purchase contract to include a home inspection as a condition.
• What the contract says about how a condition is ended, waived or not satisfied.
• Whether the deposit amount and terms are written into the contract. The standard residential contract sets out the buyer, seller, property details and financing terms, including the deposit amount.
• Whether any written direction about the deposit has been signed by all parties.

If you are thinking of relying on a condition to withdraw, what happens to the deposit depends on your contract wording and the facts of your situation. How a condition must be ended is a contract-wording question worth confirming with a lawyer.

Options after an inspection

Alberta government guidance says that after an inspection a buyer may withdraw the offer, adjust the price to cover repairs needed, or move forward. Which of these you can use, and by when, depends on your contract. Buyers may also have a lawyer review the agreement before signing.

Interest earned on a deposit in a brokerage trust account is paid to the Alberta Real Estate Foundation, at least quarterly and less service charges, so the buyer and seller do not receive it.

What to do next

• Find your signed contract and every amendment, and read the conditions and the deposit terms.
• Note any dates for conditions, and do not let them pass without a decision.
• Ask the brokerage in writing where the deposit is held and whether it has been received. A brokerage must notify all parties in writing if an expected deposit is not received or a deposit cheque is not honoured.
• Do not sign a release or direction without understanding it.
• Keep emails and texts with the other side.
• Speak to a lawyer early. A claim over a deposit or breach of a purchase contract generally must be brought within 2 years after the claimant first knew, or ought to have known, of it, or 10 years after the claim arose, whichever expires first.

Frequently asked questions