The Current Standard Practice
In most real estate transactions, the listing brokerage holds the deposit in trust once an offer is accepted. These funds are placed in a regulated real estate trust account, which is subject to provincial laws and auditing requirements to ensure compliance and security. This process is designed to protect both buyers and sellers, ensuring that the deposit cannot be misused or accessed outside of the agreed-upon conditions of the transaction.
For the seller, having their brokerage hold the deposit provides a sense of control and assurance that the funds are secure and readily available upon closing or in the event of a breach of contract. For the buyer, this has traditionally been accepted as standard practice.
When Trust Becomes an Issue
Despite strong regulatory safeguards, there are instances where buyers or their representatives may have concerns about the deposit being held by the listing brokerage. These concerns could stem from a lack of familiarity with the brokerage, negative past experiences, or even broader trust issues within the industry. In rare cases, insolvency concerns or disputes involving the listing brokerage may also play a role.
When these situations arise, buyers and cooperating agents often seek alternative solutions that maintain compliance with the law while addressing their comfort and security needs. One such solution is to specify, within the Agreement of Purchase and Sale (APS), that the deposit will be held in trust by the buyer’s brokerage instead of the listing brokerage.
Is This Permitted?
Yes, this is absolutely permitted under Canadian real estate regulations, provided it is clearly stated in the offer and agreed to by all parties. The APS must explicitly specify that the deposit will be held in trust by the cooperating brokerage. For example:
“The deposit shall be held in trust by [Cooperating Brokerage Name] in accordance with the Real Estate and Business Brokers Act, 2002 (or applicable provincial legislation) until completion or other lawful release.”
Both brokerages must ensure that the deposit remains in a designated real estate trust account and that all regulatory requirements are met.
Why Choose This Alternative?
Opting for the buyer’s brokerage to hold the deposit can offer several benefits:
- Consumer Confidence: Buyers may feel more secure when their deposit is held by a brokerage they know and trust.
- Risk Management: In cases where there are concerns about the listing brokerage’s stability or reputation, this arrangement can reduce perceived risk.
- Transparency and Fairness: This option demonstrates flexibility and consideration for both parties’ interests.
Important Considerations
While this alternative is legal and practical, there are important considerations to keep in mind:
- Seller’s Consent: The seller must agree to this arrangement, as it deviates from the traditional practice.
- Release of Deposit: Regardless of which brokerage holds the funds, a mutual release or court order is still required in the event of a dispute.
- Professional Communication: How this request is presented matters. Positioning it as a consumer protection measure rather than a mistrust of the listing brokerage can help maintain a positive negotiation environment.
A Step Toward Greater Transparency
As the real estate industry continues to evolve, it is essential to offer consumers choices that enhance confidence and security. Allowing deposits to be held by the cooperating brokerage, when agreed upon by both parties, is a practical and regulatory-compliant solution that addresses trust concerns without compromising the integrity of the transaction.
By adopting flexible practices that prioritize transparency and consumer protection, we not only strengthen client relationships but also elevate professional standards across the industry. At the end of the day, real estate is built on trust – and any measure that reinforces that trust is worth considering.
***Another potential option is to have deposits held in trust by lawyers. However, we will explore this further after consulting with legal professionals to ensure accuracy and compliance before providing guidance on this solution.
