Who should hold real estate deposits?

In other articles, I have spent much time explaining what deposits are and how to handle them, but it occurred to me that I have never really taken the time to explain the thought process around who may be best to hold deposits. Let’s consider that question today and the best practices around who the deposit holder should be.

The Trustee

The term used for the individual who holds the deposit on behalf of, or in trust for a beneficiary is called a trustee. The Trustee is governed by the Trustee Act of Alberta but more importantly, the trustee must follow the terms of trust established by the beneficial parties. The terms of trust in an AREA residential resale purchase contract for example are found in section 4 of the contract where both the seller and buyer, as the beneficial parties, agree to how the trustee must act concerning the trust deposit and any resulting disputes. For the sake of the issue at hand, however, suffice it to say that anyone the parties agree is capable of holding the trust, and following the terms of trust can be named the trustee. The real estate act and the contract additionally require the trustee to make the deposit to a trust account within 3 business days of receipt of the deposit.

Brokerage as a trustee

In the vast majority of real estate transactions in Alberta, either the seller’s or buyer’s brokerage is named as the trustee of the deposit money. Once this happens, the brokerage is governed by other obligations under the Real Estate Act and its Rules to ensure the handling of the trust money is done properly. Real Estate brokerages have requirements to reconcile their trust accounts every month at minimum, as well as have an independent trust audit conducted annually by a chartered accountant which gets reported to the Real Estate Council of Alberta. As an added measure of consumer protection, the Real Estate Council of Alberta also maintains a consumer protection fund as outlined in the Act covering situations of fraud or breach of trust. Since brokerage trust accounts are so heavily regulated and protected, consumers can feel confident that a brokerage licensed by the Real Estate Council of Alberta is a reliable trustee of deposits for real estate transactions. It should be noted that not all Alberta brokerages have trust accounts or hold trust deposits, so that can sometimes be a determining factor of who holds the deposit as well.

Conveyancing

There is certainly more involved in closing a transaction than simply holding the trust deposit, and when a brokerage does hold the deposits, there are additional duties required to communicate to stakeholders such as cooperating brokerages and lawyers. This activity is generally referred to as conveyancing and ensures all the necessary parties know the status of the transaction, and the expectations around timelines to ensure a smooth closing for the parties. The conveyancing brokerage can be different from the brokerage holding the trust, but for practical reasons, it is most common for the brokerage holding the trust to also convey the documents as well.

Best practice

So with all the variables discussed here, what is the best practice for the smoothest transaction with the least number of complications?? Although different regions may practice differently, and some circumstances warrant an alternate option, the recommended best practice is for the Seller’s brokerage to hold the trust and also do the conveyancing. It is clear that the brokerage with the greatest line of sight on the transaction is the brokerage that holds the property listing. Since the property is the main subject of the contract itself, and the seller needs to release it ultimately to the buyer, the seller’s brokerage is able to best communicate accurate and timely information to the seller, as well as all stakeholders on behalf of the seller. Whether you consider the movement of excess deposit money to the lawyers, fees payable to the brokerages, or the management of keys, the seller’s brokerage has the best access to the seller and the best view of the whole landscape of the transaction.?

Although it is possible to change up who holds the deposit or does the conveyancing in the AREA standard purchase contracts, years of real estate experience concludes that the path of least complication for the brokerages, REALTORS?, and consumers alike is for the seller’s brokerage to hold the deposits and manage the conveyancing. Because these decisions are transaction specific, however, always discuss with the broker to ensure best practice for your situation.

Bryan Statt

Provincial Practice Advisor

Bryan has many years of experience in the real estate industry, including over ten years as a former broker in the Edmonton Region.