When a Home Sale Falls Through: Deposits and What Happens Next

When an accepted offer in BC doesn't make it to completion, the same questions come up every time: who keeps the deposit, can anyone be made to complete, and what happens next? Here is how it works under BC law and the standard contract, for buyers and sellers.

The short version

Who holds the deposit

The deposit is usually paid into a brokerage's trust account, either when the offer is accepted or when subjects are removed, as set out in the contract. Under the Real Estate Services Act, the brokerage holds it as a stakeholder, not as an agent for either side. That means:

• It can be released only with a written agreement signed by both buyer and seller, a court order, or under the rescission rules.
• If the parties disagree, the brokerage can apply to pay the money into the BC Supreme Court, where it stays until the parties settle or a judge decides.
• The brokerage can't decide the dispute itself, whatever the contract says about who should get the money.

When a deal ends without anyone at fault

• Subjects not met. Subject clauses aren't escape hatches. BCFSA says buyers must use every reasonable effort to satisfy them. If a condition, such as financing, can't be met despite reasonable effort, the contract ends. The deposit doesn't go back automatically, though: both parties sign a release first.
• A subject-to-sale offer. If the buyer's offer depends on selling their own home, the usual clause lets the seller keep marketing and, if another good offer comes in, give the buyer a short time, such as two business days, to remove all subjects. If the buyer can't, the contract ends.
• The rescission period. Since January 2023, a buyer can cancel within three business days of acceptance, not counting weekends and holidays, by written notice and without giving a reason. The buyer pays the seller 0.25% of the price, or $2,500 on a $1,000,000 home. If a brokerage holds the deposit, it pays that amount to the seller and returns the rest to the buyer, with no release needed. The right can't be waived, and it doesn't apply to sales under a court order, auctions or leasehold homes. Most presales instead have a separate seven-day period under the Real Estate Development Marketing Act.

When the buyer doesn't complete

Once subjects are removed, the contract is firm. BCFSA warns that a buyer who doesn't complete risks losing the deposit and being sued. Under the standard contract, time is of the essence: if the buyer doesn't pay the balance by the completion date, the seller can end the contract, and the money paid is forfeited to the seller on account of damages, without the seller giving up other remedies. A brokerage holding the deposit still needs both signatures or a court order to release it.

• The seller keeps the deposit, even without a loss. In Tang v. Zhang (2013), the buyer of a $2,030,000 home didn't complete, and the sellers resold for more. A five-judge panel of the BC Court of Appeal held that the $100,000 deposit was still forfeited to the sellers, even though they had lost nothing.
• The exception. A court can give relief if a deposit is so large that it amounts to a penalty, or if keeping it would be unconscionable.
• The seller can claim more. If the seller's loss is bigger than the deposit, for example because the home resells for less, the seller can sue for the difference. The deposit counts toward those damages, so there is no double recovery.
• An unpaid deposit can still be owed. In Argo Ventures v. Choi (2020), buyers of a Port Coquitlam property never paid their $300,000 deposit and refused to complete. Because the deposit had already fallen due before the seller ended the contract, the seller got judgment for the full $300,000, and the Court of Appeal upheld it.

When the seller doesn't complete

A buyer whose seller backs out can get the deposit back and sue for damages. In some cases, a court orders the seller to complete, called specific performance, but only where the property or the deal is so unique that money would not make up for losing it, and the bar is very high.

A buyer who sues to enforce the contract can also register a certificate of pending litigation on the title. Once it is registered, the land title office generally won't register new dealings with the property until it is cancelled, which makes it very hard for the seller to sell to someone else in the meantime.

Common reasons deals fall apart

• Financing. A pre-approval isn't a final approval. A buyer who removes subjects before the lender has approved the property can be caught short.
• The appraisal. If the home appraises for less than the price, the lender may lend less, and the buyer has to make up the gap.
• The buyer's own sale. If the buyer was counting on selling first and that sale collapses, their purchase can collapse too.
• Completion day. Because time is of the essence, funds that don't arrive by the completion date can give the seller the right to end the contract.

How to protect yourself

• Buyers: remove subjects only when your financing is approved for this home, keep a cushion for an appraisal gap, and line up your lawyer or notary early.
• Sellers: confirm subject removal in writing, think about the size of the deposit you ask for, and don't buy your next home on the assumption that a conditional sale will firm up.
• Both: put any change, such as a new completion date, in a written amendment signed by both sides. If you extend a date, the amendment should say that time remains of the essence, so the new date is just as firm. Get legal advice before accepting a backup offer.

Where disputes go

• BC Supreme Court: claims over $35,000, any claim to force a sale to complete, and disputed deposits a brokerage pays into court.
• Provincial Court small claims: claims from $5,001 to $35,000.
• The Civil Resolution Tribunal: most small claims up to $5,000. Most deposits are larger than that, and the tribunal can't order a home sale to complete.

BCFSA, the real estate regulator, can't award damages or force anyone to complete, so a lawyer is the right first call if a deal is falling apart.

Questions buyers and sellers often ask me

Who holds the deposit when I buy a home in BC?

Usually a brokerage, in its trust account, as a neutral stakeholder. It can release the money only with both parties' written agreement, a court order, or under the rescission rules.

If my subjects aren't met, do I get my deposit back?

Generally yes. The contract ends, and once both you and the seller sign a release, the deposit is returned. You must make a reasonable effort to satisfy your subjects.

What does it cost to back out within the rescission period?

0.25% of the purchase price, which is $2,500 on a $1,000,000 home, paid to the seller. If a brokerage holds your deposit, it pays the seller and returns the rest to you.

Can a seller keep the deposit even after reselling for more?

Yes. In Tang v. Zhang (2013), the BC Court of Appeal held that a buyer who didn't complete forfeited a $100,000 deposit even though the sellers resold for more. The exception is a deposit so large that it amounts to a penalty.

Can a buyer force a seller to complete?

Only rarely. A court orders specific performance only where the property or the deal is so unique that money would not make up for losing it. A buyer can sue for damages instead, and a buyer who sues to force the sale to complete can register a certificate of pending litigation on title.

Know the steps before you start: read From Offer to Keys, the BC selling process from listing to completion and Buying and Selling at the Same Time.

This article is general information, not legal advice. If a deal is falling through, speak with a lawyer right away. For BCFSA's guide, see deposits.