What is a deposit?
Often buyers can be confused in believing the deposit is an additional payment on top of the contract purchase price. The Deposit is in fact part payment of the contract purchase price. It is paid before settlement to demonstrate the buyer’s willingness to proceed with the purchase.
When do I have to pay the deposit?
Payment of the deposit is typically paid in two amounts. The initial deposit is a smaller payment made around the time you sign the contract and provides a small but lower risk incentive to complete the contract conditions. The balance deposit is a larger payment typically due once all (or an essential term) of the conditions are satisfied. It is a payment to show the buyer’s good faith to complete all the tasks necessary to settle the contract.
The due dates to pay the deposit will be stated in the contract. If a buyer does not pay their deposit by the due date then the seller may terminate the contract and the buyer will considered to be in default. Please see item 3 of our recent article regarding notices required to be given by the seller if a deposit has been paid electronically but not received by the due date.
Who is the deposit paid to?
The deposit is paid to a deposit holder. The contract will provide who will be holding the deposit but typically it is a party other than the seller or buyer, and is commonly the real estate agent listed on the contract or the seller’s solicitor. The deposit holder will hold on to the deposit until authorised by both the buyer and seller to release it to whomever it entitled to it (typically when the contract is either terminated or settles).
How can I pay the deposit?
The most common method of paying the deposit is by direct debit (done by either EFT or attending a bank branch to authorise the payment). Other payment methods include by cheque or cash.
If paying by direct debit, keep in mind that the debit payment can take a couple of days to transfer into the receiver’s account. From 20 January 2022, REIQ contracts (the most common form of contracts) will clarify how you can pay a deposit by direct debit. The amendment will provide that if a buyer pays the deposit by direct debit, than the date of the debit payment is the day the deposit will be considered as being paid. However, you will need to provide the deposit holder a copy of evidence of payment, for example a screenshot of an online payment receipt.
If a buyer is intending to pay the deposit by cheque or cash, then the amount must be provided to the deposit holder on the deposit due date.
If you do not have the deposit monies readily available to pay, you may be able to arrange a bank guarantee or deposit bond.
Is the Deposit Refundable if I Change My Mind on the Contract?
Based on your reason for terminating the contract, your deposit may be refundable. If a buyer terminates the contract because an essential condition (such as building and pest or finance) cannot be satisfied, then the deposit will be refunded to the buyer in full.
If a buyer terminates the contract during the cooling-off period, then the deposit will be refunded to the buyer, however not all of it may be refunded to the buyer. If a contract is terminated during the cooling-off period, then the seller is entitled to 0.25% of the contract purchase price. As the initial deposit price will be typically more than 0.25%, the seller will claim their entitlement from the already paid initial deposit.
Who receives the deposit after the Contract
The following situations will provide details of who receives the deposit:
- The Contract settles – the seller receives the whole deposit;
- The Contract is terminated during the cooling-off period – the buyer receives the deposit paid less 0.25% of the contract purchase price;
- The Contract is terminated because the building and pest condition is not satisfied – the buyer receives the deposit already paid;
- The Contract is terminated because the finance condition is not satisfied – the buyer receives the deposit already paid;
- The Contract is terminated because the buyer could not settle by the settlement date – the seller receives the whole deposit;
- The Contract is terminated because the seller could not settle by the settlement date – the buyer receives the deposit already paid.
If you have any questions or require assistance with a conveyancing matter or a deposit payable in one then please contact the property team at My Property Protect for more information.
Kayleigh Swift, Associate
Chloe Skubis, Graduate Law Clerk
About the authors
Kayleigh Swift is an associate in our Commercial and Property team who assists with Employment Law matters. With a high level of experience in commercial and retail leasing, voluntary and involuntary purchase and sale acquisitions, property development and employee relations, Kayleigh provides practical advice to ensure smooth business transactions.
Chloe Skubis is a Graduate Law Clerk in our Property team who assists with various conveyancing transactions. Chloe is very experienced in residential conveyancing and is a problem solver. She always provides efficient service to all her clients.
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