After signing a contract of sale, as the purchaser, you are required to pay a deposit at exchange of the contract.
Deposits in NSW
The deposit is usually 10% of the purchase price, but this can vary when the buyer and seller negotiate a different amount.
In New South Wales, you would typically first pay the minimum deposit (0.25% of the purchaser price) when your offer is accepted. The remainder of the deposit is then paid when the contract is exchanged or at a later date.
Deposits may be in the form of a direct bank deposit or bank cheque. In some instances, the seller may accept a deposit bond.
Who holds the deposit?
The deposit is paid to the real estate agent or the seller’s solicitor, who holds the deposit on trust until settlement. Once settlement has been completed, the agent or the seller’s solicitor will release the deposit to the seller. Typically, the agent will deduct their expenses and commission from the deposit, and the balance will be released to the seller.
In some circumstances, the deposit can be held in an interest-bearing account This is commonly done for off-the-plan purchases, or properties with a longer settlement period.
Special Conditions in the contract
The seller may add a clause in the contract that allows for the deposit to be released to them before settlement occurs. This clause can specify the reasons for the early release of the deposit, or general outlines about how the seller can use the deposit.
Your solicitor or conveyancer can review your contract for you and advise on any special conditions regarding the release of the deposit.
Note in NSW, the deposit cannot be released before settlement for off-the-plan contracts entered into on and from 1 December 2019.
Reason for the early deposit release
The release of deposit clause in NSW allows the seller to access funds they may require before the settlement is complete. For example, the seller may want the deposit before settlement to pay for a deposit or stamp duty on their next property.
Risks to the purchaser
In the event the contract comes to an end, it may be difficult to recover the deposit from the seller. For example, if the seller has used the deposit, it may take lengthy and costly legal action to recover it.
Contact W Legal Group
If you’re concerned about any issues regarding an early deposit release in your property purchase, contact W Legal Group to speak to our friendly team of experts.
