When to Pay the Deposit When Buying a House

Understanding the deposit payment process not only secures the property but also sets the tone for a smooth transaction. It empowers both sides to navigate the journey with confidence and clarity, paving the way for a successful property transfer, especially when buying your first house.

This article will outline the ins and outs of deposit requirements in NSW, including amounts, timelines, methods and potential repercussions for non-compliance, which can save parties from costly misunderstandings and legal complications.

At Owen Hodge, we understand that every client has unique circumstances that can affect their property transaction. To ensure that you receive comprehensive, reliable support that is tailored to your unique needs, get in touch with our expert property team today.

 

What exactly is a deposit?

A deposit is a sum of money paid by a buyer to demonstrate their commitment to purchasing a property. It is typically, a percentage of the total purchase price, the deposit is submitted when an offer is accepted and serves to secure the buyer’s interest, as well as ensure a successful sale.

1. Commitment and Risk Mitigation
   Deposits demonstrate the buyer’s commitment and protect the seller against potential financial loss if the buyer backs out of the transaction.
2. Seller Benefits
   Sellers benefit from deposits as they offer financial assurance, reduce market time by securing a serious buyer, and provide negotiation leverage throughout the process.
3. Buyer Benefits
   For buyers, deposits secure their interest in the property and provide peace of mind, knowing the funds are held in trust until the sale is finalized.

 

When is the best time to pay the deposit?

Contract signing

The deposit is typically due at the time of signing the contract of sale, usually required immediately or within 24 to 48 hours. This payment, often a percentage of the purchase price, secures the buyer’s interest in the property and demonstrates their commitment to the deal.

Cooling-off period

In NSW, the cooling-off period allows buyers five business days to reconsider their decision after signing the contract. During this time, they typically pay a smaller deposit, around 0.25% of the purchase price, which reflects their option to withdraw without significant penalty. If the buyer chooses to proceed after this period, the deposit is adjusted to the standard amount of around 10%.

Settlement date

After the buyer pays the deposit—usually around 10% of the purchase price—the process moves forward with necessary steps like property inspections, securing financing, and legal reviews. This period can last from a few weeks to a few months, depending on the deal. On the settlement date, the remaining balance is paid, and ownership is transferred.

 

How is the deposit paid off?

Bank transfer

The process of paying the deposit via bank transfer includes.

1. Obtain Bank Details
   The seller’s agent or solicitor provides the buyer with the necessary bank account details for the deposit.
2. Initiate the Transfer
   The buyer uses their banking app or online banking to transfer the deposit, ensuring they double-check the account information.
3. Documentation
   The buyer may need to send a copy of the transfer receipt as proof of payment.
4. Notify Parties
   After the transfer, the buyer should inform the seller’s agent or solicitor that the payment has been made.
5. Trust Account
   The deposit is held in a trust account by the agent or solicitor until the settlement date, when it is applied to the purchase price.

Bank cheque

Using a bank cheque for deposit payment is a secure method in property transactions.

1. Obtaining the bank cheque
   The buyer obtains a bank cheque from their bank, which guarantees the funds by transferring the deposit amount to the bank.
2. Security and assurance
   This provides assurance to the seller that the payment is secure and available.
3. Documentation
   Buyers should keep a copy of the bank cheque and any transaction receipts for their records.
4. Delivery
   Buyers should deliver the cheque to the seller or their agent promptly, either in person or by mail.
5. Considerations
   It’s important to ensure the cheque is filled out correctly to avoid issues and whilst bank cheques are reliable, buyers should also consider any fees associated with issuing the cheque.

Trust account

Trust funds provide a secure and regulated way to manage deposit payments during a property transaction.

1. Safeguarding funds
   They safeguard client deposits by keeping them separate from the solicitor’s or real estate agent’s operating funds, ensuring that the money is used solely for its intended purpose.
2. Compliance and regulation
   These accounts comply with strict legal and regulatory requirements, offering transparency and accountability.
3. Facilitating transactions
   Deposits held in trust accounts are available for application toward the purchase price at settlement, streamlining the transaction process.
4. Dispute resolution
   In case of disputes, trust accounts provide a clear record of payments, aiding in conflict resolution.
5.  Interest earnings
   Additionally, interest earned on these funds may be allocated to community services or other designated purposes.

 

Contractual obligations involved

making both parties legally obligated to adhere to the contract terms. If the buyer withdraws after paying the deposit, they may forfeit it as a penalty, reinforcing their commitment. Additionally, the deposit gives the seller leverage in negotiations and strengthens the enforceability of the contract’s terms.

Deposit forfeiture can occur in several circumstances during a property transaction, typically serving as a penalty for the buyer’s failure to proceed with the purchase. Key scenarios include withdrawing from the contract after signing, which usually risks losing the deposit unless the buyer has a valid reason; failing to meet specific conditions outlined in the contract, such as securing financing or completing inspections; and breaching any contract terms, which can lead to forfeiture. Additionally, in some regions, buyers may forfeit a portion of the deposit even during a cooling-off period if they choose to withdraw. Lastly, if the buyer does not complete the settlement on the agreed date without valid reasons, they also risk losing their deposit.

 

Is the deposit refundable?

During the cooling-off period, buyers have several important rights and obligations. They have the right to reconsider their decision to purchase the property for five business days, allowing them time to conduct inspections and seek legal advice. If a buyer decides to withdraw during this period, they can do so without facing significant penalties but typically forfeit a small portion of the deposit, usually around 0.25% of the purchase price.

This means they are not required to pay the full deposit amount, and do get a partial refund. To withdraw, buyers must notify the seller or their agent in writing.

 

What if a dispute arises?

Disputes can arise in relation to deposit payments. If you find yourself in such circumstances, we recommend the following:

1. Review the Contract
   Start by reviewing the contract terms related to the deposit to understand your rights and obligations.
2. Communication
   Open communication between the buyer and seller is essential. Discuss the issue directly to try to reach an amicable solution.
3. Seek Legal Advice
   If communication doesn’t resolve the issue, consult a lawyer with experience in property transactions for guidance on your next steps.
4. Mediation
   If the dispute persists, consider mediation, where a neutral third party helps facilitate a resolution. This process is usually quicker and less expensive than going to court.
5. Formal Dispute Resolution
   If mediation fails, you may need to explore formal legal options like arbitration or court proceedings.
6. Documentation
   Keep detailed records of all communications and relevant documents throughout the process, as they can be crucial if the dispute escalates.

 

Owen Hodge Lawyers can help with property transactions.

This article outlined key aspects of deposit payments in property transactions. It emphasised the importance of understanding the deposit process and its role in securing the buyer’s commitment. We covered various payment methods, the function of trust accounts, and the buyer’s rights during the cooling-off period. Additionally, we discussed the implications of deposit forfeiture and how to handle disputes through legal advice and mediation, highlighting the importance of seeking advice from legal professionals to ensure compliance with all deposit requirements.

If you’re involved in a property transaction, it’s essential to fully understand the deposit payment requirements and your legal obligations. We encourage you to seek professional legal advice to ensure you comply with all relevant laws and regulations. 

Owen Hodge’s qualified property lawyers can provide valuable insights, help you navigate any complexities unique to your circumstances, and protect your interests throughout the process.