How Large A Deposit Should I Pay When Purchasing Land?
Written by: Nancy Roberston | Legal Team
Buying property is a huge milestone for everyone, whether it’s your first home, an investment property, or you’ve decided to upsize/downsize, it’s a time in your life filled with choice, stress and mixed emotions. It can either be a wonderful window shop of perusing which property might become your dream home, or a tense search for a place to live, but whether it’s the former or the latter, one fact remains true.
Unless you’re paying the entirety of the purchase price, you will be paying a deposit!
When you’re purchasing a property, the deposit is generally 10% of the purchase price, sometimes 5%. However, the amount can differ depending on what has been negotiated with the vendor (Seller of the property). The amount of the deposit is a decision made as part of the sale negotiations and is usually payable on the signing of the contract, when your contract becomes unconditional, or such other date has been agreed on between the parties.
Conveyancing can be a headache to understand, which is why you’re going to need a good conveyancer who helps you understand each step. But if you want to do some of the research yourself first, check out our previous article! Conveyancing Dictionary: All The Words + Phrases You Need To Understand
What Is A Deposit?
A deposit is paid to secure your purchase of the property, whether it be to hold the property from being sold to another purchaser before the contract signed or after the contract has been signed in accordance with the Contract of Sale, which is the agreement between the parties (seller and buyer) where they agree to the price and outline the terms and conditions of the sale.
For instance, if you come across a property you are interested in and want to secure the property from being sold to another buyer, you can pay a holding deposit of a lesser amount than 10% (as agreed with the vendor), and the remainder is then payable in accordance with the Contract of Sale once you have signed. As stated above, a deposit amount is usually 10% of the purchase price; however, this number can be negotiated if the vendor agrees to it!
Conveyancing can be a headache to understand, which is why you’re going to need a good conveyancer who helps you understand each step. Check out this blog we have previously put together: Conveyancing Dictionary: All The Words + Phrases You Need To Understand
Who Gets The Deposit + When?
When you buy a property, you’ll have to go one of two ways: you always have to employ a conveyancer/solicitor, but if you’re purchasing a property through a real estate agency, you’ll have a break estate agent assisting you as well. Depending on which avenue you take, it can affect how the deposit is moved through to the vendor.
If you have bought a property through a real estate agency, the deposit is paid directly into the agent’s trust account pending settlement. Your solicitor/conveyancer may request that the agent forward the deposit to be held in the solicitor’s trust account. The agent will then calculate their commissions due and retain that part of the deposit in their trust account until settlement. They will transfer the balance of the deposit to the solicitor’s trust account along with a copy of their account sales document detailing the commissions and other fees they are retaining. Both parties are to hold the deposit pending settlement.
If there is no real estate agency involved with the sale and the negotiations/transactions are taking place directly between solicitors/conveyancers, then the deposit is paid into the vendor’s solicitor’s trust account and will be held in trust until the property has settled.
Releasing The Deposit + Section 27
In most scenarios, the deposit is held until settlement occurs; however, in specific circumstances, the deposit can be released early. To release the deposit early, the vendor will need 3 things:
- A completed Section 27 early release form;
- Supporting Letter from their Bank/Financial Institution; and
- Your solicitors signed permission on the Section 27.
Let’s break down what that process looks like:
A deposit can only be released before settlement if evidence has been provided to the purchasers of any amount owing in relation to all loans/caveats that are registered over the title of the property. The process for an early release to the vendor happens by way of s Section 27 Early Release form and an attached letter from each bank/financial institution evidencing the amounts owed, and if the loans provide for further advances, and if the vendor is in default with any of the financial institutions. The Section 27 and attached evidence are then served on the purchaser’s legal representative, and that lawyer/conveyancer will make an assessment on whether they have any objection to the deposit being released before settlement. If they have no objection, they can have the purchasers sign the acknowledgement to release funds and return to the vendor’s representative. The purchaser’s legal representative then has 28 days before they are required to return the signed Section 27. If, for whatever reason, the purchaser or their legal representative does have an objection, you must advise the vendor’s representative within the 28-day period with the reason for your objection!
That’s not all, though; there are still a few conditions that need to be met for an early release of the deposit:
- The title must be clear of any Caveats that could prevent the sale from proceeding;
- If the property is mortgaged, the mortgage amount must be less than 80% of the purchase price. This ensures that there is enough equity in the property to cover the sale; or
- The vendor must fully disclose all relevant information to the purchaser.
Not sure how a Caveat can affect the sale or purchase of a property? Don’t stress, we’ve done the hard yards so you can have an easy read! What If There Is A Caveat On My Property?
Here’s some extra reading if you’re ever looking to understand your Section 27 Deposit Release.
Delayed Settlement
In the event that a settlement is delayed, don’t panic; your deposit is still safe and sound!
Your deposit will remain in whichever trust account it is currently being held in and must be released until the settlement has occurred.
Settlement can be a stressful time; it’s best to know what’s going to happen and why! Buying + Selling Property: What Happens On Settlement Day?
Should I Pay A Higher Deposit?
Although financially, you might find a reason as to why you would want to pay a higher deposit, legally, it’s not a matter of concern; there is no legal reason to pay a higher deposit than required. Should the contract not proceed due to a decline in your financial application, and provided the purchaser’s legal representative has given notice of withdrawal from the contract within the prescribed financial period, then the deposit paid must be returned to the purchaser.
In the event you do pay a higher deposit than what is shown in the contract, the risk is that you will lose this money if you have defaulted in payment of the balance of funds or if you are in breach of the contract in some other way and the vendor’s legal representative issues you a default notice and rescinds the contract. In this scenario, whatever amount you have paid is non-returnable, and the vendor is allowed to keep the deposit funds.
Canny Legal + How Our Conveyancers Help
Canny Legal assists you from the moment you have signed the contract (or prior to signing if we have perused the contract before you sign), through to settlement.
If you have any questions in relation to the rules around payment of the deposit or any other matters relating to the contract, we’ll provide you with the right advice in a prompt and compassionate way!
Get in touch to speak with one of our conveyancers to get your property purchasing journey started!
