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Selling a property? The Risks in Accepting a 5% Deposit

  • By:Anderson Boemi

A purchaser under a Contract for Sale in New South Wales in required to pay a deposit upon exchange. This is generally 10% of the purchase price. The balance of the purchase price is then paid at settlement. If a purchaser defaults under the Contract, the seller may be able to keep the 10% deposit. Recently, it has become increasingly common for Purchasers to request a 5% deposit on exchange.

There are important considerations that a seller must make when determining whether they should accept a reduced deposit. It is imperative to understand that if a 5% deposit is accepted and the Contract is terminated, the seller will have to try and recover the balance of the remaining 5%. This may involve commencing proceedings which is a costly process with an uncertain outcome.

It has also become common practice for the seller’s solicitor to place in a special condition in the Contract stating that the deposit is to be paid in two installments. The first 5% at the time of exchange and then the remaining on settlement. While this may protect the seller to some extent, it does not guarantee the recovery of the remaining 5%.

A Deposit Bond can be a safer option that acts as a substitute for the cash deposit. These are a guarantee by the bank that the 10% deposit will be paid. So, should the purchaser default, the seller will be able to recover the money by calling in the deposit bond and avoid a potential costly legal process.

If you are thinking about entering into a property transaction or require any assistance with respect to your property matters, please contact our team at Anderson Boemi Lawyers on 02 9653 9466.



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Posted in: Property Law