When purchasing property in Queensland, the term deposit can refer to two different things.
The first deposit, is the amount of your own savings required by your financier to obtain a loan to purchase. The second deposit is the amount required under the property contract which demonstrates your intention to purchase to the seller. These deposits are separate and usually not the same amount.
The property deposit is typically much smaller than is required by your financier, and no greater than 10% of the purchase price. Whilst not mandatory under the contract, this deposit does demonstrate your willingness and financial ability to purchase to the seller. There can be two amounts:
- The initial deposit – which is often payable when you sign the contract or a few days later; and
- The balance deposit – often payable a few days after you notify that you have received unconditional finance approval.
Common conveyancing queries from buyers are where does the property deposit go once it is paid and whether it is refunded if the contract does not proceed.
So long as the contract is properly drafted, the property deposit will be held in a trust account – either of the real estate agent or the seller’s solicitor. By being held in a trust account, strict regulations apply. The deposit cannot be released until both parties provide consent to do so. The deposit holder should never be an individual, otherwise such trust account protections will not apply.
If you validly terminate your contract, then your deposit will be returned in full to you. There is an exception, however, that if you terminate using the statutory cooling off period, a termination penalty of 0.25% of the purchase price can be imposed by the seller and taken from your deposit.
For example: for a $1,000,000.00 purchase with a deposit of $10,000.00, if you terminated under cooling off, the seller could impose the penalty. They would receive $2,500.00, and you would receive the balance $7,500.00.
As always, it is crucial to obtain legal advice prior to executing a contract to ensure you are fully aware of your rights, obligations and the key risks involved. Contact us at bytherules Conveyancing for further assistance.