Let's chat: Deposits

Deposits. They can be touted as a hefty barrier to any person wishing to take steps towards home ownership— so why are they required? DI Cooke from Verve Conveyancing helps us unpack what a deposit is and why they're required when purchasing a property. 

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Paying a Deposit is a contractual, legal principle for every property that is sold and where parties are entering into a Contract for Sale.

Even though it is a Buyer who pays a Deposit, let’s think about matters from a Seller’s perspective— it is a Seller after all who is putting great faith in a Buyer’s commitment to the purchase, and completion of same.

When a Contract for Sale is signed and entered into by parties (known as “exchange of Contracts”), there is a period of time stipulated by the Contract for when a formal settlement of the sale is then required to occur. This is known as the settlement period and is typically five or six weeks in length (although it can be for a longer period if and as agreed between the parties). The settlement period allows the parties time to prepare for the formal settlement, where a Buyer is required to pay the balance of a purchase price to the Seller, and when the Seller is required to transfer legal Title for a property to the Buyer.

This might beg the question of a Seller— what happens if the Buyer changes their mind throughout the settlement period and refuses to complete their purchase on the due date? What keeps a Buyer accountable for completing their purchase as required under a Contract?

If a Buyer has not put something of value on the line (their hard-saved-for deposit for example!) you could understand how commonplace it might become for a Buyer to be able to walk away from their commitment to the Seller. They would stand to lose ‘nothing’ for doing so.

The making of Deposits actually occurs in many other day to day settings and an easy scenario to liken it to, is to think of a store layby where goods are being held aside by the store owner (that is, those goods will not be sold to any other party), on the basis that the purchaser is going to honour an agreement to pay the balance of monies owing by a set point in time.

The payment of a Deposit by a Buyer when it comes to real estate is no different, but must be treated with great caution as it certainly is on a much larger scale.

In summary, a Deposit not only provides assurance to a Seller of a Buyer’s level of commitment under a Contract, but it also serves to give real weight to a Buyer’s decision in purchasing a property: to be sure about doing so, as the consequences for changing your mind or refusing to follow through with the commitment of completing the purchase can be financially severe.

Whether you are the person selling or buying property, you must always seek legal advice from a qualified property law specialist to understand your rights and obligations at law.

- Di Cooke

Verve Conveyancing