Generally, one of the first things stated under real estate deposit rules is that you need to deposit an amount to initiate the sale of the property. Naturally, the sale won’t proceed if the buyer fails to pay the deposit for the property. This functions as a protection for the seller’s interest, as when the buyer agrees to buy a property, then they must take the property off the market.
In real estate deposit rules, the amount for the deposit is generally 10 percent of the purchase price. The buyer and seller can negotiate the amount. Property solicitors/conveyancers can assist you with negotiating the amounts in real estate deposit rules.
In this article, we’ll delve into real estate deposit rules to have a more general knowledge of the topic.
What Is A Deposit?
We can use the term ‘deposit’ in a few different ways when it comes to purchasing properties. This includes:
Deposit On A Contract
This is the deposit that a buyer will write down on a contract of sale. After you and the solicitor/conveyancer sign the contract, the seller gets a portion of the sale price of the property. The contract deposit could be the entire amount of money or just a portion of the amount of money a buyer has saved up as their home loan deposit.
Home Loan Deposit
The bank uses the information on home loan deposits in assessing the buyer’s loan application. They will typically grant a mortgage to cover the difference between the deposit and the agreed sale price if they approve the application. When the contract is settled, the home loan deposit and the funds generated by the mortgage are transferred to the seller. The buyer now owns the new property and starts repaying their mortgage.
Real Estate Deposit Rules: Holding Deposit Vs Home Deposit
1. Holding Deposit
What exactly is a holding deposit? In real estate deposit rules, a holding deposit is a sum of money that buyers pay to a seller. Usually, the holding deposit is 0.25 percent of the purchase price, but it may be negotiable. This happens before parties sign any paperwork and it also shows how serious a buyer is about purchasing a property.
Unlike the home deposit which is usually 10 percent of the purchase price which is paid after the contract signing, the holding deposit is fully refundable. Holding a deposit is a way for a buyer to show a seller how keen they are and it doesn’t necessarily secure the property for them as this only happens after contracts are signed.
2. Home Deposit
A home deposit is a contribution to the full purchase price and is generally 10 percent of the purchase price. This deposit is also necessary once contracts have been exchanged by the buyer and seller. On rare occasions, lenders will give buyers a loan without a deposit if there is enough equity in other properties they already own.
In real estate deposit rules, one can only pay their holding deposit when a prospective purchaser and vendor have a mutual agreement on a sale price and before preparation and execution of the contract of sale.
After paying the holding deposit, it is then added to the home deposit once the contracts have been exchanged. The offer will then be legally bound once the deposit is paid and the contracts have been exchanged.
Real Estate Deposit Rules On Payment
Deposits are usually non-refundable. If a real estate solicitor is involved in the transaction, the deposit usually goes through the solicitor who puts the deposit into a trust account. This usually doesn’t include receiving interests.
The real estate solicitor may accept payment of the deposit through electronic funds transfer (EFT), direct bank deposits, and personal and non-personal bank cheques. In some situations, deposits can be held in a bank account that can generate interest. If this is the case, buyers should ask their lawyers to negotiate with the seller for ways to share the received interest.
In some circumstances, the buyer does not have the cash to pay the deposit. The buyer can make a deposit with a deposit bond if the seller also agrees. Basically, this is a guarantee that the underwriter of the bond will pay the deposit to the seller in circumstances where the deposit would be waived.
Upon settlement of contract, the buyer then pays the balance of the purchase price to the seller. The agent who is holding the deposit then receives a confirmation from both parties about the settlement of contract.
In cases of pre-settlement inspections where the buyer is not happy with it, the deposit cannot be released unless both the buyer and the seller agree to it. The seller can refuse to release the deposit if the buyer did not act in good faith with regards to following their conditions in their procedures. The deposit then stays with the broker’s trust account until a judge decides who gets the deposit.
Real Estate Deposit Rules: Late Deposit?
When a buyer pays the deposit late, the seller has all the right to cancel the deal. In the field of real estate, time limits matter. Even if the deposit is late by a few minutes, the seller may try to cancel. Upon confirmation of the deal, the buyer can no longer refuse to pay the deposit. If by some chance a buyer does cancel the deposit, the seller may resell the property. If the seller gets less money than the buyer, the seller can sue the buyer for the difference.
Importance Of Seeking Legal Advice
Note that real estate deposit rules can differ from state to state. For information about real estate deposit rules NSW, real estate deposit rules WA and real estate deposit rules Victoria, reach out to our team.
Tackling real estate deposit rules alone can be stressful. As mentioned above, sellers can sue you if refusals and disputes happen within the process of paying deposits. What’s more, there will be pre-settlement inspections and financial statements in real estate deposit rules.
While this article discussed the basics of deposits in real estate, there’s more than what meets the eye. At JB Solicitors, our team of property and conveyancing experts aids our clients in dealing with such matters. Our fixed-fee prices also help our clients to ease the financial burden that they encounter when handling such cases as well.
Contact JB Solicitors today
