How to pay a deposit when buying a home

Let’s say, for example, you’ve seen a home you want to buy. You make an offer to the seller, detailing how much you would like to pay for a holding or initial deposit and as a full deposit.
After a bit of negotiating, your offer is accepted. At this point, you would then likely pay the holding deposit.
Regardless of whether you choose to pay a holding deposit, if the seller agrees to your offer to purchase their property it can take a few days for the sale contract to be drawn up so that your name appears on the paperwork as the buyer.
Once you and the buyer have each signed a copy of the contract, the sale becomes binding. This is when you pay the official ‘full deposit’ or ‘balance deposit’, and you’re on track to become the proud owner of your new home.

If you decide to or agree to pay a holding deposit, it should normally be paid when your offer on a property is accepted. A holding deposit is not compulsory, so even if a seller or their real estate agent asks you to put a holding deposit in a contract, you do not have to do so.

How much you pay in a holding deposit varies according to negotiations between the seller and the buyer, except for in South Australia where it is capped at $100. If you do put down a holding deposit, be sure you get a written receipt from the real estate agent.

Remember, a holding deposit is handed over before the official sale contract is signed, when you and the seller only have a verbal agreement – not a written, legally binding agreement.

The upside of this is that if you change your mind about buying the home, the holding deposit should be fully refundable.

The drawback is that without a signed contract, the seller is legally allowed to accept a higher offer from another buyer – something known as gazumping. If that happens, the holding deposit is fully refundable. So you should get the money back if someone else’s offer is accepted – though this can be slim consolation for missing out on a place you love.

Yes, a holding deposit, if you decide to pay it, is part of the full sale price of a home and is considered part of the full or balance deposit (see above for more information). The role of the holding deposit is typically only used to show that an offer is serious, and that a buyer is keen to take the next step of signing the contract of sale. So a holding deposit is not an extra cost on top of the home’s selling price.

Typically, the holding deposit is paid via electronic bank transfer to the seller’s real estate agent, who holds the amount in a trust account (on the seller’s behalf). Some agents may prefer other payment methods, such as cash, but it is important to keep evidence of the transaction and to receive a written receipt. This is in case a refund is required, or if you are successful in securing the property (in which case you’d forward that receipt to your solicitor). You will most likely need to have proof that you have paid the holding deposit.

When talking about the deposit written on a contract, how much it is depends on the outcome of negotiations between the buyer and the seller. Common amounts used in Australia can range between 2.5% to 20% of the total sale price, according to a range of conveyancing sources reviewed by Canstar. However, this amount can vary widely due to the negotiation process and according to the conditions of individual contracts.

Both parties have to agree to the amount of deposit that is to be paid, and sign a contract with the deposit listed on it and the date it is to be paid, before it is considered to be legally binding.

It’s a good idea to keep in mind that a buyer could risk losing a portion of the deposit if they were to withdraw from a contract, or even all of it under certain circumstances. Offering a larger deposit could mean that this penalty ends up being larger as well. It could be a good idea to consult a conveyancing solicitor if you do need to withdraw from a contract after you’ve signed it.

For information about how much of a deposit is needed to get a home loan, this article may help: How much do you really need for a home loan deposit?

In a standard property sale, the home deposit has to be paid when you exchange the signed copies of the sale contract with the seller (or ‘vendor’), after your offer has been accepted.

If you buy at auction, you will typically sign the contract and pay a deposit on the spot. Once you have exchanged signed contracts and paid the deposit, the contract is legally binding but you do not technically own the property yet.

When you agree to buy a house, you generally sign one copy of the contract and the seller signs another copy – and then these are swapped so that you both sign both copies of the contract. The contracts can be swapped in person, via electronic delivery, or through the post, and it is usually handled by your solicitor, conveyancer, or real estate agent.

The contract will include the deposit amount (or amounts) that the buyer and seller have agreed on. Your home loan lender will also specify an amount that you must have in the bank for use as a home loan deposit, and this may be different to the amount your contract specifies you need to pay the seller. For example, your lender may require you to have 20% of the property value available as a deposit, even if the seller only asks for a deposit of 10% of the purchase price.

Explore further: How much do you really need for a home loan deposit?

Whether or not a house deposit is refundable depends on many factors, including the size of the deposit, the conditions of a contract, at what stage the buyer or seller wishes to cancel the contract, and other factors, such as the “cooling-off” laws that apply in your state or territory. It’s a good idea to consult a suitably qualified solicitor if you are considering entering into a property contract that you think may have a chance of crashing, or if you are considering withdrawing from a contract after it has been signed.

However, as a general rule, whether or not the buyer can get a refund on their full deposit depends on if the contract is conditional or unconditional:

• Unconditional contract: If the buyer pulls out of an unconditional contract after they pay the deposit, they are likely to forfeit a portion of the deposit during the cooling off period (apart from Northern Territory, where you are entitled to a full refund). Tasmania and Western Australia do not have cooling off periods. If a buyer wants to pull out of a contract after any cooling off period, it is possible that the entire deposit could be at risk. Usually, what would happen in this circumstance is written in the contract. Most contracts for houses sold at auction in Australia are unconditional.
• Conditional contract: The cooling off rules apply to these contracts as well (providing the state or territory has one). These types of contracts have ‘conditions’ written into them which list circumstances under which the buyer – or seller – can pull out of the contract. This may include, for example, if the buyer is not able to obtain enough finance, or the seller is not able to fix certain flaws discovered during the building, pest or pool inspection. Contracts for houses sold by private treaty will generally be conditional unless the buyer and seller agree otherwise.

Further detail: What if I change my mind about buying a house?