When do I pay the deposit when buying a house?
Generally you’ll pay most of your house deposit to the seller once your offer or contract of sale goes unconditional. Come settlement day, you’ll pay the entire purchase price (everything you’re paying up front, plus the money you're borrowing with a home loan).
However, deposits are often paid in a couple of installments, depending on circumstance:
When you make an offer
When you initially make an offer, the selling agent might ask you for an initial deposit, called a holding deposit. This is a small amount, usually less than 1% of the property value, and demonstrates you’re a serious buyer.
An initial deposit isn’t a guarantee you’ll get the property, and you’re entitled to it back if the seller goes with another buyer. There’s also no obligation to hand over the funds at this point. If you aren’t comfortable doing so you can just look elsewhere, as many agents won’t ask.
Once your offer is accepted and contracts are signed
Once both you and the seller have signed your end of the contract of sale, you’ll usually have to pay the full deposit amount specified in the contract. Some contracts require the deposit be paid after contracts are exchanged, while others ask that it’s paid when the contract becomes unconditional (or split and paid at both points in time). Make sure you read your contract carefully so you’re across all the details.
Often 5% to 10% of the purchase price, this deposit is held by the seller’s agent or conveyancer in a special ‘trust’ account until settlement.
If you pull out of the sale during the cooling off period, you may need to pay a penalty, which will likely be taken from your deposit and the rest returned to you. You can generally pull out if clauses (like a subject to finance or building and pest inspection) aren’t met without being penalised.
If you pull out of the sale after that point, the seller could be entitled to keep the whole thing.
Settlement day
Some buyers pay the full amount they’re paying up front when property contracts are signed. In other cases though, wherein your total deposit is larger than what’s in the contract, you’ll pay the remainder to the seller on settlement day, at the same time your lender pays the rest.
For example, if you’ve paid a 10% deposit to the seller, paying a further 10% up front on settlement day could help you avoid lenders mortgage insurance (LMI).
When do you pay the deposit when buying at auction?
If you buy a property at auction, you’ll generally need to pay your full deposit immediately after you win. The amount is usually specified in the pre-auction contract as a percentage of the sale price. About 10% is common, although you may be able to negotiate a smaller deposit prior to bidding.
Again, on settlement day you might make another up front payment alongside your home loan.
How do you pay a house deposit?
There are a few different ways you might be able to pay a deposit:
Cash
Paying your deposit in cash is most common. Slightly confusingly, this doesn’t mean handing over a suitcase full of $100 notes - generally it will be via an electronic funds transfer.
If you are paying electronically, you’ll need to make sure your bank will allow you to transfer such a large sum. If you’ve got a limit on how much you can send per day, you might need to get this raised. It’s also extremely important to be careful where you send the money to.
If you send it to the wrong account, it could be hard to recover. Scammers sometimes target property buyers’ deposits by faking an email from the seller’s agent or conveyancer. Most professionals recommend buyers call the party they’re sending money to as they send it to make sure a third party doesn’t interfere.
Cheque
For now, you can still pay your deposit by cheque in Australia. By 2030 though, the government plans to phase out cheques entirely, so this won’t be an option.
A deposit bond
You could also use a deposit bond instead of paying upfront. This guarantees the deposit amount will be paid in full at settlement or if you renege on the contract.
Deposit bonds are a type of insurance where the provider makes the seller whole if needs be. You aren’t off the hook though—the insurer will then pursue you for the full amount.
Can you get your deposit back?
Generally once the contract of sale goes unconditional, you’re legally obligated to follow through with your purchase. That’s why clauses are so important if you haven’t yet carried out building and pest inspections or secured finance. After going unconditional, even if you can’t get a loan or discover a termite infestation, you could still be on the hook without them. At the very least, the seller may keep your deposit, and may be entitled to pursue further compensation if you try pulling out.
On the other hand, if it’s the seller who pulls out of the deal, you’re entitled to get your deposit back, potentially along with compensation for damages.
