Buyer’s guide · NSW
Deposits in NSW: what every buyer needs to know
Your deposit secures the property, and it’s what you risk losing if things go wrong. Here’s how much you pay, when and to whom, the alternatives to cash and how to protect yourself.
When you exchange contracts on a NSW property, you pay a deposit. It’s usually 10% of the price, and it’s held by the selling agent or the seller’s lawyer until settlement. On a $1 million home, that’s $100,000 changing hands before you own anything.
The deposit does two jobs. It shows you’re committed, and it gives the seller security if you don’t complete. So the rules about how much you pay, when you pay it and when you can lose it really matter. This guide explains how deposits work under the standard NSW contract, and your options if you can’t pay the full 10% upfront.
Key takeaways
- The standard NSW contract assumes a deposit of 10% of the price, unless the contract says otherwise.
- The deposit is normally paid on exchange, and paying on time is an essential term. If it’s late, the seller can terminate.
- It’s held by the depositholder, usually the selling agent, as stakeholder until settlement.
- You can negotiate a smaller deposit or use a deposit bond, but only if the seller agrees.
- If you default and the seller terminates, you can lose the deposit, up to 10% of the price, and be sued for further losses.
On this page
How much is the deposit?
The front page of the standard NSW contract for the sale of land has a box for the deposit, with the note “10% of the price, unless otherwise stated”. So unless you agree something different with the seller, you’ll pay 10%.
The deposit is part of the price, not an extra cost. At settlement it’s released to the seller and counted towards the price. The balance you and your lender pay is the price less the deposit, plus or minus the settlement adjustments. Our guide to settlement adjustments in NSW explains how those work.
Your contract deposit isn’t your loan deposit
Don’t confuse the deposit you pay the seller with the deposit your lender needs. Your lender looks at how much of your own money you’re putting into the purchase overall. You might qualify for a loan with a 5% deposit, for example, but still need to pay 10% to the seller on exchange, unless they agree to less. Plan both early.
When and how you pay it
Under the standard contract, the deposit is normally paid when the contract is made, which is on exchange. Paying on time is an essential term. If the deposit isn’t paid on time, a cheque is dishonoured or a bank transfer doesn’t arrive, the seller can terminate the contract.
The contract allows payment by electronic funds transfer, unconditional cheque or a small amount of cash (up to $2,000). Most deposits are now paid by bank transfer. Check your bank’s daily transfer limits well before exchange, and always confirm the trust account details by phone with the agent before you send money. Payment redirection scams target property deposits.
Paying the deposit in two parts
On a private sale with a cooling-off period, it’s common to pay part of the deposit on exchange, often 0.25% of the price, and the balance by the end of the cooling-off period. This only works if the contract allows it, so agree it with the agent before you exchange. Our guide to the cooling-off period in NSW explains how cooling-off works.
At auction
If you buy at auction, you sign the contract and pay the deposit on the day, straight after the fall of the hammer. There’s no cooling-off. Read our auction buyer guide before you bid.
Who holds the deposit
The deposit is paid to the depositholder, who holds it as stakeholder. That means they hold it for both of you, and can’t release it to the seller before settlement unless you agree or the contract allows it. The depositholder is normally the selling agent. If there’s no agent, it’s usually the seller’s lawyer or conveyancer. Agents and lawyers must hold deposits in a trust account.
Early release of the deposit
Sellers often ask for the deposit to be released before settlement, usually so they can use it as the deposit on their next purchase. That can only happen if you agree, and it’s usually done through a special condition in the contract. Once it’s released, it’s no longer held by a stakeholder. If the sale then falls through because of the seller, you’d have to recover the money from them.
Our general advice is not to agree to early release. If you do agree, we limit it so the deposit can only be used towards the seller’s deposit on another property, and is paid directly to that property’s agent or lawyer. We’ll advise you on the risk before you sign.
Off-the-plan purchases
If you’re buying off the plan, the deposit must be held in a trust or controlled money account, and it can’t be released to the seller before settlement.
Paying less than 10%
Many buyers don’t have 10% in cash, especially if their savings are tied up in their current home. There are two common options, and both need the seller’s agreement.
A 5% deposit
You can ask the seller to accept a 5% deposit, or another amount. Sellers often agree, but they’ll usually want a special condition saying that if you default, the balance of the full 10% becomes payable immediately. That matches the standard contract, which lets the seller keep or recover a deposit of up to 10% of the price if you default.
Deposit bonds
A deposit bond is a guarantee from an insurer that it will pay the deposit if you don’t. You pay the issuer a fee, and the bond stands in for cash until settlement, when you pay the full price. The seller must approve the bond. If the bond expires before settlement, the contract requires you to replace it in time. Our guide to deposit bonds explains the costs and who can get one.
Before you exchange
- Confirm the deposit amount, and whether it can be paid in parts, with the agent.
- Have the funds ready, and check your bank’s transfer limits.
- Confirm the trust account details by phone before you pay.
- If you’re using a deposit bond, get the seller’s approval first.
- Ask us to review any special condition about releasing the deposit.
When you can lose the deposit
If you cool off, you forfeit 0.25% of the price to the seller, and the rest of the deposit is refunded. On a $900,000 purchase, that’s $2,250.
The bigger risk is default. If you don’t complete, for example because your finance falls through after the cooling-off period ends, the seller can serve a notice to complete. If you still don’t settle, the seller can terminate and keep or recover the deposit, up to 10% of the price. They can also sue you for other losses, such as a shortfall if the property resells for less, and their costs.
Most NSW contracts don’t include a finance condition. That’s why it’s so important to have formal finance approval, and your building and pest reports, before you exchange or before your cooling-off period ends.
If the seller defaults
If the seller can’t or won’t complete, you can terminate and get your deposit back, and you may also be able to claim damages. Because the deposit is held by a stakeholder, it’s protected until settlement, unless you’ve agreed to release it early.
Frequently asked questions
How much deposit do I need to buy a property in NSW?
Usually 10% of the price, paid on exchange. You can negotiate a smaller deposit, often 5%, or use a deposit bond if the seller agrees.
Is the deposit refundable in NSW?
In some cases. You get it back if a condition in the contract lets you end it, or if the seller defaults. If you cool off, you get it back less 0.25% of the price. If you default, you can lose it.
Can I pay a 5% deposit in NSW?
Yes, if the seller agrees. Expect a special condition making the rest of the 10% payable if you default.
Who holds the deposit until settlement?
Usually the selling agent, as stakeholder, in a trust account. If there’s no agent, it’s normally the seller’s lawyer or conveyancer.
Can the seller use my deposit before settlement?
Only if you agree, usually through a special condition allowing early release. We generally advise against it. For off-the-plan contracts, it can’t be released before settlement.
Need help with your deposit?
Talk to our property team
Property & Conveyancing
Our team can review your contract before you exchange, negotiate the deposit and any release conditions, check deposit bond terms and handle your purchase through to settlement.
This article is general information only and is not legal advice. It reflects NSW law at the date of publication. Please contact us for advice about your circumstances.
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Posted in Buying Property, Selling Property