Director of GM Law, Gerard Pagliaro shares his thoughts on this matter:
1. What is the average deposit for Queensland?
Most contracts usually nominate a deposit to be 2.5% and 5%. Although the maximum deposit size is 10% for existing property (and 20% for off the plan properties), higher deposits are usually more likely to be required for off the plan.
Gerard Pagliaro of GM law’s view is that higher deposits are generally required for off the plan, because of the lengthy contract period that the property is tied up. The higher the deposit, whether for the sale of an existing property or an off the plan contract, gives the seller more security in the event that the buyer defaults on their obligations and doesn’t settle, and so it follows that the buyer has more incentive to comply with their obligations, the higher the deposit is.
2. Why do sellers agree to such a small deposit?
Sellers may decide to agree to a smaller deposit in order to get the deal across the line. Not everyone has the capacity to pay a large deposit and so by lowering this amount they are potentially increasing the pool of buyers.
Gerard Pagliaro of GM Law will always recommend that a seller make sure the deposit is high enough to ensure the buyer is incentivized not to default. You don’t want a deposit amount that the buyer doesn’t care if he loses. Remember, the purpose of the deposit is to secure the buyers’ performance of their obligations under the contract.
3. Options available to the seller in relation to deposits
It is common these days for a contract to nominate that a deposit is payable in two stages. For example, the first installment is due when the contract is signed, or within a short period after the contract is signed (e.g. two business days) and the second installment is due when a condition (e.g. finance or building and pest) has been satisfied. Gerard Pagliaro advises that in the experience of GM Law the first installment payable is usually a nominal amount that is equivalent to the cooling off period penalty.
4. What happens to the deposit if a dispute arises?
In the experience of Gerard Pagliaro from GM Law, disputes often arise because a seller believes that a buyer hasn’t acted in good faith, often in circumstances where they elect to terminate the contract under one of the conditions. For example, a buyer withdraws from the contract stating they have not got finance approval. The seller may believe the buyer, in this situation, hasn’t properly discharged his obligation under the finance clause to take reasonable steps to obtain approval. In these circumstances the seller will notify the deposit holder (which is usually the real estate agent) not to release the deposit to the buyer. The buyer may then take steps to get the deposit back i.e. by commencing legal proceedings against the seller.
The deposit holder is required to release the deposit to the person they believe is entitled to it, however a prudent deposit holder would refrain from releasing the deposit until there is clear agreement between the buyer and seller or a legal determination.
You can email us at AgentSupport@gmlaw.com.au to get urgent personalized support.
You can email us at AgentSupport@gmlaw.com.au to get urgent personalized support.
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