Formality or Necessity? What Buyers Should Know About Conveyancing Deposit

Paying a conveyancing deposit is one of the first significant steps in the property buying process. More than just a transfer of funds, the deposit serves a legal purpose and creates obligations for both parties. It confirms the buyer’s intention to proceed and provides the seller with financial assurance while the transaction moves forward. 

The deposit is a negotiated amount, usually paid once the contract of sale has been signed. It is not an extra cost, but rather a portion of the total purchase price that is held in trust until settlement or until the contract is lawfully terminated. The stakeholder, typically a solicitor or licensed real estate agent, is required to manage the funds according to strict legal guidelines and cannot release them without the proper authority. 

While the process of paying the deposit is guided by legal safeguards, the amount itself is not fixed by law. Understanding what is typical, what is legally permitted, and how the amount can influence your position in the transaction is the next step in navigating this important part of the purchase. 

How Much Do You Pay? Legal Limits and Negotiable Ranges 

Many buyers, particularly those purchasing for the first time, often confuse the conveyancing deposit with the home loan deposit, despite these being separate payments made at different stages of the transaction. The conveyancing deposit, commonly five to ten percent of the purchase price, is paid to secure the contract and is held in trust until settlement. In contrast, the home loan deposit is the buyer’s equity contribution to the lender, typically around twenty percent, and forms part of the loan approval process. While five to ten percent is standard for a contract deposit, there is no fixed legal amount. The specific figure is negotiated between the buyer and seller as part of the contract terms. 

The amount of the conveyancing deposit is negotiated between the buyer and seller and, while flexible, must stay within legal limits to avoid triggering additional obligations under the contract. Paying too little may reduce the strength of an offer, while paying too much may alter the legal nature of the agreement. Understanding these differences is essential to managing your finances and ensuring a smooth transaction. 

Here are the key points to consider when determining how much to pay: 

• Standard Deposit Range 

• • Most contracts require a deposit of 5% to 10% of the purchase price. 

• • 10% is the legal maximum before a contract is classified as an instalment contract. 

• • Deposits above 10% may result in: 

• • • Additional legal obligations for the seller. 

• • • Restrictions on terminating the contract. 

• • • The buyer being able to place a formal notice on the property title after paying one-third of the price, which helps stop the seller from selling it to someone else or using it as security for another loan. 

• Negotiable Terms 

• • Some sellers accept a fixed deposit of $1,000 to $2,000, especially in early negotiations. 

• • Smaller deposits offer flexibility for buyers but may reduce the appeal of the offer. 

• • Larger deposits can strengthen the buyer’s position by showing commitment. 

• Special Cases 

• • Off-the-plan contracts may permit deposits of up to 20%, but they: 

• • Involve longer settlement periods. 

• • Carry more risk. 

• • Should be reviewed with legal guidance. 

• • Commercial purchases may include: 

• • • Lower deposits or set amounts. 

• • • Bank guarantees in place of cash. 

• • • Customised terms, but still subject to the 10% legal limit. 

• Important Clarification 

• • The contract deposit is not the same as the home loan deposit. 

• • The contract deposit is paid to secure the sale. 

• • The home loan deposit represents the buyer’s equity required by the lender. 

• • These two deposits serve different purposes and are handled separately. 

By knowing what is acceptable and what to avoid, buyers can structure their deposit in a way that meets legal requirements while aligning with their financial situation and the seller’s expectations. 

When and How to Pay Your Deposit 

The contract of sale will specify when the deposit is due, either on signing or within a set number of business days. In some cases, it is split into two parts: an initial deposit on signing and a balance payable soon after. Regardless of the structure, the buyer must meet the agreed deadlines. 

The contract also outlines how the deposit should be paid. Most are made by electronic funds transfer or bank cheque. Personal cheques may be accepted but are slower to clear, while cash payments are discouraged due to traceability and security risks. Buyers should follow the stakeholder’s instructions, typically provided by the seller’s solicitor or real estate agent. 

Standard contracts now include a grace period for electronic transfers. If the buyer initiates payment by the due date and provides proof, it is treated as received on time, even if it takes a day or two to clear. If the funds do not arrive within two business days after written notice, the seller may terminate the contract. 

Before transferring funds, buyers should verify the trust account details using a trusted contact method, such as a phone number from an official source. After payment, they should keep all records, including the transfer confirmation and trust receipt, to avoid any issues later in the transaction. 

Where Does the Money Go? Trust Accounts and Legal Protections 

Once the deposit is paid, it does not go directly to the seller. Instead, it is held in a trust account managed by a stakeholder nominated in the contract, usually the seller’s solicitor or a licensed real estate agent. This arrangement protects both parties and ensures the funds remain secure until settlement or until the contract is lawfully terminated. 

Trust account handling is governed by strict legal requirements. Real estate agents must deposit trust money into their account by the end of the next business day after receiving it. Solicitors follow similar rules under professional conduct regulations. These accounts are monitored by regulatory bodies such as the Office of Fair Trading to ensure transparency and compliance. 

Once funds have cleared, the stakeholder must issue a trust account receipt. This receipt should clearly state the name of the trust account, the amount received, the date, and the name of the payer. Buyers should always request a copy and keep it on file. In the event of a dispute or administrative issue, this record serves as important evidence that the deposit was properly paid. 

In most cases, the deposit remains in trust until settlement and is then applied toward the purchase price. If the contract is lawfully terminated, the funds are either refunded to the buyer or released to the seller, depending on the reason for termination. Stakeholders cannot release any funds without proper authority, such as mutual written consent or a court order. This process ensures accountability and protects the interests of both parties throughout the transaction. 

What Happens If the Contract Falls Through? 

A conveyancing deposit is intended to secure the transaction, but there are circumstances where the sale does not proceed as planned. When this occurs, the outcome depends on the reason the contract was terminated and whether it was done in accordance with its terms. 

If the buyer terminates during the cooling-off period, they are entitled to a refund of the deposit, less a penalty of 0.25 percent of the purchase price. This right applies to residential property contracts and gives the buyer five business days from receiving the signed contract to withdraw. The penalty is paid to the seller, and the balance is usually refunded within fourteen days. 

Where the contract is subject to conditions, such as finance approval or a satisfactory building and pest inspection, and those conditions are not met, the buyer may terminate without penalty. In such cases, the deposit is generally refunded in full, provided the buyer has met all notice requirements and acted in good faith. 

If the buyer breaches the contract without a valid reason, the seller may terminate and claim the deposit as compensation. This is treated as liquidated damages. A deposit may also be forfeited if the buyer fails to pay it on time, depending on the contract’s terms. To avoid disputes or loss, buyers must follow the contract carefully and seek legal advice where necessary. 

Red Flags, Misconceptions, and Deposit Security Tips 

The conveyancing deposit process may seem routine, but it carries certain risks and misunderstandings that can lead to costly mistakes. Buyers, particularly those new to property transactions, should be aware of the most common misconceptions and take proactive steps to protect their funds. These issues often arise not from bad intent, but from assumptions or lack of information at the outset. 

The following points highlight what buyers should be cautious of, along with best practices for protecting the deposit: 

• Mistaking the contract deposit for the home loan deposit 

• • These are two separate financial obligations. 

• • The contract deposit secures the agreement between buyer and seller. 

• • The home loan deposit refers to the buyer’s equity contribution required by the lender. 

• Assuming payment confirms ownership 

• • Paying the deposit does not give the buyer any immediate legal rights over the property. 

• • Ownership only transfers at settlement, once the full purchase price is paid and the title is transferred. 

• Failing to verify trust account details 

• • Email fraud involving altered bank details is a growing risk in property transactions. 

• • Always confirm trust account information directly with the agent or solicitor using a known and trusted phone number. 

• • Never rely solely on email instructions or last-minute changes without independent verification. 

• Paying cash without a traceable record 

• • Large cash payments are discouraged and may raise compliance issues. 

• • Electronic funds transfer or bank cheque offers more security and allows for better documentation. 

• • Always request a formal receipt showing the trust account name and transaction details. 

• Delaying payment beyond the due date 

• • Missing the deposit deadline can constitute a breach of contract. 

• • Even a short delay can give the seller the right to terminate and retain any funds already paid. 

• • If paying by electronic transfer, retain proof and be aware of grace periods where applicable. 

Being prepared and well-informed is the best defence against unnecessary risks. Buyers who understand these potential red flags and follow sound practices are less likely to encounter disputes, delays, or financial loss. Taking a few extra steps to double-check details and communicate clearly with professionals involved in the transaction can make a significant difference in both security and peace of mind. 

Secure the Property, Protect Your Money 

While the concept of conveyancing deposit may appear straightforward, there are legal, practical, and financial nuances that require attention and care. 

For buyers, the key is to understand not just how much to pay, but when and how to pay it. Trust account requirements, timing obligations, and contract conditions must all be met to preserve your rights and avoid costly missteps. Buyers should also be vigilant against fraud, misunderstandings, and delays that could compromise their deposit or result in unintentional breach. 

Above all, the deposit should not be approached as a formality. It is a binding part of the contract and carries real consequences if mishandled. By verifying details, maintaining records, and seeking legal advice where needed, buyers can protect their interests and contribute to a smooth and secure transaction. 

If you are preparing to pay a conveyancing deposit and want the peace of mind that comes with clear guidance, our team is here to help. We can walk you through each step and ensure that your obligations are met with confidence and clarity.