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Important information about when and how to pay the deposit for your newly purchased home.

What do I need to know about paying the deposit?

When and how is the deposit paid for a property purchase?

In Victoria, the standard amount of deposit payable for the purchase of a property is 10% of the sale price. It's also the maximum legal amount payable for a deposit. It is common, however, for 5%, or a figure between 5% and 10%, to be paid as the deposit, if the vendor accepts that.

The real estate agency selling the property will let buyers know when the deposit must be paid, whether it can be split into two payments (e.g. something paid on auction day, the rest by the following Monday) and what the bank account details are for the real estate agency's trust account. If there is no real estate agent involved, the deposit is held in the vendor's lawyer's trust account (deposit funds must be held in a trust account and only released to the vendor in accordance with the requirements of Section 27 of the Sale of Land Act). Once the deposit funds reach the agent/lawyer's trust account, they will issue the purchaser a receipt.

When buying a property via private sale with a subject to finance approval clause, it's customary to pay a small amount of the deposit upfront (usually no more than $5,000 but often only $1,000); then the rest of the deposit (the balance) is payable upon finance approval being received. That way, the purchaser can demonstrate they are serious about their intention to buy the property, but most of the deposit money stays in their bank account (earning them more interest!) while they await finance approval.

Some buyers will have more than 10% of the purchase price saved, which they will be contributing towards the purchase of the property. If that's the case, the rest of their savings money is paid on settlement day, either via the incoming mortgagee lender/bank's nominated bank account, or via the purchaser's lawyer's trust account.

The big banks and most of the larger lenders have what's called an electronic shortfall authority available, which is the nominated bank account from which the rest of the purchaser's savings money will be electronically withdrawn on settlement day. The incoming mortgagee bank can't deduct money from bank accounts held with other banks - the account has to be with the incoming mortgagee bank.

The smaller and online-based lenders don't have electronic shortfall authority account facilities, so the only way the purchaser can contribute their savings money towards settlement is by depositing their funds into the purchaser's lawyer's trust account, which links to the PEXA e-conveyancing system on settlement day. Again, third-party bank accounts can't be used - it's either the incoming mortgagee bank's nominated account, or the purchaser's lawyer's trust account.

Note: the above is general information and should not be considered as legal advice.

Photo by Andrea Piacquadio

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