When buying property, it’s easy to get lost in all the jargon, especially at the pointy end of actually purchasing. A holding deposit is one term buyers have to get their heads’ around.
So, what is a holding deposit, exactly? Is it different from a home deposit; that chunk of cash that takes months, sometimes years, to save up? What is the purpose of a holding deposit? And when is it paid? Let’s take a look.
The difference between a home deposit and a holding deposit
A holding deposit is a sum of money that buyers pay to a vendor, as part of an offer to buy. It’s usually 0.25 per cent of the purchase price, but is negotiable. It happens before any paperwork is signed and signifies how serious a buyer is about purchasing a property.
Unlike the actual home deposit – usually 10 per cent of the purchase price – which is paid after the contract has been signed, the holding deposit is fully refundable.
While a holding deposit is a way for a buyer to show a seller how keen they are, it doesn’t necessarily secure the property for them. That only happens after contracts are signed.
What is a holding deposit?
Jesse Lorenz, Head of Established Sales at Tomassi & Co, explains that a holding deposit;
- Is an agreed-upon figure paid to the buyer’s representative, usually a real estate agent or solicitor, “in trust”
- Is paid before exchanging contracts
- Is an “expression of interest”
- In some cases secures the property for the prospective buyer for a set period of time
- Is fully refundable, as the offer is not binding until contracts are executed
What is a home deposit?
A home deposit is a contribution to the full purchase price, Lorenz says. He also explains the other key things to know about the deposit:
- A home deposit is generally 10 per cent of the purchase price, although some banks now require 20 per cent.
- It’s required once contracts have been exchanged by the buyer and seller.
- On a rare occasion, lenders will grant buyers a loan without a deposit, if there is enough equity in other properties they already own.
When do you pay your holding deposit?
A holding deposit is paid when a prospective purchaser and vendor have agreed on a sale price and before the contract of sale has been prepared or executed.
What happens after you pay your holding deposit?
The holding deposit is added to the home deposit once the contracts have been exchanged. With the deposit paid and contracts exchanged, the offer is legally binding – although if there is a cooling-off period, that comes into play.
During the cooling-off period, a buyer can get out of a contract if they provide written notice. The cooling-off periods vary from state to state:
Victoria: Three business days.
South Australia: Two business days.
Northern Territory: Four business days.
Tasmania: No cooling-off period.
After the cooling-off period, the contract becomes unconditional.
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