Hot Property: Issues Surrounding the Purchaser's Deposit
In today's competitive real estate market, purchasers may have to move quickly to secure the right property. As prices have gone up over the past 12 months, so has the amount needed for a deposit, and parties can find themselves in negotiations regarding the amount required in the deposit and the duration of the cooling off period (if applicable).
The 10% deposit
With real estate prices being so high, vendors can find themselves being asked to accept less than a 10% deposit to secure a property.
For example, in some cases the Contract of Sale for a property has been amended to provide that the deposit payable is only 5%, with a clause added to the effect that, in the event of a default by the Purchaser, the Purchaser must immediately pay to the Vendor the balance of the 10% deposit.
However, it is a common misconception that the balance of the standard 10% deposit can be recovered from the Purchaser if the Purchaser either defaults on the Contract or defaults on the payment of the balance of the deposit. In actual fact, the Court has held that such a clause is void because it is deemed to be a 'penalty' clause.
The role of the agent
Although a real estate agent may participate in the physical exchange of Contracts, in the absence of authority a real estate agent cannot insert a part deposit clause (as stipulated under the Property Stock and Business Agents Act 2002(NSW) Section 64). Therefore, vendors and solicitors alike should be aware of any exchange of Contracts undertaken by agents, and any consequent tampering with the deposit provisions in the sale Contracts.
It should also be noted that when a purchaser arranges a Deposit Bond as the deposit for a property, the original Deposit Bond must be received on exchange of Contracts as the vendor cannot redeem a copy of a bond.
There are many issues to consider when buying or selling a property and the legal aspects of the transaction can be complicated. It is always in your best interests to speak with an experienced property solicitor to ensure that your sale or purchase runs as smoothly as possible and that you are fully aware of your rights and obligations at each stage of the process.
For more information contact Ross Selvaggio, an Accredited Specialist in Property Law, on ph: 02 9899 9677.Back