Confused about the different references to DEPOSITS in conveyancing transactions?
There are generally references made to two types of deposits in a property / conveyancing transaction.
The first reference to a deposit is the ‘contract deposit’ a Buyer is required to pay to secure the property in terms of the Contract for the purchase of the property. This deposit is generally paid to the real estate agent involved in the transaction to be held on trust pending settlement. This type of deposit can be (in Queensland) anything between $1,000.00 to 10% of the purchase price.
The second reference to a deposit is usually in reference to the financier’s / mortgagee’s / bank’s expectation from the Borrower (the Buyer) to contribute to the purchase price, in order to obtain satisfactory finance (borrowed money) from the financier / bank / mortgagee.
Banks / Financiers / Mortgagees talk about LVR’s (Loan to Value Ratio’s). This means a bank which applies an 80% LVR will only advance a Buyer a loan to the maximum of 80% of the property’s actual market related value.
The Buyer then must pay the shortfall, i.e. the other 20% to make up the full purchase price at settlement.
This 20% amount is generally referred to by the financier / mortgagee / bank as a deposit, which is not to be confused with the ‘contract deposit’ paid to the real estate agent. The deposit paid to the real estate agent will ultimately be part of the 20% deposit the bank / mortgagee / bank requires from the Borrower (Buyer) as that money will effectively ‘merge’ with the balance of the 20% paid at settlement.
In other words, the Buyer will not be required to pay the 20% deposit in addition to the ‘contract deposit’ paid to the real estate agent. Those two amounts will be added together to form the deposit the bank / mortgagee / financier requires.