What is a holding deposit?

Are you still a little bit unclear on what stage of the home buying process you will need to pay a deposit at, and how much you’ll need to pay? In this post, let us walk you through what a holding deposit is and when it will be due.‌‌

What is a holding deposit and why do I need to pay it?

A holding deposit (don’t confuse it with a home deposit) is a fully refundable payment. This deposit gives an indication of a buyer’s intent to progress with the purchase of a property. Usually, the prospective purchaser pays the deposit to the seller when the transaction is a private sale, not an auction.

The exchange of this deposit allows the vendor to see the purchaser’s serious intent. For the buyer, it can be a way to secure a property you are really excited to purchase. The holding deposit is typically around 0.25% of the purchase price, but this can be negotiated. As per the NSW Fair Trading, the holding deposit will be set at a default of 0.25%. This is because this is what the purchaser will need to pay the vendor if they withdraw from the purchase for any reason. In the case when the purchaser changes their mind, the 0.25% will be due. This is regardless of whether the deposit was paid or not.

 However, if there are any issues with the sale before the exchange of contracts, it is fully refundable (more details on this later).‌‌

How good? Image credit: Todd Kent on Unsplash

‌When do I need to pay this deposit?‌

The holding deposit is typically paid before the exchange of contracts. When contracts are exchanged, the remaining 9.75 per cent, or whatever the balance of the 10 per cent now is, is added to the home deposit and the sale will go through like any other (at the conclusion of the cooling-off period, if applicable).‌

We hope you’ve gained some clarity on what the purpose of a holding deposit and when you’ll need to pay it as part of your home buying journey. As always, if you have any further queries, feel free to contact BFG and we will respond promptly.‌‌

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Disclaimer: The information provided is general in nature and does not constitute financial advice. Please speak to us for recommendations on your individual circumstances and requirements.