KEY TAKE-OUTS: Why we are seeing an increase to requests for a reduced deposit of 5% Potential risks to accepting a 5% deposit when you are selling Ways to minimise the risk to the Vendor Should Vendors Accept a 5% Deposit? More than ever, vendors are being asked to accept a reduced 5% deposit when selling their property. This shift is largely due to rising property prices, buyers having limited savings, and government initiatives such as the Home Guarantee Scheme. Under this scheme, eligible first home buyers can purchase a property with as little as a 5% deposit without paying Lenders Mortgage Insurance (LMI). Why is 5% Considered a Reduced Deposit? In NSW, the standard deposit is 10% of the purchase price. This amount is specified on the front page of the Contract for Sale and must be paid to the vendor’s agent or solicitor before the cooling-off period expires. The deposit is then held in trust until settlement. During the cooling-off period, a purchaser may request that the vendor accept a reduced 5% deposit instead of the standard 10%. Key Considerations Before Accepting a 5% Deposit 1. Financial risk if the purchaser fails to settle. If a purchaser is unable to settle and the vendor terminates the contract, the vendor is generally entitled to retain the full 10% deposit and relist the property for sale. However, if only a 5% deposit has been paid, the vendor will only automatically have access to that 5%. Recovering the remaining 5% would require legal action, which can be time-consuming, costly, and in some cases not financially worthwhile depending on the amount involved. 2. Access to deposit funds before settlement Some vendors rely on the deposit funds prior to settlement for a deposit on another property, to pay transfer (stamp) duty, or cover settlement costs. Accepting a reduced deposit means less money may be available if early access is required. Vendors should carefully assess their financial position before agreeing to a lower deposit amount. How to Minimise the Risk Accepting a 10% Deposit Bond. If a purchaser does not have a full 10% cash deposit available, the vendor may consider accepting a 10% deposit bond instead. A deposit bond is issued by an approved provider and acts as a guarantee to pay the full 10% deposit at settlement. If the purchaser fails to settle and the contract is terminated, the bond issuer pays the vendor the 10% deposit and then seeks reimbursement from the purchaser. It is important to note that, unlike a cash deposit, funds secured by a deposit bond cannot be accessed prior to settlement. Therefore, this option may not be suitable for vendors who need early access to deposit funds. Final Thoughts Declining a 5% deposit may mean losing some potential buyers, particularly first home purchasers who only have limited funds available. However, vendors must weigh this against the financial risks and their own circumstances. Carefully considering your financial position, settlement plans, and risk tolerance is essential before agreeing to accept a reduced deposit. 💬 Thinking about Selling your Property? The experienced Property & Conveyancing team at Coutts Lawyers & Conveyancers can review your contract, explain the risks, and help ensure you understand exactly what your prospects are and create an air-tight contract. Contact us on 1300 COUTTS to speak with a property law expert today. ABOUT NELLY TONG Nelly joined the Coutts Property Law and Conveyancing team in March 2025, working from our Campbelltown Office. Nelly has acquired her Conveyancing Studies at Macquarie University with Distinction. For further information, please don’t hesitate to contact: Nelly Tong Conveyancer info@couttslegal.com.au 1300 268 887 Contact Coutts today. This blog is merely general and non-specific information on the subject matter and is not and should not be considered or relied on as legal advice. Coutts is not responsible for any cost, expense, loss or liability whatsoever in relation to this blog, including all or any reliance on this blog or use or application of this blog by you. Contact Us