Understanding the Deposit When Buying in New Zealand

The deposit paid when you make an offer is one of the most misunderstood parts of the Canterbury property buying process. Many buyers confuse the offer deposit with their home loan deposit. Here is how it actually works.

What the Offer Deposit Is

The deposit in the sale and purchase agreement is a sum paid by the buyer when an offer is accepted - or at a later specified date - as a sign of commitment to the purchase. This is separate from your bank deposit (the equity you are contributing to avoid or minimise borrowing). The offer deposit is typically 5-10% of the purchase price. On a $700,000 Canterbury property, a standard 10% deposit is $70,000. Some buyers negotiate a lower initial deposit (even $1,000-$2,000 as an immediately payable deposit, with the balance payable on going unconditional) to reduce the cash flow requirement at the time of the offer.

When Is the Deposit Paid

The deposit payment timing is specified in the sale and purchase agreement. Common arrangements are: the full deposit payable immediately on acceptance of the offer; a small initial deposit immediately payable, with the balance payable on the agreement going unconditional; or the full deposit payable at the unconditional date. For conditional offers where the conditions may not be satisfied, a staged deposit arrangement protects the buyer from having a large sum tied up during the conditional period.

Where the Deposit Is Held

The deposit is paid into the real estate agency's statutory trust account - not to the vendor directly. It stays there until either: the sale settles (in which case it forms part of the total purchase price at settlement); or the agreement is cancelled with the deposit to be returned. The agency cannot use trust account funds for its own purposes. This protects both buyers and vendors.

What Happens If the Sale Falls Through

If the agreement is cancelled because a buyer's condition (finance, building report, LIM) is not satisfied in time, the deposit is returned to the buyer. If the buyer defaults after going unconditional and the vendor cancels the agreement, the vendor may be entitled to retain the deposit as compensation. Your solicitor advises on the specific circumstances in any given situation.

Information from Settled.govt.nz, the Real Estate Authority, and the New Zealand Law Society. For general information only - always obtain independent legal advice regarding deposit terms before signing any agreement.