Payment of Deposits and confusion surrounding the word

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There is much confusion surrounding the word “deposit” among purchasers in New Zealand, especially first home buyers. This is because the same term is used by different parties (like agents, banks and KiwiSaver funds) with distinctly different meanings.

 

1. Deposits payable to Real Estate Agents

This deposit is stipulated on the Agreement of Sale and Purchase of Real Estate and is a payment made by the purchaser of a property to the agents trust account (or solicitor trust account in private sales). It is in effect a prepayment of a portion of the purchase price which is meant to show that the purchaser is serious about going ahead with the deal. It is usually repaid to the purchaser in the event that their conditions are not satisfied. The industry standard is said to be 10% of the purchase price, however the amount of this deposit is totally negotiable. Many purchasers offer a fixed amount of say $10,000 as a sign that they are serious about the purchase while some purchase with no deposit at all. This deposit is payable on signing the sale and purchase agreement or once the agreement is unconditional (if stipulated in the agreement) so purchasers need to ensure that they have cash on hand to pay whatever amount they agree to. Purchasers cannot use their KiwiSaver withdrawals towards this deposit payment.

2. Deposits required by banks for mortgage approval

Banks and Brokers also refer to a deposit needed by purchasers, but this deposit has nothing to do with the deposit payable to the agents on signing the sale and purchase agreement. The deposit the brokers and banks refer to is the purchasers contribution towards the property purchase which is the difference between the price of the property and the amount of the loan. If your lender says you need a 20% deposit this means that they are only willing to give a loan for 80% of the purchase price of the property and the deposit is the balance you will need to come up with yourself. Lenders often will include KiwiSaver withdrawals as part of this deposit.

3. KiwiSaver deposit subsidy and contribution withdrawals.

KiwiSaver offer a “deposit subsidy” to of between $3000 and $5000 to buyers who meet certain criteria and may also allow for the withdrawal of your individual KiwiSaver contributions and employer contributions to go towards the purchase of a property. It is important to note that the deposit subsidy along with individual and employer contribution withdrawals are not available to purchasers to use as part of the deposit payable to the agents on signing the sale and purchase agreement as they are only advanced on the day of settlement to the purchasers solicitors trust account. Find out more about KiwiSaver help for first home buyers.

Contact the Conveyancing Shop Lawyers to find out more about deposits and any property related queries.

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2017-06-28T04:07:54+00:00 Property Law|