Contract Deposit in NSW: 5% vs 10% at Exchange. What’s the Difference?
When buying property in NSW, one of the key financial commitments you need to understand is the contract deposit paid at exchange.
You will commonly see a 10% deposit, particularly at auctions and in standard residential contracts. However, some sellers may agree to a 5% deposit or another negotiated amount.
So, what’s the difference between paying 5% and 10%?
More importantly, does choosing a 5% deposit mean you need less money to buy the property?
Not necessarily.
The contract deposit is only one part of the money you need to complete your purchase. Your loan, cash contribution, stamp duty, government charges and other purchasing costs all need to be considered before you commit to the property.
What is a contract deposit?
A contract deposit is money paid by the purchaser following the exchange of contracts.
In a typical NSW residential purchase, the deposit is paid to the deposit holder specified in the contract, commonly the seller’s solicitor or conveyancer’s trust account or a real estate agent’s trust account.
The deposit is generally held until settlement, subject to the terms of the contract and applicable NSW rules.
For example, if you purchase a property for $1,000,000:
| Contract deposit | Deposit amount |
|---|---|
| 5% | $50,000 |
| 10% | $100,000 |
The difference is $50,000 of cash required at exchange.
That’s a significant difference for many buyers.
5% vs 10% deposit at exchange
The biggest practical difference is the amount of cash you need to provide when contracts are exchanged.
Example: $1 million property
With a 10% deposit:
$1,000,000 × 10% = $100,000
With a 5% deposit:
$1,000,000 × 5% = $50,000
So a 5% deposit could leave an additional $50,000 in your bank account after exchange.
However, this does not automatically mean your mortgage will be smaller.
That’s an important distinction.
Does a 5% contract deposit mean you only need a 5% deposit overall?
No.
The contract deposit and your overall contribution toward the property are not necessarily the same thing.
For example, suppose you purchase a $1 million property and your lender is providing an 80% loan.
Your loan could be:
$800,000
Your total contribution toward the purchase price would therefore be:
$200,000
If the contract requires a 5% deposit, you may pay:
$50,000 at exchange
The remaining $150,000 of your contribution would generally be required by settlement, subject to the contract and your loan arrangements.
With a 10% contract deposit, you could instead pay:
$100,000 at exchange
with the remaining $100,000 required toward the purchase price at settlement.
The key point
A 5% contract deposit changes when you need to provide some of your cash, not necessarily how much you need to contribute overall.
Why would a buyer want a 5% deposit?
There can be several practical reasons.
1. It preserves cash after exchange
A buyer may have enough funds to complete the purchase but not want to commit $100,000 at exchange when $50,000 could satisfy the agreed contract deposit.
That additional cash may be needed for:
- Stamp duty
- Conveyancing and legal costs
- Building and pest inspections
- Lender costs
- Moving expenses
- Renovations
- Other purchasing expenses
- Maintaining an emergency cash buffer
This can be particularly important for first-home buyers who have limited cash reserves.
2. It can help with cash-flow management
Consider a buyer purchasing a $1 million property.
A 10% contract deposit requires:
$100,000 at exchange.
A 5% deposit requires:
$50,000 at exchange.
If the buyer has $200,000 available for the purchase, the difference can be significant.
A lower deposit at exchange can provide more flexibility between exchange and settlement.
3. The buyer may be using finance
Buyers who are borrowing money need to carefully coordinate their available cash with their loan.
The contract deposit is normally not borrowed from the lender as part of the settlement loan.
The buyer generally needs to have access to the required deposit funds when contracts are exchanged.
This is why your finance position should be understood before you make an offer or bid at auction.
Why would a seller want a 10% deposit?
From the seller’s perspective, a 10% deposit provides a larger financial commitment from the purchaser.
It can also provide greater protection if the purchaser subsequently defaults, depending on the contract and circumstances.
A seller may therefore prefer the traditional 10% deposit.
However, the deposit amount is a contractual matter and can sometimes be negotiated.
Don’t assume a seller will automatically accept 5%.
You need to establish the deposit requirement before you exchange contracts.
Can you negotiate a 5% deposit in NSW?
In some transactions, yes.
The deposit amount can be negotiated between the buyer and seller and documented in the contract.
For example, a seller might agree to:
- 5%
- 7.5%
- 10%
- Another agreed amount
However, whether the seller agrees depends on the circumstances of the transaction.
A negotiated 5% deposit should be properly reflected in the contract before exchange.
This is particularly important before auction.
If you’re bidding at auction, you should understand the contract terms before you bid, including the deposit required if you are successful.
You don’t want to win the auction and only then discover that you need to produce $100,000 when you had planned around a $50,000 deposit.
What happens if you can’t pay the contract deposit?
This is where buyers need to be particularly careful.
Once contracts are exchanged, you have entered into a legally binding contract, subject to its terms.
Failing to comply with the contract can have serious financial consequences.
Depending on the circumstances, a default could potentially result in the seller exercising contractual rights, including claiming damages or terminating the contract.
The consequences depend on the specific contract and circumstances.
If you’re unable to pay the deposit required under the contract, don’t simply assume you can pay it later.
Speak to your solicitor or conveyancer immediately.
What about a deposit bond?
Another option that may be available in some circumstances is a deposit bond.
Instead of paying the cash deposit upfront, a deposit bond can provide a guarantee to the seller for the required deposit amount, subject to eligibility and the terms of the arrangement.
For example, instead of physically paying a $100,000 deposit at exchange, an eligible buyer might use a deposit bond for the required amount.
However, deposit bonds aren’t suitable for everyone.
You need to understand:
- Whether the seller will accept one
- Whether your lender is comfortable with the arrangement
- The eligibility requirements
- The cost
- How the bond interacts with your settlement arrangements
Always get appropriate professional advice before relying on a deposit bond.
5% vs 10%: A simple example
Let’s look at a $1.2 million property.
10% deposit
$1,200,000 × 10% = $120,000
5% deposit
$1,200,000 × 5% = $60,000
That’s a $60,000 difference in cash required at exchange.
But if your loan is 80% of the purchase price, your overall contribution toward the purchase price remains approximately:
$240,000
The difference is primarily when the money is required, rather than necessarily reducing the total amount you need to complete the purchase.
Don’t confuse the contract deposit with your loan deposit
This is one of the most important things for property buyers to understand.
People often use the word “deposit” to describe two different things.
Contract deposit
The amount specified in your purchase contract and paid at exchange.
Loan deposit / buyer contribution
The amount of your own funds required to complete the purchase after taking your loan into account.
These can be different amounts.
For example:
Purchase price: $1,000,000
Loan: $800,000
Total buyer contribution: $200,000
Contract deposit: $50,000
In this example, the buyer isn’t buying the property with only $50,000.
The $50,000 is simply the amount being paid as the contract deposit at exchange.
What buyers should check before exchange
Before exchanging contracts, make sure you understand:
1. How much is the contract deposit?
Is it 5%, 10%, or another amount?
2. When is the deposit payable?
Usually, this will be connected to exchange, but the exact contract terms matter.
3. Do you actually have access to the money?
Don’t rely on money that isn’t immediately available.
4. Is your finance ready?
If you’re borrowing, understand your borrowing capacity, proposed loan amount and expected contribution.
5. Have you allowed for stamp duty and other costs?
Your contract deposit isn’t necessarily your only cash requirement.
6. What does the contract say?
Your solicitor or conveyancer should review the contract and explain the relevant terms before you commit.
Is a 5% deposit better than 10%?
Not necessarily.
A 5% contract deposit can be useful because it reduces the amount of cash required at exchange.
But the “better” option depends on the buyer’s circumstances and the seller’s requirements.
A 5% deposit may be useful when:
- You want to preserve cash until settlement
- You have substantial costs to pay after exchange
- You’re a first-home buyer managing a limited cash balance
- The seller is willing to negotiate
- Your finance structure supports the purchase
A 10% deposit may be appropriate when:
- The contract requires it
- The seller won’t negotiate
- You have sufficient cash available
- The transaction is structured around a traditional 10% deposit
The important thing is to understand the entire transaction, rather than focusing only on the deposit percentage.
What should buyers do before making an offer?
Before making an offer or bidding at auction, you should know:
1. Your maximum purchase price
2. Your borrowing capacity
3. Your available cash
4. Your expected government charges and purchasing costs
5. The contract deposit required
6. Your expected settlement contribution
7. Whether your finance has been appropriately assessed
This can prevent a situation where you successfully secure a property but discover that you don’t have enough accessible cash to meet the contract requirements.
Final takeaway: 5% vs 10%
The difference between a 5% and 10% contract deposit in NSW can be substantial.
On a $1 million property:
5% = $50,000
10% = $100,000
A 5% deposit can preserve $50,000 of cash until settlement, but it doesn’t automatically mean the buyer needs $50,000 less overall to purchase the property.
Your total cash requirement depends on your purchase price, loan amount, government charges, transaction costs and other expenses.
Before exchanging contracts, make sure you understand both your finance position and the contract terms.
Buying property isn’t just about getting the property price right — you also need to get the cash-flow and finance structure right.
Need help working out your buying position?
At Truth Group – Buyers Advocate + Finance, we help property buyers understand their purchasing position before they commit to a property.
Whether you’re a first-home buyer, next-home buyer or property investor, we can help you look at the property purchase from both the property and finance perspectives.
Know what you can borrow before you buy.
Contact Truth Group to discuss your property and finance strategy.