When a Deposit Isn't Just a Deposit: What Buyers Need to Know About Failing to Complete a Property Purchase
Placing a deposit on a property is a clear show of intent—both legally and financially. But what happens when that intention falls through?
Recent headlines have highlighted the significant risks buyers face if they’re unable to complete a property transaction. While these prominent cases often involve luxury homes with big price tags, the legal and financial lessons apply to all property buyers— knowing the risks is crucial.
The Deposit Is Not Just a Holding Fee
A common misconception is that a deposit—typically 10% of the purchase price—is just a holding amount or a fee that disappears if the sale doesn’t go ahead. In reality, the deposit forms part of a legally binding agreement once contracts are exchanged. If the buyer fails to settle, the seller is usually entitled to keep the deposit.
Even if you’ve negotiated a lower deposit—say, 5%—you are still contractually liable for the full 10%. It’s common in NSW for buyers to negotiate a reduced upfront deposit to assist with cash flow, but that doesn’t change your legal obligation. If you default, the seller can demand the balance of the full 10%, and potentially more if they suffer a loss from having to resell.
Why Sales Fall Over
Sales can collapse for many reasons, including:
Finance issues: Lenders may withdraw or reduce formal approval due to a failed valuation, changes in interest rates, or shifting buyer circumstances.
Overcommitting: In hot markets, buyers may stretch themselves too far, especially under auction pressure or in competitive off-market negotiations.
Inadequate due diligence: Legal issues, planning restrictions, or unforeseen strata/building matters can emerge after the fact.
No matter the cause, the consequences can be serious.
Legal and Financial Fallout
Failing to complete a purchase after exchanging contracts can cost more than just your deposit. If the property has to be resold at a lower price, the original buyer can be held liable for the difference, plus legal costs and interest. That means a failed settlement could cost hundreds of thousands—or even millions—beyond the deposit itself.
How to Reduce the Risk
Secure full finance approval: Go beyond a pre-approval. Ensure your lender has reviewed the actual contract and performed a valuation before you exchange.
Stick to your budget: Emotional bidding can be dangerous. Always have a walk-away point—and actually walk away if needed.
Use cooling-off periods carefully: In NSW, the standard five business day cooling-off period (for private treaty sales) can offer some breathing room—but once waived, you’re locked in.
Lean on the right experts: A buyer’s agent and a qualified solicitor or conveyancer can guide you through contract reviews, risk assessments, and negotiation strategies.
Understand your obligations: If you’ve negotiated a reduced deposit, be absolutely clear about what you're still liable for. Don't assume that 5% means the risk stops there.
Final Thoughts
Exchanging on a property is not a tentative step—it’s a legal commitment. Whether you’ve put down 5% or the full 10%, the courts will treat your agreement the same way: binding and enforceable. In uncertain market conditions, the stakes are even higher.
If you’re planning to buy and want to reduce your risk, working with a professional buyer’s agent can help ensure you're not left exposed. The cost of getting the right advice is small compared to what it might cost if things go wrong.