G'day
When I was doing the licensing course, there was quite a bit of discussion regarding the payment of deposits.
Contract law does not require a deposit.
The Contract stands alone. Should one party - not necessarily a purchaser, remember contract law governs all contracts - default, the other party can sue for feasance (completion) of the contract.
The Sale of Land Act in particular, and the Property Law Act, govern the way and manner in which sales of real estate may occur.
The payment of a deposit is common practice primarily because most property transactions are conducted with the help of an intermediary, that is, a licensed estate agent. The agent acts as stakeholder only, and has no interest in the deposit money unless and until the contracts are unconditional and the vendor has answered any questions (requisitions) which the purchaser may have regarding the vendors right to title and any other matters affecting the property eg fencing notices, road widening etc
The purchaser may then, at their discretion, allow the agent to then account for the sale to the vendor, withhold their commission and any authorised expenses, and forward the balance of the deposit to the vendor ahead of the actual settlement time.
This procedure allows the vendor access to funds - they may, after all, need the money to put a deposit on another property, and for the agent to be paid. Some settlements run for months(180 day settlements for example) and it would impose an unfair burden on the agency to have to wait until settlement to be paid for work done and legally completed when the contracts become unconditonal.
As for the payment of deposit, there are two parts to a contract. The Promise and the Consideration.
The Promise is for example, I will erect a fence on your property.
The Consideration may, for example, be that you will 'pay' me with a spring calf.
How, then, would you pay me a deposit? The calf is not yet born.
In property matters, the Promise is that I will release to you the title for the land, and all improvements thereon, and that ownership will pass to you.
The Consideration is that you will pay me $100,000 for the property.
If there is no intermediary, or I don't require a deposit from you, or you have no cash money etc, the exchange of signed contracts is sufficient under the law.
S. 123 of the Instruments Act details which transactions require the agreement to be evidenced in writing. For the sale of property it is mandatory, but the contract can be on the back of an envelope provided that all legislative requirements are met - name, address, description of the property, etc.
No Consideration, no settlement, no title. Simple as that.
However, if I relied on the Contract and eg refused other offers or committed myself to the purchase of another property, and you failed to complete the contract, I may consider suing you for feasance, or some other form of financial penalty. But this is getting off the track regarding deposits.
The various acts detail that IF a deposit is paid, how it shall be paid, to whom, and their responsibilities etc
The custom of paying 'sincerity' deposits is just that, a custom, and not mandatory.
But as has been previously stated, the vendor has their property on the market and it is they who determines the price, terms and conditions of sale. I bought the 'medical centre' at public auction with $1,000 deposit. The Auctioner read the contracts aloud to the crowd, and stated 10% on the signing thereof, etc, but I had asked privately before the auction started that if I was the purchaser I could only pay $1,000 on the day. The Vendor agreed to that in principle prior to commencement of proceedings and so that is what I paid on the day, with the balance of the 10% seven days later. As an unconditional sale, the agent could then account the sale and everybody was happy.
By the way, I have seen some agencies advertising that they are 'Licensed with the REIV'. What poppycock! they may be a 'Member' but the REIV, or the REIQ, or any other industry association is just that - a professional club and lobby group, nothing more.
Licensing is the responsibility of the (in Victoria) Department of Justice, Consumer Affairs.
Industry bodies may have 'Codes of Practice', but these are voluntary. The Estate Agents Act has Regulations which exceed codes of practice and which are legally binding on the agent.
Sales staff with not much experience may simply pass on gossip which they have heard but only half understood. If you think that something peculiar is being said to you, politely ask to speak with the licensed Agent. Have a bit of tact, don't insult the rep, but after all even the contractual obligations are part of your Due Diligence so don't rush into signing papers and then complain later that things got messy.
You are quite within your rights to take the contracts away to peruse yourself, or to take to your conveyancer or solicitor.
Should you decide to seek legal advice on the Contracts, remember that this will void your 'Cooling Off' period, and you might (might!) be gazumped while you are out of the agent's office.
And just a final word regarding Trust Accounts. Even if you are buying / selling privately ie directly with the other party, deposits must be held in a trust account until the sale is unconditional etc. It is my understanding that conveyancers do not have this type of trust account. The Act allows that any endorsed Trust account - solicitor, accountant, estate agent, may hold the funds. In class, we were amazed to hear that anyone can walk in off the street and ask an agent to accept money into their trust account to fulfil these conditions. None of us had heard of this before, and we couldn't imagine too many agents being willing to do this, given that they bear the costs of the account which cannot be redeemed.
Anyway, Captain, happy property hunting!
cheers
Kristine
