Who is entitled to the interest earned on property deposits?

[BLTN]

So when you pay a deposit into the REAs trust account for a property, do they earn the interest on it? Is this why some agents push for higher deposits?

Similarly, when you transfer funds to conveyancers for settlement, do they keep the interest earned here as well?

Can be a reasonable amount of money depending on circumstances - if the REA or conveyancer keep the interest, I imagine they'd earn a nice amount of money from this (for nothing).

 

[tobe]

I dont think trust accounts earn much interest. They are also expensive to maintain with extra auditing etc.

I think a lot of estate agent principals pay their sales people commission when a deposit clears. This may be one reason why they push for a higher deposit.

A lot of the time its the vendor who want to use your deposit as their deposit for the next property.

 

[BLTN]

I dont think trust accounts earn much interest. They are also expensive to maintain with extra auditing etc.

I think a lot of estate agent principals pay their sales people commission when a deposit clears. This may be one reason why they push for a higher deposit.

A lot of the time its the vendor who want to use your deposit as their deposit for the next property.

But a higher deposit would actually hurt their chances of getting a buyer to put the deposit on sooner (or at all), so that doesn't make sense...

And also, isn't the money yours until settlement - so I'm pretty sure the vendor can't use your funds as a deposit until settlement clears (in which case, the size of the deposit is irrelevant).

Somebody must be making something on it.

 

[Hulkster]

Trust accounts are usually interest and fee free

 

[tobe]

buyer a deposits on vendor b's house. vendor b accesses buyer a's deposit so they can leave a deposit with Vendor c. Its done by way of a form called a section 27 in vic and is pretty common. Not sure about WA.

Yes, asking for a higher deposit can limit the pool of buyers, as any term or condition might.

 

[Big Will]

Previously worked as a REA and the REIV taught me that the government receives the interest on the money and not the agency. The reason why the agent prefers larger deposit is to take their commission from the trust account on day of settlement rather than wait for someone else to pay them or the vendor saying no I'm not paying.

It can also benefit the vendor when purchasing if early release of deposit is allowed (strict criteria needs to be met)

 

[Peter_Tersteeg]

And also, isn't the money yours until settlement - so I'm pretty sure the vendor can't use your funds as a deposit until settlement clears (in which case, the size of the deposit is irrelevant).

Not a legal opinion, but I think the money's yours until the contract is unconditional. It's not uncommon for the deposit to get released shortly after unconditional. From there the agent and fees get paid, the vendor gets the rest.

 

[Colin Rice]

Not certain on RE deposits but I know the interest earned on rental bonds is recycled in the form of a 2k grant for WA first home buyers for sub 400k purchases. The purpose is to cover any fees and charges incurred setting up the finance.

Not a lot of people are aware of it and it is a 3 page form submitted post settlement within 6 weeks and credited to a nominated loan account.

 

[Ausprop]

buyers can direct their deposit to be banked to an interest bearing account for their benefit. I have done this before when I put down a sizeable deposit. otherwise the government keeps the money and uses it for fho incentives

 

[Ace in the Hole]

From past experiences, the interest on deposit has been split 50 50 between vendor and purchaser.
When we bought PPOR recently, we got an unexpected cheque in the mail for over $500 interest for a 5% deposit, was a nice surprise.

 

[Scott No Mates]

There is no interest paid to the trust account, it goes to the real estate fiduciary fund (for the govt to pay back to owners who have been ripped off by agents who fiddle trust accounts. The acccount does cost the agency money to hold as well as the audit fees.

If the sales contract covers interest on the deposit, it is up to the contract how/when/where this is deposited and split.

 

[D.T.]

A friend of mine on his OTP contract, added a claus that said any interest earned on his deposit would come off thr total price. It amounted to $1500, nothing to sneeze at

 

[Terry_w]

Trust accounts do not receive interest but you can the other party can both agree to have the deposit invested and could split the interest.

One of my clients did this for a recent purchase of over $1mil. The interest earned was about $14 and the realestate agent charge an admin fee of $14 - so nothing gained. Its not worth doing for a short term settlement I think.

 

[Fleur De Lis]

In NSW the deposit is held by the stake holder, usually the real estate agent although sometimes vendor's solicitor has a special condition in contract to say that deposit will go into their trust account.

The stake holder cannot release the deposit until they receive what we call an "Order on the Agent" which is handed to the vendor's solicitor at settlement and allows the stake holder to release the deposit to the vendor.

The deposit by law cannot be released to the vendor before settlement unless there is a special condition in the contract requesting it be released. However the purchaser must "agree" to release the deposit and without going into detail as to the risks of releasing the deposit to the vendor before settlement, I always request that this clause be deleted from the contract before exchange.

If agent is the stake holder both parties have to agree to invest the deposit which is never a problem and after settlement the interest earned must be equally divided between purchaser and vendor.

If it is a deal breaker and therefore the purchaser agrees to release the deposit it is always wise to put a caveat on the title.

Fleur

 

[BLTN]

Some interesting posts here, seems like it is a bit of a mixed bag and with different policies across the board.

Thanks for the replies

 

[oc1]

buyers can direct their deposit to be banked to an interest bearing account for their benefit. I have done this before when I put down a sizeable deposit. otherwise the government keeps the money and uses it for fho incentives

Sellers can do this too, just include it in the sales contract. Goes a long way in paying your legals if it's a decent amount and long settlement.

 

[gavins1]

5% deposit

We are just negotiating our contract for our first investment property, the vendor wants 5% deposit on condition they can use it as a deposit for themselves on their new house. The solicitor said it is ok to do but there is a very small risk something can go wrong and can have troubles getting it back. Is this a normal thing to do?

 

[thatbum]

Some interesting posts here, seems like it is a bit of a mixed bag and with different policies across the board.

Thanks for the replies

Not in WA it isn't. Its straight up set out in the joint form of general conditions.

 

[Perp]

An interesting trap/loophole that I discovered is that in Queensland, the real estate agent isn't obliged to release the deposit at settlement, but has up to 14 days from settlement to hand over the funds to the seller.

So let's say the deposit was $20K on a $200K purchase, we had a situation where the seller wasn't going to hand over title at settlement until they had all their $200K, and the real estate agent said they wouldn't release the $20K deposit in their trust fund at settlement, but would hand it over in 14 days.

Our lender, in order to secure the title, handed over $200K rather than $180K at settlement, then sent us a letter claiming we'd overdrawn our loan by $20K and insisting we take drastic and immediate action to get the real estate agent to hand over the deposit, and advising that they were charging us some outrageous overlimit fees every day that they didn't have the $20K.

I got the letter in my hospital bed, a few days after my twins had been born nearly 10 weeks premature by emergency C-section, so to this day I'm not sure why this all created such a kerfuffle, because apparently the 14 days to release the deposit is standard by legislation, and presumably the lender does settlements every day, and I've never had another one go wrong... but all these years later, I'm curious to know what this was about. Can anybody enlighten me?

 

[BLTN]

Not in WA it isn't. Its straight up set out in the joint form of general conditions.

Well what do you know - so it is Maybe I should have read that....