Deposit and settlement in NSW — how they actually work

The short version

On exchange of contracts you pay a deposit — by default 10% of the purchase price. Then there's a gap, the settlement period, while finance is finalised and searches are completed. On the settlement date you pay the balance, the title transfers to you, and you get the keys.

Almost every number here is negotiable, and the contract sets the consequences if either side misses the date. The detail is worth understanding before you exchange, not after.

The deposit

• How much. The standard is 10% of the price, paid on exchange. It's held in trust — usually by the agent or the vendor's solicitor — not handed to the vendor.
• Negotiating a 5% deposit. Many buyers negotiate a reduced deposit (commonly 5%) by special condition. Read that condition carefully: in many cases the full 10% is still the contractual deposit, and the unpaid balance becomes payable if you default — so a "5% deposit" doesn't always cap your exposure at 5%.
• Deposit bonds and bank guarantees. Instead of cash, some buyers use a deposit bond or bank guarantee as the deposit. The vendor has to agree, usually by special condition, and the bond has to cover through to settlement.
• If you don't complete. If you fail to settle and the vendor terminates, you can forfeit the deposit — and if you paid a reduced deposit, you may still owe the difference up to the full 10%, plus the vendor's losses. This is the single biggest reason to have finance and inspections sorted before you exchange.

The settlement period

Settlement (also called completion) is the day the transaction finishes. A typical NSW settlement period is around six weeks, but it's negotiable — shorter if everyone's ready, longer if you need time to arrange finance or sell another property. The agreed period is written into the contract.

These days most settlements happen electronically through PEXA rather than a physical meeting. Your conveyancer or solicitor and your lender complete the transfer and the payment online, and the title is updated on settlement.

Adjustments at settlement

At settlement the ongoing costs of owning the property are adjusted between vendor and buyer as at the settlement date — so each side pays only for the period they actually own it. The usual adjustments are:

• Council rates
• Water and sewerage charges
• Strata levies, if the property is in a strata scheme
• Land tax, where it applies and the contract makes it adjustable

Your conveyancer calculates these so that, for example, if the vendor has prepaid council rates past settlement, you reimburse them for the portion that falls in your ownership — and vice versa.

What happens if settlement is late

If you can't settle on the due date, the contract usually allows the vendor to charge penalty interest on the unpaid balance for each day you're late. The rate is set out in the contract and is typically well above a normal market rate, so late settlement gets expensive quickly. If you're badly delayed, the vendor can ultimately serve a notice to complete and, failing that, terminate and forfeit your deposit.

The practical takeaway: treat the settlement date as a hard deadline and make sure your lender is genuinely ready to disburse on the day.

What to check before you sign

1. Is the settlement period workable? Confirm with your lender that finance can be unconditional and funds available by the date in the contract.
2. What's the deposit, really? If you're paying a reduced deposit, read the special condition to see whether you're still on the hook for the full 10% on default.
3. What's the penalty interest rate? It's in the contract — know it before you sign, not when you're scrambling at settlement.
4. Are there any possession or rent-back terms? Some contracts let the vendor stay on after settlement, or give early possession — both carry risk and should be documented.
5. Who holds the deposit? Confirm it's held in a trust account, and check any condition that releases the deposit to the vendor before settlement.

Common questions

Can I get my deposit back if I change my mind?

During a valid cooling-off period you can rescind, but you forfeit 0.25% of the price. After cooling-off ends (or if you waived it), pulling out generally means losing the whole deposit. If you bought at auction, cooling-off never applied.

Is the deposit part of the purchase price?

Yes. The deposit is the first instalment of the price, not an extra fee. At settlement you pay the balance — the price minus the deposit already paid, adjusted for rates and levies.

Can the settlement date be extended?

Only by agreement, unless the contract provides for it. If you think you'll be late, your conveyancer should approach the other side early — an agreed extension is far cheaper than penalty interest and a notice to complete.