Decoding the monetary risks involved when paying a deposit for a property

Property transaction costs, which can include transfer duty, bond registration and legal fees, as well as moving expenses, are often accepted as the grudge spend when buying a property.

But for many, the biggest upfront financial exposure is the deposit. This is the ­money paid long before the property is registered in your name, and long before you have the comfort of knowing the transaction has been completed.

You may spend months worrying about bond approvals, interest rates and whether you can afford the monthly repayments on a new home. Far less attention is paid to a more immediate risk: what happens to the money you put down as a deposit if the property transaction never reaches registration?

Jackie Smith, CEO of Buyers Trust, says buyers often assume that once an offer has been signed, the transfer process is linear and guaranteed. “But the reality is that many transactions hit obstacles long before registration takes place,” she cautions.

Obstacles can include delayed bond approvals, problems with compliance certificates, disputes over fixtures and fittings, missed deadlines, or disagreements over the terms of the contract. In some cases, a buyer or seller may walk away under the conditions set out in the agreement.

The deposit can be between 10% and 20% of the purchase price. On a R2-million ­property, that could mean R200,000 to R400,000 paid over upfront. In some cases, particularly when buyers are purchasing in cash, the full purchase price may be paid upfront, which creates an even greater level of financial exposure. “If the deal falls apart, buyers need to know: where is my money, who controls it, and how quickly can it be returned?” Smith says.

In most property transactions, the deposit is held in a conveyancer’s trust account until the transfer takes place. This is a normal part of the process, but it does not mean buyers should stop asking questions.

The conveyancer may be acting for the seller in facilitating the transfer while also holding funds in trust on behalf of the buyer until registration. Smith says this can create tension if the transaction collapses and a dispute emerges over who is entitled to the deposit.

Until the transfer is completed, the conveyancer holds the purchase price or deposit on behalf of the buyer. However, if a dispute develops between the buyer and seller, the release of such funds can be delayed while the legal position is clarified or contested.

These are the practical steps you should take before you pay a deposit:

Custody: Before transferring any funds, ask whether the deposit will be held by conveyancers, estate agents or a secure deposit specialist. Buyers should also ask whose name the account is in, what type of account it is and what statements or confirmations they will receive.

Touchpoints: Find out how many parties are involved in handling the money. The more touchpoints there are in the process, the greater the risk of delays, confusion or unnecessary exposure.
Smith says buyers should prioritise secure and transparent deposit structures that limit unnecessary handling of funds while maintaining clear oversight throughout the transfer process.

Release conditions: Don’t assume your deposit will automatically be returned if the transaction does not proceed. The contract will set out the conditions under which either party can cancel, and what happens to the deposit if the cancellation is disputed.

Smith says independent deposit solutions such as Buyers Trust allow funds to be held in a bank-hosted account in the buyer’s name, with controlled encrypted release mechanisms in place.

Potential disputes: Typical areas of contention can include bond approval timelines, compliance certificates, occupational rent, suspensive conditions, repairs, fixtures or deadlines.

Cybercrime risk: Property transactions are attractive targets for criminals because the amounts are large, the process involves several parties and buyers are often under pressure to act quickly.

Fraudsters may intercept emails or send fake payment instructions that appear to come from a conveyancer, estate agent or other party involved in the transaction. You should phone the firm directly, using a number you have independently sourced, before making payment. Be suspicious of any last-minute change in banking details, particularly if it arrives by email. DM