What Happens to Your Deposit If a NSW Property Sale Falls Through

In NSW, what happens to your deposit when a sale falls through depends almost entirely on when and why it falls through. Before exchange, a holding deposit is refundable. During the cooling-off period, you can usually walk away and lose only 0.25% of the price, but once the cooling-off period ends (or if there was never one, as at auction), a buyer who cannot complete will usually lose the deposit and may be liable for more.

The short version: it depends on timing

In a NSW purchase, there are three moments where your deposit is at stake, and the rules differ at each:

• Before exchange, when you might pay a holding deposit or expression of interest deposit

• At exchange, when you usually pay the main deposit of 10% of the purchase price

• After the cooling-off period, when the contract is fully binding

Our deposit glossary entry covers the basics if you want the short definition first.

Before exchange: holding deposits are refundable

If you have paid a holding deposit (sometimes called an expression of interest deposit) to show you are serious, the NSW Government is clear that it is refundable. Paying it does not reserve the property, and it does not take the home off the market.

Before taking a holding deposit, the agent must give you written information that neither side is obliged to buy or sell, that the money is refundable if no contract is entered into, and that you sign to confirm you understood that.

If someone else exchanges on the property, you are entitled to a full refund, which the agent must pay within 14 days. There is more on how these work in our holding deposit glossary entry.

You do not get back anything you spent along the way. If you are gazumped, neither the agent nor the seller has to cover your legal advice, inspection reports or finance costs.

During the cooling-off period, you lose 0.25%

For most private treaty sales of residential property in NSW, you have a 5-business-day cooling-off period after exchange. It ends at 5 PM on the fifth business day. Off-the-plan contracts have a longer cooling-off period of 10 business days.

If you pull out during the cooling-off period, you forfeit 0.25% of the purchase price to the seller, taken from the deposit you paid. That works out to $250 for every $100,000. On a $1,800,000 purchase, that is $4,500. The rest of the deposit comes back to you. Our cooling-off period glossary entry explains how we calculate the period.

There are three situations where you may have no cooling-off period at all:

• You buy at auction

• You exchange on the day of the auction after the property is passed in

• You sign a Section 66W certificate, which waives the cooling-off period (the period can also be shortened or extended by written agreement)

Sellers often ask for a 66W when they want certainty. That is fine, but have finance, building and pest reports and contract advice finished before you sign.

After cooling-off: if the buyer cannot complete

Once the cooling-off period has ended, or if there never was one, the contract is binding. The NSW Government's guidance for auction buyers is clear: if you cannot complete the contract, you will lose your deposit, and you may be liable for any damages suffered by the seller.

The usual causes are ordinary: late finance problems, a buyer's own sale not settling in time, or a low bank valuation.

In limited cases, a NSW court can, under section 55(2A) of the Conveyancing Act 1919, order repayment of a deposit. Courts use it sparingly, generally only where keeping the deposit would be unjust in the circumstances.

It is not something to plan around. If you are heading towards a default, talk to your solicitor or conveyancer early, because an extension or a negotiated outcome is usually far better than a dispute.

When the seller is the reason it falls through

If the contract ends because the seller cannot or will not complete, or because a condition in the contract that protects you is not met, the deposit is generally returned to the buyer. How and when depends on the contract terms.

That is why the wording of any special conditions matters, and why it is worth knowing who holds your deposit.

The selling agent, a solicitor, or a conveyancer usually holds the deposit in a trust account until settlement. Some contracts include a clause allowing the deposit to be released to the seller before settlement, often so they can use it for their own purchase.

If the sale then fails, getting released money back can be much harder. Ask your solicitor to review any early release clause closely before you exchange.

The Illawarra angle

A few local patterns make this topic more than theory in the Northern Illawarra.

Many buyers here are moving down from Sydney and need to sell their current home to fund the purchase.

If the timing of the two contracts does not line up, the risk of not being able to complete is real.

Bridging finance, a longer settlement, or simply not exchanging until your own sale is unconditional are all ways to manage that.

Well-presented homes in Thirroul, Austinmer and Coledale can attract competition, and sellers may ask for a 66W to lock in a buyer.

Only agree once you have done the work.

Properties on steep escarpment blocks, near creeks, or with unusual construction can also be harder for lenders to value. A lower valuation late in the process can leave a buyer short of funds to complete.

Getting your lender's position on the specific property before you waive cooling-off removes a lot of that risk. A buyer's agent can help you sequence these steps so nothing is left until after exchange.

What to check before you buy

• Know whether you are paying a holding deposit or exchanging, and get a receipt either way

• Confirm whether a cooling-off period applies, and when exactly it ends

• Do not sign a 66W until finance, inspections and contract review are complete

• Get unconditional or formal finance approval for the specific property, not just pre-approval

• Ask who will hold the deposit and whether the contract allows early release to the seller

• If you are offering a smaller deposit than 10%, ask your solicitor what you would owe if you defaulted

• If you need to sell first, line up the settlement dates or arrange bridging finance before you exchange

• Have your solicitor or conveyancer review the contract and any special conditions before you sign

Buyer takeaway

Your deposit is safest before exchange and most exposed after cooling-off ends. The practical move is to do your checking early: finance, valuation, inspections and contract advice should all be done while you can still walk away cheaply.

If a seller is pushing for a fast, unconditional exchange, that is the moment to slow down for a day, not speed up. For a step-by-step view of the whole process, see our guide to how offers and exchange work in NSW.

Frequently asked questions

Do I get my holding deposit back if I change my mind?

Yes. In NSW, a holding or expression of interest deposit is refundable if no contract is entered into, and if someone else exchanges on the property, the agent must refund you in full within 14 days.

How much do I lose if I pull out during the cooling-off period?

0.25% of the purchase price, which is $250 for every $100,000. It is taken from the deposit you paid, and the balance is returned to you.

Is there a cooling-off period if I buy at auction?

No. There is no cooling-off period when you buy at auction, or when you exchange on auction day after the property is passed in. Have your finance and inspections finished before auction day.

Can I get my deposit back if my finance falls through after exchange?

Usually not, unless the contract includes a condition that covers it or the seller agrees. Once the cooling-off period ends, a buyer who cannot complete will generally lose the deposit. Speak to your solicitor straight away if this looks likely.

If you are buying in the Northern Illawarra and want help sequencing finance, inspections and exchange so your deposit is not left exposed, book a free 15-minute call with Joel.

This article is general information only and is not legal or financial advice. Contract terms vary, so speak with your solicitor or conveyancer about your specific purchase.