Deposit at Risk Calculator NZ

Updated  Exposure on a cancelled agreement is not capped at the deposit. Get legal advice.
Quick answer Failing to settle an $800,000.00 purchase where the property later resells for $760,000.00 leaves the vendor with a loss of $104,304.11 once their resale costs, holding costs and default interest are counted. Your $80,000.00 deposit covers part of it, and you can be pursued for the remaining $24,304.11. Total exposure is $104,304.11, which is 1.3 times the deposit.

Almost everyone who signs an unconditional agreement believes the worst case is losing the deposit. It is an understandable belief, because the deposit is the only number anyone mentions, and it is wrong in a way that has ended people financially. The purpose of a damages claim is to put the vendor where they would have been if you had settled, not to fine you a fixed amount, so the deposit is credited against a loss rather than being the loss. Where the market has moved against them and the property resells for less, where they have paid a second commission and run a second campaign, and where default interest has accrued for months, the total can comfortably exceed what you handed over. This page exists to put that number in front of people while they still have the option of not signing.

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The purchase you cannot complete
What the vendor will claim
Your exposure is $24,304.11 more than the deposit you have already paid.
Total exposure
$104,304.11
1.3 times the deposit
Deposit forfeited
$80,000.00
the part everybody knows about
Pursued beyond the deposit
$24,304.11
the part almost nobody expects

What the vendor has lost

Price you agreed to pay$800,000.00
What the resale achieved$760,000.00
Shortfall on the resale$40,000.00
Cost of selling it a second time$35,000.00
Holding costs while it was unsold again$8,000.00
Default interest on the unpaid balance$21,304.11
The vendor's total loss$104,304.11
Less the deposit they already hold$80,000.00
What can still be claimed from you$24,304.11

Where the exposure comes from

ComponentAmountShare of the loss
Shortfall on the resale$40,000.0038.3%
Cost of selling again$35,000.0033.6%
Default interest$21,304.1120.4%
Holding costs$8,000.007.7%
Total$104,304.11100.0%

The resale shortfall is the largest single component, and it is the one you have no control over. It is set by the market between the day you signed and the day the vendor resells.

How the market changes the answer

If the resale achievesVendor's total lossBeyond the deposit
$720,000.00$144,304.11$64,304.11
$760,000.00$104,304.11$24,304.11
$800,000.00$64,304.11$0.00
$840,000.00$64,304.11$0.00

Even a resale at the price you agreed to pay leaves the vendor out of pocket, because the costs of selling twice and the interest do not disappear. A falling market is what turns a bad situation into a ruinous one.

This is an indicative estimate of exposure and is not legal advice. What a vendor can actually recover depends on the terms of the sale and purchase agreement, on the steps they take including serving a valid settlement notice and cancelling properly, on their duty to act reasonably in mitigating their loss, and on the facts. The figures here are your own estimates of a resale price and of costs that have not happened yet, so they are a scenario rather than a calculation of what you owe. Whether the deposit is forfeited, and how it is applied, also depends on the agreement. If you are facing a settlement you cannot complete, speak to a solicitor immediately rather than waiting, because the options available narrow considerably once a settlement notice has expired.

The deposit is credited, not capped

The mental model to replace is the one where the deposit is a fee for walking away. It is not. A claim for breach of contract aims to put the vendor in the position they would have occupied had the contract been performed, and the deposit they hold is simply credited against that figure. If the loss is smaller than the deposit, the arithmetic works in your favour. If it is larger, the excess is a debt. Nothing about paying a deposit purchases an option to withdraw, and agreements are not usually drafted to suggest otherwise, which is why the belief survives mainly because it is never tested.

The market does the damage, and you cannot influence it

Of the four components in this calculation, three are broadly predictable. A second commission costs what a commission costs, holding costs accrue at a knowable rate, and default interest is arithmetic. The resale shortfall is different: it is whatever the gap turns out to be between the price you agreed and the price the market pays some months later, and it can be nothing or it can be the largest number on the page. That is why the exposure is genuinely uncertain rather than merely unknown, and why the sensible response is to reduce the chance of being in this position rather than to estimate it precisely.

Almost all of these are avoidable

Failed settlements do not usually happen because someone changed their mind. They happen because a purchaser went unconditional on the strength of something that had not been confirmed: a pre-approval that had never seen the property, a valuation that had not been done, a sale of their own house that had not gone unconditional, or family money that had been promised rather than transferred. Every one of those is checkable in advance for a few hundred dollars and a few days. Against an exposure of this size that is not a close call.

Worked example

A purchaser cannot settle an $800,000.00 purchase on which they have paid an $80,000.00 deposit. The vendor cancels and resells for $760,000.00, a shortfall of $40,000.00.

Selling a second time costs the vendor $35,000.00 in commission, marketing and legal fees, and they incur $8,000.00 of holding costs while the property is back on the market. Default interest at 12.00% on the unpaid balance of $720,000.00 for the 90 days until the resale adds $21,304.11.

The vendor's total loss is $104,304.11. The deposit covers $80,000.00 of it, leaving $24,304.11 that can still be claimed. The purchaser's total exposure is 1.3 times what they thought was at stake.

How this is calculated

The resale shortfall is the agreed purchase price less what the property resells for, floored at zero since a resale above your price produces no shortfall. Default interest is the unpaid balance, being the price less the deposit paid, multiplied by the annual default rate and by the days until resale divided by 365. The vendor's total loss is the shortfall plus their costs of reselling plus their holding costs plus that interest. The amount recoverable beyond the deposit is the total loss less the deposit, floored at zero. Total exposure is the deposit plus anything beyond it, which equals the vendor's loss whenever that loss exceeds the deposit, and equals the deposit otherwise.

Official sources

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How to work out your exposure if you cannot settle a New Zealand house purchase
  1. Enter the price and the deposit paid. The deposit is what you lose first. It is rarely what you lose in total.
  2. Estimate what the vendor would get on a resale. A resale after a failed settlement often achieves less, because the property is back on the market and the circumstances are known.
  3. Add the vendor's costs of selling again. A second commission, a second marketing campaign and further legal fees, none of which they would have paid if you had settled.
  4. Add their holding costs and the default interest. Interest runs on the unpaid balance from the settlement date until the matter is resolved.
  5. Read the exposure beyond the deposit. The result shows the vendor's total loss, how much the deposit covers, and what can be pursued on top.

Frequently asked questions

Do I only lose my deposit if I cannot settle?

No, and this is the most dangerous misconception in a property purchase. Forfeiting the deposit is the starting point rather than the limit. If the vendor cancels and resells for less than your price, they can pursue you for the shortfall plus their costs of reselling, their holding costs and default interest, credited with the deposit they already hold. In a falling market the amount beyond the deposit can exceed the deposit itself.

What is a settlement notice?

It is a formal notice served when settlement has not occurred, requiring the defaulting party to settle within a stated period. Until it expires the agreement remains on foot and default interest accrues. If it expires without settlement, the vendor can cancel the agreement, and it is cancellation rather than mere lateness that opens up forfeiture of the deposit and a claim for the loss on resale.

What if the property resells for more than I agreed to pay?

Then the vendor's loss is smaller and may be nil, since the point of the claim is to put them in the position they would have been in had you settled rather than to punish you. Their costs of reselling and their holding costs still count against you, and the deposit position depends on the agreement and the circumstances. It is a much better outcome than a falling market but it is not automatically a clean escape, and it is a question for your solicitor.

How likely is a vendor to actually pursue me?

It depends on the size of the loss and on whether pursuing you is worth the cost, which is a commercial decision rather than a legal one. A small shortfall may not be chased. A large one, particularly where the vendor has themselves committed to another purchase that has now failed, very often is. Planning on not being pursued is not a strategy, and the number to be able to survive is the full exposure rather than the deposit.

How do I avoid this situation?

By not going unconditional until the finance is confirmed for that specific property, the valuation is done and any condition you rely on has been satisfied in writing. Almost every failed settlement traces back to going unconditional on the strength of something that had not actually been confirmed, most often a general pre-approval that had never seen the house. The cost of confirming things properly is a fraction of the exposure shown on this page.