Deposit in Trust Calculator NZ
Vendors tend to think of the deposit as money that arrives when the agreement is signed, and it is neither of those things. It arrives later, because the agreement holds it in trust until a period after the contract goes unconditional has run, and it arrives smaller, because where the property sold through an agency the commission comes out of it first. On an ordinary New Zealand sale those two facts together mean that a vendor expecting a five figure sum on signing gets roughly two thirds of it, several weeks later. Anyone relying on the deposit to fund a deposit on their own next purchase needs the real figure and the real date, and both are in the agreement rather than in anyone's expectations.
What happens to the deposit
Two things vendors get wrong
| The assumption | What actually happens | Difference |
|---|---|---|
| The deposit is mine on signing | It is held in trust until a period after the contract goes unconditional has run | 45 days |
| I get the whole deposit | The agency deducts commission and GST before releasing the balance | $31,625.00 |
If you are counting on the deposit to fund your own next purchase, the figure to plan around is $53,846.58 rather than $85,000.00, and the date is 45 days out rather than the day you signed.
How long it is held changes the interest, not much else
| Held for | Interest earned | Total you receive |
|---|---|---|
| 10 days | $104.79 | $53,479.79 |
| 30 days | $314.38 | $53,689.38 |
| 45 days | $471.58 | $53,846.58 |
| 90 days | $943.15 | $54,318.15 |
| 365 days | $3,825.00 | $57,200.00 |
Over the few weeks of an ordinary sale the interest is small. On a long settlement, such as an off the plans purchase, it becomes worth negotiating over.
Held as stakeholder, not as your money
The reason a deposit sits in trust rather than in the vendor's account is that until settlement it is not settled whose money it is. If the agreement falls over, the deposit may have to go back to the purchaser, and that cannot happen if it has already been spent. Holding it as stakeholder protects both sides, and it is the reason for the delay that vendors find so frustrating. Understanding what the delay is for makes it easier to plan around rather than argue with.
The commission deduction is the larger surprise
Vendors know the commission is coming. What they do not always know is when it is taken, and it is taken from the deposit rather than from the settlement proceeds. On a ten per cent deposit and an ordinary commission structure that removes more than a third of the deposit before anything reaches the vendor. If the deposit was earmarked for a deposit on the next house, that gap is exactly the sort of problem that turns into a chain of failed purchases, and it is entirely avoidable by doing the arithmetic when the agency agreement is signed rather than when the money does not arrive.
Interest matters when the settlement is long
On a typical sale settling in four to six weeks, the interest on the deposit is a few hundred dollars and is not worth a negotiation. On a purchase off the plans settling in two years, the same clause is worth thousands, and it is one of the few terms in that kind of contract that a buyer can realistically move. The clause is identical in both cases. Only the number of days differs, which is why it is worth reading the interest provision against the settlement date rather than in isolation.
Worked example
A property sells for $850,000.00 with a 10% deposit of $85,000.00, paid into the agency's trust account on signing. The agency's commission including GST is $31,625.00, which is deducted before anything is released, leaving a balance of $53,375.00.
The deposit is held for 45 days before release, earning $471.58 at 4.50%, and the agreement gives that interest to the vendor. The vendor therefore receives $53,846.58, which is 63.3% of the deposit the purchaser paid.
How this is calculated
The deposit is the sale price multiplied by the deposit percentage. Where the property sold through an agency, the commission including GST is deducted from it and the remainder is the balance released to the vendor; on a private sale nothing is deducted and the whole deposit is released. Interest is simple rather than compound, being the full deposit multiplied by the annual trust account rate and by the days held divided by 365, since it accrues on the whole amount for the period it is held regardless of what is later deducted from it. That interest is added to the vendor's total only where the agreement gives it to the vendor. The proportion reaching you is the total received divided by the deposit paid.
Official sources
- Selling a property, Real Estate Authority
- Real Estate Agents Act 2008, legislation.govt.nz
- Buying and selling property, New Zealand Law Society
Related NZ calculators
- Net Sale Proceeds Calculator for what arrives at settlement
- Real Estate Commission Calculator for the commission itself
- Private Sale vs Agent Calculator where no commission is deducted at all
- Sunset Clause Exposure Calculator where a deposit is held for years rather than weeks
- Sell First vs Buy First Calculator if the deposit is funding your next purchase