The Victorian Government’s proposed changes to section 27 of the Sale of Land Act may appear to be a technical adjustment to the property transaction process, but the practical implications could be far-reaching for both homebuyers and sellers.
Section 27 currently allows a vendor to access a purchaser’s deposit before settlement, provided certain legal conditions are satisfied and the purchaser’s interests remain protected. For decades it has played an important role in facilitating property transactions by allowing vendors to use those funds as the deposit on their next property purchase.
The proposed reform would replace this statutory right with a model that requires early release to be explicitly negotiated as a contractual condition prior to signing, while also preventing estate agents from taking their commission from an early-released deposit before settlement.
For vendors this may result in mismatched financial needs, such as putting down a deposit on a new home, funding retirement accommodation, or covering moving expenses, that typically arise after a home is sold, not before.
If an early release clause was not negotiated into the contract before signing, vendors have no legal mechanism to request funds later as circumstances evolve.
Vendors also risk losing negotiating power: early deposit release changes from a statutory entitlement to a private negotiation point. Buyers may refuse or demand concessions (e.g. price reductions or favorable terms), penalizing vendors under financial pressure who have the least leverage.
If deposit access is blocked, vendors may be forced to rely on costly bridging finance, delay their next property purchase, or attempt to negotiate longer settlement windows.
For real estate agents, the change would prohibit them from retaining their commission or auction expenses from an early-released deposit prior to final settlement.
Settlement periods in Victoria often range from 90 to 180 days. Holding back reimbursement of a completed marketing campaign and negotiations for months places a significant financial and cash-flow burden on real estate firms, particularly smaller or independent agencies. It takes an average of 60 days to sell a home with another 60-90 days for settlement. An agent can complete the work, sell the house, spend many hours on paperwork leading to settlement, but not receive payment until 5-6 months later.
It may sound like a minor drafting change, but it shifts a familiar statutory entitlement into the realm of contract negotiation. A vendor who fails to secure the necessary clause before signing may later discover that the deposit is unavailable when it is needed to purchase another home.
Well-intentioned policy should deliver better outcomes for consumers; not create new financial or regulatory barriers for the very people it seeks to protect.
While the intention may be to strengthen consumer protection, the practical effect is likely to increase financial pressure on ordinary Victorians who are buying and selling simultaneously.
The reforms may also have broader implications for the efficiency of the Victorian property market. If vendors are unable to secure deposits for their next purchase, transactions may be delayed, become more complex, or even fail altogether. This has the potential to reduce market liquidity and create unnecessary obstacles in an already challenging housing environment.
Another significant consequence is the impact on the Victorian Property Fund.
Historically, purchaser deposits have been held in real estate trust accounts prior to settlement, with the interest earned contributing directly to the Victorian Property Fund. This fund supports a range of services including consumer protection initiatives, legal assistance, and property-related regulatory activities.
Industry estimates suggest that interest generated from these trust accounts has contributed approximately $115-125 million each year. By requiring deposits to remain in alternative trust arrangements, where this interest is no longer generated in the same way, the proposed reforms could substantially reduce this source of revenue.
Any reduction in funding would inevitably raise questions about how these valuable consumer protection and legal assistance programs will be maintained into the future. The government will no doubt increase taxes elsewhere to meet the shortfall.
Protecting purchasers is an important objective, and one that enjoys broad industry support. However, effective reform should carefully balance consumer protection with the practical realities of property transactions.
Before these changes are implemented, there should be further consultation with industry participants to ensure they do not unintentionally increase costs for homebuyers, restrict market activity, or diminish funding for important public services.
Government has a legitimate role in punishing fraud and ensuring that buyers receive accurate information about the risks they are accepting. It should not, however, presume that every property transaction requires the same arrangement. A purchaser may prefer the security of leaving the deposit in trust, while a vendor may need early access to complete a linked purchase. Where both sides are properly informed and voluntarily agree, the state should not make that bargain more difficult.
Consumer protection is not free merely because its cost does not appear in the state budget. Regulation shifts costs into bridging interest, legal fees, deposit-bond premiums, delays and failed transactions.
Well-intentioned policy should deliver better outcomes for consumers; not create new financial or regulatory barriers for the very people it seeks to protect.