Building deposit
The upfront payment a homeowner makes to a builder to secure the contract before construction begins. Often one of the largest single payments in the project, paid before any work is done.
Definition
A building deposit is the upfront payment a homeowner makes to a builder to secure the contract before construction begins. It is often one of the largest single payments in the whole project, and it is paid before any work has been done.
Why it matters
A deposit sitting in a builder's account is only as safe as that builder's solvency. If the business fails before work starts, the deposit can be lost, and building insurance may not recover it, particularly if the required policy was never taken out. Holding the deposit in custody until work begins keeps it out of that risk.
How it works in practice
The deposit is paid on signing the building contract, before site work starts. State law caps the amount for new homes, commonly in the range of 5 to 10 percent of the contract sum depending on the state and contract value.
In the standard arrangement the deposit goes into the builder's general operating account, where it funds mobilisation and the builder's wider business. It is not held in trust and is not ringfenced for your job.
Under a custody model, the deposit sits in a separate regulated custodial account and is released to the builder as the work it is meant to fund is verified, so a builder failure before or early in the job does not sweep up the unspent amount the way a deposit sitting in the builder's account would.
Common misconceptions
The deposit is refundable if the builder fails
Not in the standard arrangement. Once paid into the builder's account it becomes the builder's money, and if the business collapses you are usually an unsecured creditor for it.
Building insurance guarantees the deposit back
Cover is last-resort, capped, and only exists if the builder actually took out the policy for your job. A number of Porter Davis customers found no policy had ever been arranged.
This is general information, not legal or financial advice. For the full picture, see protecting your money when you build a home in Australia .