Many people wonder what a cooling off period is and how does it apply to buying and selling real estate in Australia. A cooling off period is a period of time given in the contract which is put there to safeguard the buyer in case of a change of circumstances. Sometimes, for one reason or another, a buyer may need to pull out of the sale. A sudden change in financial situations or new details about the property may come to light, you may have to change your mind – whatever the reason, there are “cooling off” options that you should be aware of.
Purchasing a new house is a major life event and it can be a very confusing event for the first-time home buyer. There is plenty of jargon out there and knowing what it all means will put you ahead of the pack.
Purchasing a property will take lots of research, major financing and a huge emotional investment. When you have invested so much, you should make sure you know what you are getting yourself into. Especially when it comes to understanding the contract so you can buy the perfect house for your needs.
The legal details of the sale are outlined in the contract for both the buyer and seller. Both parties agree to the terms of the negotiation. Each party should have a lawyer or property advisor review the contract. Using a conveyancer is the ideal way to navigate the sale with less roadblocks.
Backing out of a sale before a settlement is reached is not complicated. However, after a settlement has been reached the contract is legally binding. This happens once the contracts have been signed and deposit handed over. Changing your mind at this point is much more complicated.
If you are thinking of cancelling the sale agreement, here are a few things you have to know:
Cooling-off periods
There is a cooling-off period in most home sales contracts. There is no cooling off period for houses bought at auctions, therefore, your purchase decision is final and your financing must be in place. Reducing, waiving or extending cooling-off periods on regular sales contracts is possible, but it is dependent on the negotiations before the sale.
The cooling-off period is different in every Australian state as well as the financial penalties attached to the sale. All contract cancellations have to be made in writing before the outlined time frame and it has to be done in person, by fax or via email.
Queensland
There is a 5-business day cooling off period from the time the contract is signed by the seller and the buyer. If this takes place on a weekend or public holiday, the 5 day period starts on the next business day. The final business day at 5 pm is the end of the cooling-off period. The seller could take out a 0.25% financial penalty from the purchase price of the deposit should you decide to opt out.
New South Wales
You have 5 business days from the contract exchange to 5 pm on day 5. You will have to give the seller up 0.25% of the purchase price to get out of the contract.
Victoria
Here the cooling-off time period is only 3 business days from when the sale contract is signed by the buyer. A 0.2 % penalty of the sale price will be applied if you back out. This penalty amount will be given to the seller.
South Australia
You only have 2 business days to jump out of the contract and you have to give notice before closing on the 2nd business day. Any purchase deposit over $100 has to be paid back in full. If you left a holding deposit, it will not be refunded.
Australian Capital Territory
The rules for New South Wales are applicable here.
Northern Territory
Once the seller and buyer have signed the contract, you have 4 business days to opt out. There is no penalty before this period and there will be a full refund of the purchase and holding deposits.
Tasmania
Real estate contracts for sale have no cooling-off periods here.
Western Australia
Unless the seller and buyer add it into their contract, there is no mandatory cooling-off period here.
Extra terms could be included in the sale contract. In other words, the sale settlement could depend on you getting financing, the sale of your current home or on the building inspection results on the property for sale.
Unconditional contracts or after the cooling-off time frame
If you make the purchase at auction, you waive your right for a cooling-off period or if you have a change of mind after the cooling-off period, cancelling the sale will be very costly.
The consequences of breaking the binding agreement will be outlined in your contract for sale. Included will be default penalties, repaying the seller for any losses incurred. Also paying your own conveyancing or legal fees as well as any inspection and building valuation expenses. Consult with your legal advisor about the consequences of breaking the legally binding contract.
The cooling-off period is different in every Australian state as well as the financial penalties attached to the sale. All contract cancellations have to be made in writing before the outlined time frame and it has to be done in person, by fax or via email.
Try to get pre-approved for your home loan if possible, in order to avoid having financial problems stopping you from going through with the sale. Getting a second market valuation opinion of the property will give you confidence about your financial commitment. If there are any lingering concerns about purchasing a property, do not waive your right to a cooling-off period or do not sign an unconditional contract.
