Exchanging contracts legally completes the process of buying a home.
Legally Binding
Up to this point, the agreement is usually not binding and both you or the vendor have the right to change your minds. After discussing the contract with your solicitor or conveyancer and making the proper inquiries and confirming finance with your broker, you will be ready to exchange contracts.
Signing
There will be two copies of the sale contract: one for you and one for the vendor (seller). You each sign one copy before they are swapped or ‘exchanged’. This can be done by hand or post and is usually arranged by your solicitor, conveyancer or the agent. The original contract may be modified or contain certain conditions after negotiation between the buyer and seller (normally completed by the solicitors or conveyancers).
What’s in a contract?
The final contract and attached documents should set out:
- Price
- Settlement date
- Inclusions (such as ovens, dishwashers, curtains and other moveable goods that were negotiated with the purchase)
- Zoning restrictions
- Caveats
- Easements — such as road, water and electrical plans
- Sewers and drainage
Any special conditions including those you have negotiated such as the purchase being subject to finance approval or building inspections. All sorts of special conditions can be written into the contract in your favour, so consider carefully the things you might like to include such as early or late settlement.
Payment of Deposit
The deposit can vary but is usually about 10 percent of the purchase price. This deposit must be paid on exchange of contracts. The real estate agent normally holds the deposit in a solicitors trust account until settlement is completed.
The balance of the purchase price is paid at settlement. If the deposit is not paid at exchange, the vendor (seller) can withdraw from the contract.
Should you pull out of the purchase in breach of the signed contract, you will usually lose the deposit and may be liable to compensate the vendor (seller) for losses over and above this amount.
Cooling Off Period
The cooling off period after exchanging contracts is generally 5 business days and allows you to complete some final checks, inspections and ensure you are happy with what you are buying. If not, you can withdraw from the purchase during the cooling off period. It is not available for properties bought at auction and starts after the exchange of contracts.
The cooling off period varies from state to state — some don’t have a cooling off period or there is a fee to withdraw during the cooling off period — so check with your solicitor/conveyancer to ensure you understand this information.
For example, in NSW if you withdraw from the contract during the 5 business-day period, you will have to pay the vendor 0.25% of the purchase price. This works out to be $250 for every $100,000.
The cooling off period can be waived, reduced or extended by negotiation. There is no cooling off period for sellers. Generally once contracts have been exchanged, sellers are bound to complete the agreement. You cannot be gazumped during the cooling off period.
