15 Jun, 2019
Being spontaneous and making rash decisions can be great – even fun – but maybe not so great when it comes to buying property. If you’ve bought a house only to change your mind thereafter, cooling-off periods could be a godsend.
If there’s one purchase you don’t want to come to regret, it’s a new home. Fortunately for property buyers, most Australian states have a mandated cooling-off period to give buyers time to make sure they are happy with their new investment.
A cooling-off period is a short period after committing to a home purchase where the buyer can change their mind. During this time, the buyer may withdraw their offer for any reason, though it is generally used to perform any final inspections and to seek approvals for the purchase to go through.
The cooling-off period on your contract starts on the date that you sign and ends close-of-business on the final day of the designated period. This gives buyers a short space of time to complete any necessary valuations and property checks before fully committing to the purchase.
For those that take the option to revoke their offer during the cooling-off period, a monetary penalty can apply which varies between states.
A cooling-off period is mandatory in all states, except Tasmania and Western Australia. Depending on your state, this will vary from two to five business days – with varying terms and conditions based on your state. It’s best to research the specific terms in your state or ask your real estate agent for guidance.
Related: Understanding the Contract of Sale
The cooling off period length and conditions can vary from state-to-state. Check out your state or territory in the table below:
You might also like: What are the costs involved in buying a home? – the upfront and hidden fees
It is possible to extend cooling-off periods, but if requested it is at the vendor’s discretion, and they are not legally acquired to agree. If an extension is granted by the vendor, it’s important to get this in writing and to not rely solely on a verbal contract or handshake agreement.
An extension is often granted by the vendor if the buyer needs more time to meet conditions to have their home loan approved, such as further valuations and property checks. In this case, it might be in the interest of the vendor to grant an extended cooling-off period to ensure the sale goes through. However, in a hot market, where vendors may have received numerous offers, they might choose to forgo the extension.
After the conclusion of the cooling-off period, it becomes much more difficult for a buyer to rescind on the contract. The contact of sale will detail the (often costly) penalties for withdrawing outside of the cooling-off period.
If you do choose to pursue withdrawing from the contract of sale after the cooling-off period, you’ll want to consult your real estate agent and potentially seek legal advice. It’s advisable to make informed and careful decisions when considering real estate purchases to avoid making expensive mistakes.
You might also like: Buying Off The Plan: What You Need To Know
The legal requirement to include a cooling-off period in a property exchange only applies to private settlements, and not to properties sold at auction. If you choose to buy at auction, or you place a pre-auction bid which is accepted three days or less before the date of the auction, it is unlikely you will be protected by a cooling-off period.
While in some cases a cooling-off period will be written into the contract, this is not guaranteed; therefore, it is especially important to be sure of your decision before bidding on a property via auction.
You might also like: How to take the emotion out of buying your first home
The cooling-off period exists only for the buyer. While the vendor would have to cooperate if the buyer requested to withdraw from the contract during the cooling-off period, it does not work both ways. The cooling-off period does not protect the vendor for change of mind – they cannot cancel the sale after the exchange of contracts.
While the buyer will be able to withdraw from the contract during the cooling-off period, it will come at a cost. Unless otherwise stated in the contract, the buyer will, at minimum, have to pay the penalty rate to the vendor to compensate for their losses – this rate helps the vendor recoup any legal costs they paid during the process as well as other offers they might have rejected.
For example, in NSW it is 0.25% of the purchase price. This means that if you were to break a contract on a $600,000 house, you would be $1,500 out of pocket.
You might also like: 7 Mistakes to Avoid When Buying Your First Property
Where a buyer rescinds their offer during the cooling-off period the vendor is granted the penalty payments to cover any financial losses suffered. This is generally taken from the deposit given during the contract exchange.
Cooling off periods can be waived, even in states where cooling-off periods are required. The cooling-off period can be waived with a section 66W certificate which forfeits the buyer from access to their cooling-off period. But why would the buyer ever want to do this?
Despite this, the vendor should never pressure the buyer to waive the cooling-off period as a condition of accepting the offer.
If the buyer decides to waive the cooling-off period they’ll need to give written notice to the agent of the intent to waive. Depending on the state the sale is made in there may be other requirements to waive the cooling-off period, such as a legally binding certificate.
Waiving the cooling-off period can come with risks as the buyer cannot back out if valuations or inspections turn up unexpected results. It’s important to complete these and have lender approval before making an offer to waive the cooling-off period.
Words by Kathryn Lee
Updated by Danielle Austin on 14 July 2020.
Is your current interest rate still competitive? Contact one of our mortgage brokers to compare your options and find a deal that suits you.