What happens when you are ready to exchange contracts
When you purchase a home, investment property or land you’ll have to sign a contract of sale and then exchange your signed contract with the vendors.
The legal work involved in preparing the sale contract, mortgage and other related documents, is called conveyancing. Most people get a licensed conveyancer or solicitor to do the work for them.
Exchanging a contract is the legal part of buying a home. Before exchange, the agreement is just verbal and not binding. Up until you exchange contracts either you or the vendor have the right to change your minds.
After you have discussed the contract with your solicitor or licensed conveyancer and all the required inquiries have been made, you will be ready to exchange contracts.
There will be two copies of the sale contract: one for you and one for the vendor. You each sign one copy before they are swapped or ‘exchanged’. This can be done by hand or commonly now electronically and is usually arranged by your solicitor, conveyancer or the agent. If the agent is handling the exchange, you must expressly authorise them to do so.
At the time when you exchange contracts you will be required to pay a deposit, usually 10% of the purchase price. Following exchange, you have a financial interest in the property so it’s wise to get it insured.
Note: A contract has not been made and is not legally binding before the exchange of contracts and the payment of your deposit.
Cooling-off period
When you buy a property in NSW by private treaty there is a five business-day cooling-off period after you exchange contracts. During this period you have the option to change your mind as long as you give written notice. The cooling-off period starts as soon as you exchange contracts and ends at 5pm on the fifth business day.
A cooling-off period does not apply if you buy a property at auction or exchange contracts on the same day as the auction if the property has been passed in.
You can waive the cooling-off period by giving the seller a ‘66W certificate’. This is a certificate that complies with Section 66W of the Conveyancing Act 1919. The certificate needs to be signed by your solicitor or conveyancer.
If you use your cooling-off rights and withdraw from the contract during the five business-day period, you will have to pay the seller 0.25% of the purchase price. This works out to be $250 for every $100,000.
Sometimes, there are more buyers looking for homes than there are properties on the market. This is called a sellers’ market. In this case, you may want to organise a quick contract exchange. This way you can reduce the possibility of someone beating your offer and get your building and pest inspections done during the cooling-off period. You will still be able to back out if there is a problem. However, it is important to have the contract checked by your solicitor or conveyancer before you sign it.
It is possible to waive, reduce or extend the cooling-off period with the consent of the seller. If your solicitor or conveyancer has examined certificates from the appropriate authorities, a pest and building inspection has been done and your finance has been approved, then deciding to waive the cooling-off period could make your offer more attractive to the seller.
Settlement
Settlement usually takes place six weeks after contracts have been exchanged. This is when you become the legal owner of the property. The balance of the purchase price and other adjustments are paid on this date.
From NSW Office of Fair Trading website www.fairtrading.nsw.gov.au
