What is a cooling off period?
A cooling off period is the period of time during which a buyer of residential property can change their mind and withdraw from a property purchase contract without facing significant financial penalties. This period is used by the buyer to complete due diligence such as building and pest inspections, finalise finance if necessary and to have time to think about their offer outside of the pressurised sale environment.
Key points about the cooling off period in real estate transactions in NSW include:
The cooling off period typically lasts for 5 business days, starting as soon as you exchange and ending at 5pm on the fifth business day after the day of exchange. However, the duration may vary in certain circumstances, such as if the property is purchased at an auction or if the buyer waives their right to this period. A longer 10 day period applies for properties sold off the plan, because these contracts are often large and complex.
Waiving the Cooling Off Period:
In some cases, buyers may choose to waive the cooling off period to make their offer more competitive, especially in a strong property market. It is possible to do this by giving the vendor a ‘66W certificate’. It is also possible to reduce or extend the period by written agreement with the vendor. However, this decision should be made carefully, as once waived, the buyer cannot change their mind and must proceed with the purchase.
If the buyer decides to withdraw from the contract within the cooling off period, they may be required to pay a termination fee to the seller. This fee is 0.25% of the purchase price. To put this in perspective, this works out to be $250 for every $100,000.
To withdraw from the contract during the cooling off period, the buyer must provide a written termination notice (Notice of Rescission). This notice must be delivered within the specified time frame to be valid.
There are certain exemptions from the cooling off period, such as when a property is purchased at an auction, or if contracts are exchanged on the same day as the auction after it is passed in.
It’s crucial for both buyers and sellers to be aware of the rules and regulations regarding the cooling off period, as they can have significant implications on a property transaction. Buyers should consider seeking legal advice if they have any doubts or concerns during this period, and sellers should understand the potential consequences of a buyer withdrawing from the contract during the cooling off period.