This information has been provided by
Australian law firm, Australian Conveyancing Services and is applicable in New South Wales
only.
Introduction
In New South Wales, Buyers have a number of
opportunities to reconsider their offer to purchase the property,
before they become ‘locked in’. The first is the procedure up to
exchange, where it is common practice for the Buyer after verbally
agreeing with the Seller on the price and other major terms, to then
spend 1 to 2 weeks conducting searches/inspections and arranging
finance before actually exchanging contracts.
After exchange, the Buyer then has the further right to a cooling off period.
Until these ‘hoops’ are jumped through, the Seller cannot bank on the
sale of the property.
The Procedure up to Exchange
If your property is sold at auction, then you as the Seller will normally enjoy a strong chance that your property will actually settle. This is because the contract will almost always be unconditional and there is no cooling off period, so unless something unusual happens, the property will proceed to
settlement.
If you have listed the property for sale in the conventional way, then normally a Buyer will make a verbal offer, which, if you accept, will usually not lead
to an immediate exchange of Contracts (even though you as
Seller have a draft contract prepared). The Buyer will usually then conduct their preliminary inspections (such as building and pest) and also ensure that their finance is in place, before they
proceed to the exchange of contracts.
What are the Sellers rights?
Because the time lag between verbal offer and exchange can be anywhere between 1 and 3 weeks, the opportunity arises for the Seller or the Buyer to be gazumped. For instance, a Seller may be presented with a second and higher offer after verbally agreeing to a price with the first Buyer.
Even if the first Buyer puts down a holding deposit, you as Seller are not legally obliged to sell the property to them, nor to take the property off the market. You can actually take as many initial deposits as you like. However, you must let the Buyer know if someone else makes a later offer on the same property and tell the first Buyer in writing that:
you have no obligation to sell the property to them
they have no obligation to buy the property
you will refund the deposit if they don't end up entering into a contract to buy the property
So at this stage you as
Seller are not normally legally bound to sell to the first
Buyer, and can accept the subsequent offer. The seller is
not obliged to compensate the Buyer for the money they have
spent on legal advice, inspection reports, finance
application costs and inquiries.
Similarly, the Buyer can gazump you, and can buy another property.
If you want to minimise your chance of being gazumped, then as a Seller you should make sure
that you have a well drafted contract prepared (including
searches) with the Agent.
Sometimes including optional items, such as a survey plan, can save the Buyer time and therefore shorten the time lag.
In these scenarios, the
gazumped party will not only be disappointed, but also may
have incurred expense – for instance the first Buyer may
have spent money on inspections and finance approval. As to
who is more likely to gazump or be gazumped really depends
on the market – in a falling market, it may be the Seller,
in a rising market, it may be the Buyer.
After Exchange - the Cooling
Off period
Following the exchange of Contracts between the Buyer and the Seller, the Buyer then has a further period in which to change their mind about the property. This period is called the ‘cooling off period’.
The Buyer of New South Wales residential property can terminate the contract within a period of 5 working days from the date of the Contract.
The cooling off period ends at 5pm on the fifth working day (working day excludes weekends and public holidays).
NOTE: The cooling off period does not apply to AUCTION sales of residential property, nor to any contract made after the auction
but still on the same day. However if the property is passed in at auction, and the buyer and seller enter into a Contract after that day
then the cooling off period will apply.
What are the Seller’s rights if the Buyer wants to terminate?
The Buyer can terminate the contract during the 5 day
cooling off period by giving the Seller, their Solicitor or
Agent a signed written notice. The Buyer can only terminate
the Contract during that period, so check the start and end
date to make sure they are in time.
If they are in time and they have given written notice, then they can legally terminate the Contract. As Seller, your only right then is to charge the Buyer the ‘cooling off’ penalty – which is .25% of the purchase price. If you would like to know what the amount
would be, click on the calculator below and insert the
purchase price.
Make sure you get at least enough deposit from the outset to cover the penalty amount, this will mean that it is easier to recoup the penalty if the Buyer did decide to terminate.
As a Seller and in practical
terms,
you
may
decide
that
it
is
simply
too
hard
to
get
the
cooling
off
period
waived.
By
the
time
the
other
conditions
are
met
(such
as
finance
and
building
report)
the
cooling
off
period
is
likely
to
be
over
anyway.
Where a contract is
terminated by a buyer within the cooling off period, you
will need to refund the deposit to the Buyer within 14 days,
but the seller can deduct the termination penalty.
Can the cooling off period be waived?
Yes – as a Seller you may want the Buyer to waive the
cooling off period (for instance, because you have other
commitments that require you to have an unconditional Contract).
Or as a Buyer you may feel that by waiving your right to the
cooling off period, you will get a price or other advantage in
getting the property.
To waive the cooling off period,
the Buyer needs to get a Section 66W Certificate. The Buyer will
need to contact a Lawyer who, after explaining their legal rights,
may sign the Certificate. Also, the cooling off period may
be shortened.
