After purchasing a property, you will usually have a short window in which you can still back out of the sale known as the ‘cooling-off period’. If you’ve made a rash, rushed, or even ridiculous decision to buy a property and need to back out of the contract, the cooling-off period might just become your new best friend.
Using the cooling-off period isn’t as simple as ripping up the contract and pretending it never existed. There are a few steps involved in terminating the contract, and there are some things you could stand to lose if you choose to do so.
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What is the cooling-off period?
The cooling-off period is a short timeframe that commences from the date the contract is signed, and ends at close-of-business on the last day provided. This gives buyers time to do their due diligence, like source valuations or conduct property checks, before the purchase truly gets serious. During this window, which can range from two to five days, buyers can back out of the contract relatively smoothly.
Buyers don’t need to provide a reason to use the cooling-off period to get out of a contract. A buyer can just have second thoughts or last-minute jitters and decide to bow out. Alternatively, they might have identified issues in the building and pest report. The reason really doesn’t matter - if you’re within the cooling-off period, you have the right to terminate the contract. However, it usually comes at a price, meaning you could have to forfeit the deposit or meet the percentage of the sale price required in your state.
Different cooling-off periods from state to state
The cooling-off period varies from state to state, meaning what applies in one state might not apply to its neighbouring-state. There is always a standard cooling-off period for private treaty sales, though when it comes to auction contracts, you typically won’t get one.
It’s important to know the cooling-off period in your state, if your state even has one (*cough* WA and Tasmania *cough*), to know how long you have to potentially get out of the contract and how much you might need to forfeit to do so.
|
State or territory |
Standard cooling-off period |
Percentage of purchase price you’d need to forfeit |
What you’d lose on a $700,000 property |
|---|---|---|---|
|
Queensland |
Five business days |
0.25% |
$1,750 |
|
NSW |
Five business days |
0.25% |
$1,750 |
|
Victoria |
Three business days |
0.2% |
$1,400 |
|
ACT |
Five business days |
0.25% |
$1,750 |
|
Tasmania |
N/A |
100% |
$700,000 |
|
SA |
Two business days |
Holding deposit forfeited (up to $100) |
$100 |
|
WA |
N/A |
100% |
$700,000 |
|
NT |
Four business days (if not represented by solicitor) |
$0 |
$0 |
Though the standard cooling-off period doesn’t make an appearance on WA and Tasmanian property contracts, a cooling-off period can be included in the contract if the purchaser and seller agree to this. In all other states, however, a cooling-off period applies unless stated otherwise.
What happens if you want to use the cooling-off period?
Before the cooling-off period commences, the agent would have provided the buyer with an unsigned copy of the contract at least one day before the contract is signed.
The cooling-off period commences when the buyer or representative receives a copy of the fully executed contract.
If you do end up needing to use the cooling-off period to get out of a contract, the process of doing so is pretty simple. All you really need to do on your end is write a letter of termination to the party's solicitor as per the conditions outlined in the contract. Alternatively, you can get your solicitor or conveyancer to write the letter on your behalf. You don’t need to provide the reason for termination in the letter - only that it’s what you will be doing.
What if the cooling-off period ends, but you need to get out of the contract?
After the cooling-off period ends, getting out of the sale becomes a lot more difficult. The contract will outline the exact penalties for withdrawing from a contract after the cooling-off period has ended, but you can bet that it will most likely come with a hefty cost.
To give you an idea of what the damage might look like, you might need to compensate the seller, as well as pay any applicable default penalties. Plus, you’d lose the money spent on legal and conveyancing fees, any building and pest inspections, or any other purchase-related expenses.
If you’re not sure what it would cost you in your specific situation, you could read through the contract or chat to your real estate agent/solicitor.
Waiving the cooling-off period: A quick rundown
The cooling-off period is waived on auction contracts, and sometimes contracts accepted just before or after an auction (again, this varies from state to state). However, some keen buyers choose to voluntarily waive the cooling-off period on private treaty sales.
According to Commonwealth Bank, waiving the cooling-off period can signal to the vendor that you have a strong interest in buying the property, and it may help knock out the competition.
Waiving the cooling-off period usually requires filling out a form before the contract. If you wanted to waive the cooling-off period on a contract, you’d need to let the agent know that you intend on doing so in writing. Depending on which state you’re buying in, you might need to jump through a few hoops including signing a legally binding certificate.
While it can give you a competitive edge in the hotter-than-ever property market right now, there are risks involved in waiving the cooling-off period. If something was to go wrong and you ended up needing to back out, you’d need to follow the same process (and pay the same penalties) as you would backing out after the cooling-off period ends. So if you’re considering waiving the cooling-off period, it could be handy to make sure you’re good to go beforehand (i.e. you have finances sorted, building and pest satisfied, etc.).
The above article is not intended as legal advice - before signing a contract, it is recommended you seek legal advice.
Image by Rene Porter on Unsplash
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