We know that buying a property is a big decision that comes with a long-term commitment. After months of research when you’re finally closing in on a property deal, it is possible that you start having second thoughts. Maybe you can’t get the financing you intended or maybe the property has a defect. In either case, backing out of purchasing a property is more than just wanting an out from your contract. You may want to pay attention to the fine print and check for any legal exposure and associated costs that you will incur. Here are a few things you will want to know before backing out of purchasing a property.
Once you’ve paid the deposit and signed a contract, most states and territories in Australia have an option that allows the buyer to consider the purchase. This provision is called a “cooling-off period” – within which a buyer can legally change their mind about a purchase and incur a penalty for doing so. The buyer is then obligated to serve the seller with a written notice for cancelling the contract.
The number of days and the penalty incurred is different in each state.
1. Queensland, New South Wales and Australian Capital Territory allow five business days and the percentage of sale price forfeited is 0.25.
2. Victoria has a relatively lesser penalty of 0.2 per cent. However, the cooling-off period is three business days.
3. Northern Territory gives buyers four business days without incurring a penalty.
4. South Australia forfeits small holding deposits within the period of two business days. Purchase deposits made of over $100 are refunded in full.
5. Western Australia has a cooling-off period only if the signed contract states it. If the contract does not state a cooling-off period, you cannot get out of the contract to buy the property if you change your mind.
6. Tasmania doesn’t have this provision of a cooling-off period.
Options after the Cooling-off Period
Backing out of purchasing a property after the cooling-off period has passed can levy significant costs for the buyer because after the cooling-off period, the contract becomes unconditional. Properties purchased in an auction in any state do not have a cooling-off period. The buyer is obligated to purchase the property after making a successful bid. These are the instances in which you will want to seek legal advice from a professional.
Typically, the terms of a contract sale will highlight the costs that the buyer has to undertake for the seller. The buyer is entitled to pay a compensatory amount to the seller for any inconvenience caused to them. This may include everything from conveyance fee, legal fees for the seller, to the seller’s building valuation and inspection fees.
Complications also arise from not being able to finance the property. This can be avoided by obtaining a pre-approval loan from the lending institution. Not only will this eliminate the possibility of cancelling your contract for financial reasons, but would also secure the means of sourcing payment in the long term. Alternatively, adding a clause in the contract beforehand, that enables backing out of purchasing a property in a specific case of property damage or financial incapability on the buyer’s part can be useful.
If you have any questions about the home building process, including finding the correct house plan, builder or developer, then don’t hesitate to call us on 1800 184 284 or book a call online at a time that suits you.