What is a Cooling Off Period?
You might have heard the term ‘cooling off period’. It’s a short time when a buyer can legally cancel their property contract offer to the seller (vendor). They can do this even if they have signed a purchase agreement with a real estate agent. A consumer has a legal right to a cooling period under New South Wales Fair Trading legislation. Similar legislation exists in other Australian States and Territories.
However, properties bought at auction in New South Wales have no cooling period. Once the buyer and seller have exchanged the contract, there is no turning back. Buyers at auctions should take care before signing any property contract. Make sure that the property is what you want and can afford if you’re buying at auction. In addition, you should have your purchase agreement checked by a property lawyer before you sign it.
The cooling period is usually the only time a buyer can back out of a real estate contract. After it expires, the buyer is legally required to go through with their purchase. Ownership will transfer as part of the conveyancing process.
It’s important for both parties in a real estate deal to understand their rights. To reduce the risk of conflict and confusion, it’s best to obtain expert advice. We have the most expert property lawyers Sydney has to offer. We specialise in conveyancing services & are happy to provide you with the right legal advice regarding your cooling rights.
How long is the cooling off period?
The cooling off period begins when the buyer exchanges the contract with the seller. It lasts for five business days, expiring at 5.00 PM on the fifth business day. In this five-day period, the seller cannot sell the property to another purchaser.
If the buyer wants to back out of their agreement, they must provide notice to the seller in writing. Their real estate agent or their conveyancing service does this on their behalf. The purchaser must pay a fee of 0.25% of the selling price to back out of the contract. This works out to be $250 for every $100,000 of the purchase price.
What should the buyer do during the cooling off period?
The buyer should arrange:
- A review of their contract information by an experienced property lawyer
- A building inspection
- A pest inspection
- Final loan approval
- Any other due diligence to determine if the property is a good investment
- Inspection of the strata records (if the real estate is a strata property). Strata title includes units/apartments or townhouses. Buyers in strata real estate share ownership of aspects of their property with others. For example, unit owners share ownership of common areas like the external walls and roof area in unit blocks. They share the repair and maintenance costs of these common areas. A body corporate arrangement will be in place. It’s important to understand what ongoing costs you might incur as part of a strata title property purchase.
Can the cooling off period be increased, reduced or waived?
The buyer might request an extended cooling off period. However, the seller has no obligation to grant the purchaser an extension. The seller must agree to any extension in writing as part of the initial negotiation.
The seller can also ask for a reduced cooling-off period, but the buyer must agree. They are under no obligation to do so.
It’s important for the two parties to have any special conditions written into the purchase agreement. A reliable and trusted Sydney conveyancing service will be very helpful in these situations.
The seller also has the option to waive the cooling off period. They can do this by requesting that the purchaser provide a Section 66W Certificate. The purchaser must present this document to the seller at the time the sale contract is exchanged. It should be signed by a property lawyer.
Why would a buyer want to waive or reduce their cooling off period?
Sometimes a buyer might not want to risk missing out on their dream property. They might be in a competitive bidding situation with a real estate agent. Waiving or reducing their right to a cooling off period might make their offer more attractive to a seller.
In other situations, it might be what’s called a “seller’s market”. This is where there’s an overall shortage of properties available. Buyers in this situation also tend to compete more aggressively with their offers.
If you’re a buyer considering waiving or reducing your cooling off period, seek expert advice. You need to make sure that:
- A property lawyer has looked over all your contractual paperwork.
- Your finance is approved.
- You’ve at least had a building and pest inspection done.
All those steps will help give you the peace of mind that you’re not rushing into a bad decision. Any problems will be quickly identified before you’ve signed and it’s too late
As you can see, it’s important to understand your cooling off period rights whether you are buying or selling. If you have any further property-related legal questions, contact one of our Sydney specialists on 1300 667 461. We have the New South Wales property market expertise to advise you on all your legal needs.