If you want to buy a home, land or investment property you’ll have to sign a contract of sale. The legal work involved in preparing the contract of sale, mortgage and other related documents is known as conveyancing. It’s possible to do your own conveyancing, however most people pay a licensed conveyancer or solicitor to do this work for them.
By law, a residential property cannot be put on the market until a contract of sale (the contract) has been drawn up. The contract includes the terms and conditions of the sale and valuable information about the land, which should be explained to you by your solicitor or licensed conveyancer.
You have the right to examine the contract at any time once a property is on the market. If you are interested in a particular property, request a copy of the contract as soon as possible, so you can ask your solicitor or conveyancer to review it.
If you wish to change any part of the contract (eg. the deposit amount or settlement period), your solicitor or licensed conveyancer can do this on your behalf. You should have this done before signing the contract.
Exchanging contracts legally completes the process of buying a home. Up to this point, the agreement is usually not binding and both you or the vendor have the right to change your minds.
After discussing the contract with your solicitor or licensed conveyancer and making the proper inquiries and necessary financial arrangements, you will be ready to exchange contracts.
There will be two copies of the sale contract: one for you and one for the vendor. You each sign one copy before they are swapped or ‘exchanged’. This can be done by hand or post and is usually arranged by your solicitor, conveyancer or the agent. If the agent is handling the exchange, you must expressly authorise them to do so. This should be done in writing.
At the time of the exchange you will be required to pay a deposit. While it is usual for a vendor to ask for a 10 per cent deposit, a different amount can be agreed on and recorded on the contract. Following exchange, you have a financial interest in the property so it’s wise to consider getting it insured.
|NOTE: A contract has not been made and is not legally binding before the exchange of contracts and the payment of a deposit.|
When you buy a residential property in NSW, there is a 5 business-day cooling-off period after you exchange contracts. During this period, you may get out of the contract as long as you give a written notice. The cooling-off period starts as soon as you exchange and ends at 5pm on the fifth business day after exchange.
A cooling-off period does not apply if you buy a property at auction or exchange contracts on the same day as the auction after it is passed in.
You can waive the cooling-off period by giving the vendor a ‘66W certificate’. This is a certificate that meets the requirements of section 66W of the Conveyancing Act 1919. The certificate needs to be signed by your solicitor or conveyancer. It is also possible to reduce or extend the cooling-off period by written agreement with the vendor.
If you use your cooling-off rights and withdraw from the contract during the 5 business-day period, you will have to pay the vendor 0.25% of the purchase price. This works out to be $250 for every $100,000.
Sometimes, there are more buyers looking for homes than there are properties on the market. This is called a sellers’ market. In this case, you may want to organise a quick contract exchange. This way you can reduce the possibility of someone beating your offer and get your building and pest inspections done during the cooling-off period. You will still be able to back out if there is a problem. However, it is important to have the contract checked by your solicitor or conveyancer before you sign it.
If your solicitor or conveyancer has examined certificates from the appropriate authorities, a pest and building inspection has been done and your finance has been approved, then deciding to waive the cooling-off period could make your offer more attractive to the vendor.
Settlement usually takes place about 6 weeks after contracts are exchanged (although a longer or shorter settlement period can be negotiated with the vendor). This is when you pay the rest of the sale price and become the legal owner of the property.
On settlement day, your solicitor or licensed conveyancer will meet with the vendor’s solicitor/licensed conveyancer and representatives from your bank and the vendor’s bank. At settlement, each party will exchange the necessary cheques and documents for title in the property to be transferred to your name.
Occasionally, this process does not go ahead smoothly and settlement can be delayed to another day following a minor mistake by one of the parties at settlement. This can cause a lot of problems if you have made arrangements to move into the house immediately after settlement. While you may be able to recover any loss you suffer caused by another party, any delay in settlement can be very inconvenient.
Maintain regular contact with your solicitor or licensed conveyancer throughout the settlement period to ensure that your property is on track to settle on time.
Remember, on the morning of settlement day, you should conduct a final inspection of the property to ensure it is in the same condition as when contracts were exchanged. The last thing you want is to pick up the keys to the property and find that the house has fallen down.
During the sale process, real estate agents and conveyancers are often responsible for holding money in trust for their clients. If an agent or conveyancer fails to account for that trust money, consumers may find themselves out of pocket. Find out how the Property Services Compensation Fund can assist in such cases by visiting the Fair Trading website.