If you’re a first home buyer, you may wonder at what point in the home-buying process you can still walk away from an offer without suffering much in the way of a penalty. Enter the cooling-off period.
What is a cooling-off period?
A cooling-off period is a window of time wherein you can withdraw from a property sale and contract if you decide you cannot proceed.
Once you’ve done everything required to get a mortgage — conducted extensive due diligence, gotten your finances in order, had your offer accepted and exchanged contracts — as a residential property buyer, you still have a way out of the deal in the form of a cooling-off period.
How long is the cooling-off period?
The cooling-off period generally commences the same day the buyer signs the contract or informs the seller that they’ve signed. It ends at 5pm on the final business day of the period thereafter. If you intend to terminate the contract, you must provide a signed notice by 5pm that day.
The length of cooling-off periods also differs slightly throughout Australia:
|State or territory
|Length of cooling-off period
|5 business days
|New South Wales
|5 business days
|4 business days
|5 business days
|2 business days
|No cooling-off periods – once the contract is signed, both parties are locked in
|3 business days
|No mandatory cooling-off period, but buyers and sellers can add one to a contract.
Some areas also include a penalty for pulling out of the contract during the cooling-off period. These conditions vary from state to state.
Does every property sale get a cooling-off period?
A cooling-off period does not apply in every property sale, however. The most notable exception is for auctions. For these sales, you or your solicitor must conduct all relevant searches and inspections before you bid for the property.
Additionally, you may choose to skip the cooling-off period altogether. For example, you may face strong competition when you make your initial offer on the house. Other would-be buyers could be willing to waive their cooling-off period in negotiations with the vendor as part of a counter offer to gain an edge over other buyers. This approach could also work to your advantage in negotiations with vendors, as long as you’ve done everything you should have, especially regarding inspections, before exchanging contracts.
Why would you need a cooling-off period?
The cooling-off period could be handy for buyers snowed under with the amount of paperwork and research required to get everything organised to exchange contracts and get their deposit together.
At this point in the process, you should have done all the required due diligence regarding building and pest inspections, strata reports if the building is under a strata title, and getting your finances in order.
However, for some buyers, having up to five extra days allows you to finish tying loose ends. It also provides some buffer if something vital has slipped through the cracks. Mistakes could easily happen, especially if you only recently saw the property listed and had to quickly get an offer so you could beat the competition.
That scenario could be especially true if the property is being sold by expression of interest (EOI), where the owner markets the property without a price and just takes expressions of interest from would-be buyers. In this case, you’d be encouraged to offer the best possible price immediately instead of trying to go low and negotiate with the seller. EOI sales usually move quite fast, so you may benefit from having more time to ensure everything is in order.
An EOI sale is, in some ways, a hybrid of private treaty and auction — where there’s no price guide, and you put your best offer forward and see what happens. However, all the offers are private, and the seller accepts the most favourable one, which could also include a waiver of the cooling-off period. If that’s the case, you once again would have needed to have conducted all relevant inspections before exchanging contracts.
» MORE: What does ‘under contract’ mean?
What happens at the end of the cooling-off period?
Buyers can request an extension to the cooling-off period. However, the seller is under no obligation to agree and is unlikely to say ‘yes’ if there is plenty of interest in the property. If you are serious about purchasing the property, you must complete any outstanding due diligence before the cooling-off period ends.
At the end of the cooling-off period, assuming, as the buyer, you have not taken any steps to terminate the deal, the mortgage will proceed to settlement. This process usually occurs between four and six weeks after the exchange of contracts. At this time, you will pay the remainder of the property’s price to the seller’s agent, get the keys, move in and start paying off your mortgage in regular monthly or fortnightly instalments.
If you have doubts about how the cooling-off provisions work and how they relate to your situation, you should always discuss them with your solicitor before exchanging contracts. Or, more specifically, you should alert them to what it is you have doubts about, whether it’s something in the contract or something external. For example, any repair or renovation work you want the vendor to do before you settle and move into your new property.