For many of us, buying a property is the biggest purchase we will ever make so understandably the process can seem complicated and overwhelming. After investing so much time and money in finding and buying the ideal property, it’s easy to let emotions get the better of us at the 11th hour. Ideally, we shouldbe prepared in advance – know our goals, secure finance, do the research - so as to avoid any uncertainty after the deal is done. However, the world is less than perfect and for that we can default, in most cases, to the cooling off period.
A cooling off period is not available in all situations when buying real estate but when it is, it provides you with a period of time to change your mind, after your initial agreement to the sale. The availability of a cooling off period varies from state to state and if you buy a property at auction, there isn’t one at all. Auctions mean it’s all systems go – no cooling off, signed sealed and delivered on the spot. If you think you might like the option of a cooling off period you should do your research, find out what your state’s practices are around cooling off periods and focus on Private Treaty listings i.e. those that are ‘for sale’ rather than being marketed by auction.
The cooling off period in action means you have a specified number of days after the sale is made to think things over and change your mind, if you so choose. The cooling off period begins when contracts are exchanged and it expires a specified number of business days later. At the close of business on the last day of the specified period, the contractual agreement becomes absolutely watertight and cannot be extinguished without significant penalties. In some states, you may have to pay a fee for cancelling – known as a termination fee. The number of days in a cooling period varies from 2 to 5, normally just business days, as does the termination fee, which is usually a percentage of the deposit you put down. The fee is paid to the seller of the property, not the real estate agent.
One of the advantages of a cooling period – other than just being able to change your mind – is that you can secure the property for yourself, blocking out any competitive buyers, and then use the period to perform your due diligence. You may want to organise a building or pest inspection during that time, which can often be your deciding factor. If everything is in order, you can then proceed with the contract of sale as planned. If it’s not, you can withdraw from the sale with minimal penalty. This is done by submitting a written letter to the agent, within the cooling off period, advising that you would like to terminate the agreement. You do not have to explain why or provide reasons or justification. It only needs to be a simple letter that formalises your decision.
All states require that contracts contain a cooling off period except for Western Australia, though there are exceptions and this may change soon. The best approach is to check in with the relevant State or Territory body to find out what their most up to date legislation is regarding cooling off periods. The links below are a great place to start but don't forget that your local real estate agent will be able to tell you immediately.