Exchange of Contracts may take place with the Agent or with the Legal Representatives of the vendor and purchaser. Here is an explanation of the process of each type of exchange.
There are three ways in which a Contract for Sale for residential property can be exchanged:
- Exchange with a cooling off period.
- Exchange with no cooling off period (Section 66W Certificate provided).
Exchange with a cooling off period
Generally, an exchange of Contracts with a cooling off period is completed by the Real Estate Agent. It can also be done by the solicitor/conveyancer if agreed by the parties. Some financial institutions do not provide unconditional loan approval without an exchanged Contract, so a cooling off period could be required.
When Contracts are exchanged with a cooling off period, the purchaser pays a 0.25% deposit to the Agent to take the property off the market for the agreed cooling off period. During this time, the purchaser will arrange their unconditional loan approval, pre-purchase inspections and complete due diligence of the property. If there is an issue and the purchaser decides not to proceed, the 0.25% deposit is paid to the vendor and the property will then go back on the market.
The vendor is bound to the Contract from the date the Contracts are exchanged and does not have the right to rescind the Contract during the cooling off period. Only the purchaser has these rights.
It is also important to note that the cooling off period forms part of the Contract completion period. Therefore, if the Contracts were exchanged on 1 February with a 5 day cooling off period and 35 day completion period, the dates would be as follows:
Exchange Date: 1 February
Cooling off period expiration date: 8 February
Completion Date: 8 March
The completion date is not 35 days after the cooling off period has expired.
The cooling off period can also be extended by mutual agreement, however this will not change the completion date.
A cooling off period does not apply for all properties, ie properties with a land area size over 2.5 hectares, commercial property.
Exchange without a cooling off period
Where Contracts are required to be exchanged without a cooling off period, the purchaser will be required to complete all pre-purchase inspections, due diligence and ensure their finance is unconditional PRIOR to the Contracts being exchanged. Once everything is satisfactory and the full deposit has been paid, the solicitor/conveyancer will provide a Section 66W Certificate which waives any cooling off period and both parties will be bound by the terms of the Contract from the date they exchange.
The vendor is not bound to the Contract until exchange and can still take further offers from other prospective buyers.
At an Auction, there is no cooling off period and a Section 66W Certificate does not need to be provided. The parties are locked into the Contract from the date they sign at Auction.
Any party looking to bid on a property at Auction, should ensure that they are satisfied with their pre-purchase inspections, have finance approved and made any negotiations with the vendor before the Auction takes place. Once Contracts are exchanged at Auction, no further changes can be made.
This blog is merely general and non-specific information on the subject matter and is not and should not be considered or relied on as legal advice. Coutts is not responsible for any cost, expense, loss or liability whatsoever to this blog, including all or any reliance on this blog or use or application of this blog by you.