KEY TAKE OUTS
- How do I start the process of purchasing a property?
- What is a conditional exchange?
- What is a holding deposit?
- What is an unconditional exchange?
- What does this mean for a Vendor?
Once you have found a house that you are interested in, it is often a daunting process to know where to start. The first step is often as simple as putting an offer in. Once you have done this and it has been accepted is where the process really starts. There are two ways to exchange and which way you exchange is often negotiable, but it is important to understand the implications of both options these being:
- Conditional Exchange
- Unconditional Exchange
A conditional exchange is where there is a cooling-off period. The cooling-off period is required to be a minimum of five (5) days. Generally, this period is extended to ten (10) days. The cooling-off period starts as soon as you exchange and ends at 5 pm on the fifth-tenth business day after the day of exchange. During the cooling-off period, the property is removed from the market. This means no further offers should be entertained.
When a conditional exchange is set to take place, you will be asked to put down a holding deposit of 0.25%. This holding deposit is NOT refundable if during the cooling-off period you choose not to go through with the purchase, once you have signed the contract. This holding deposit is essentially the vendors’ compensation for removing the property from the market for the duration of the cooling-off period. If in the alternative the vendor were to pull out the holding deposit would become refundable.
At the same time, you will then be asked to sign and exchange contracts. Once this is done is generally the point where you would get a Solicitor or conveyancer involved. During the cooling-off period, a lot happens. There are contract negotiations, inspections are performed, certificates are ordered, and finance is finalised. During the cooling-off period and once all these things are done you will then be asked to pay the deposit which is generally 10% but can be different depending on what is negotiated.
What does this mean for the vendor?
If in the alternative you are the person selling the property and you choose to accept an offer and exchange conditionally you are not the one afforded the benefit of the cooling-off period.
Once both you and the purchaser have signed the contract and the exchange has taken place you are bound to uphold the contract for sale. However, if the purchaser cannot meet their requirements by the end of the cooling-off period which would entail them having paid the negotiated deposit amount (generally 10%) you can then exercise your right to not sell the property to the purchaser.
As the seller, you become legally bound to sell your property to the buyer if the conditional terms are met.
An alternative to the above method of exchange, there is an unconditional exchange. With this method, there is no holding deposit paid. When exchanging you will be asked to sign an additional document called a 66W Certificate which waives your right to a standard 5-day cooling-off period.
Instead, you would get a Solicitor or Conveyancer involved as soon as you had an offer accepted on the property. You need to get the contract reviewed, any contract negotiations done and all your checks and inspections done before you put down the 10% deposit and sign the contract. At this point, you need to be completely sure that you want to proceed with the contract on the terms as they stand.
The thing to remember with this method is that the property will remain on the market whilst you are arranging all these things. Essentially someone could come along and make a better offer which the vendor could choose to accept you are expending money to get these things done even if the purchase does not go ahead. In today’s property market this method is not ideal. Vendors have multiple purchasers lined up and gazumping (outbidding) is a real issue.
What does this mean for the vendor?
In the alternative, if as a Vendor you choose to exchange on an unconditional basis you are not locked in at any point up until contracts are exchanged and the entire deposit has been received.
Even if you have indicated that you would be willing to proceed with a purchaser’s current offer you are in no way locked in. This means that the property remains on the market, and you can entertain other offers whilst a purchaser performs all their due diligence. However, this also means that a purchaser is at no point locked in until the exchange and they are able to walk away at any time without you receiving the benefit of retaining a holding deposit.
Whilst it is often a scary process, especially for those entering the property market for the first time. We hope this article has helped you to have a sounder understanding of where to start and the basics of purchasing a property.
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.