Exchanging Contracts When Purchasing Property

Purchasing or selling a property is usually a significant step in your life. Amongst all the emotions that comes with buying or selling a property, it is vital that you understand the process of exchanging contracts.

What is a Contract Exchange?

The exchange of contracts is when the buyer (purchaser) and seller (vendor) generally become legally bound to complete the sale of the property although there are exceptions such as when statutory rights to rescind the contract arise or if the contract is conditional on an event or circumstance. The buyer usually sends the contract to their solicitor or conveyancer to examine and if necessary, negotiate on the terms before both sign the contract. A deposit is usually paid by the buyer once the contract is signed, and this is generally (but not always) held by the seller’s real estate agent.

What Steps are Involved in Exchanging the Contract?

The steps involved in exchanging contracts include:

1. Preparation of the Contract: A solicitor or conveyancer will usually prepare a contract of sale for the seller of the property. The contract outlines the details of the property, the sale price or any special conditions and in NSW must include various documents as required by law.
2. Review and Negotiation: A solicitor or conveyancer acting on behalf of the buyer can review the contract and negotiate terms with the seller’s legal representative. This time can also be used to make pre-purchase enquiries such as obtaining building and pest inspection reports or in the case of a strata building obtaining the strata inspection report.
3. Signing the Contract: Once both parties agree on the terms listed in the contract, they can sign their respective copies of the contract.
4. Exchange of Contracts: The legal representatives exchange the signed contracts. At this point the sale becomes legally binding (unless one of the exceptions outlined above exists).
5. Payment of Deposit: The buyer then pays a deposit (either at the time of exchange or before), which is usually held in the estate agent’s trust account until the day of settlement.

What is a Cooling-Off Period?

In NSW a cooling-off period is a legally mandated timeframe that allows a buyer of residential property to legally withdraw from the contract, although there may be a penalty for withdrawing from the contract. In NSW, there is a statutory five-business day cooling-off period for residential properties. However, there is no cooling-off period for buyers who purchased the property through at public auction or if the contract is made on the same day as the property was offered for sale at public auction but passed in and ultimately still purchased. The cooling-off period can also be waived by a purchaser by giving the seller a certificate signed by the purchaser’s solicitor or agent confirming the waiver of the cooling-off period.

Please note there are separate rules for off-the-plan purchases of property in NSW.

Do I need Legal Advice?

It is important that you seek legal advice before exchanging contracts. Your legal representative can ensure that the contract is fair and that you understand your obligations. They can also assist in identifying any issues within the contract or the property itself. By seeking legal advice, you can be ensured of a smooth and successful sale, as you walk through each step of purchasing or selling a property.  

Contact us for a free thirty-minute consultation with a solicitor or conveyancer.

Any information on this website is general in nature and should not be taken as personal legal advice. We recommend that you speak to a lawyer about your personal circumstances.

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