Contracts
All there is to know about contracts of sale
Once you’ve found a suitable property and a price has been agreed, the estate agent completes a contract of sale, which is signed by both parties.
Contracts are published in standard form by the Law Society and the Real Estate Institute. Since July 2001, the front of all contracts has carried a government statement bringing to your attention important matters such as the recommendation to seek legal advice and information about cooling-off periods and the payment of deposits. You, the vendor and the estate agent must sign this statement in front of a witness. You should never sign a contract without having it checked by a legal adviser.
It’s important to check that a property’s particulars are complete in every detail and have been entered correctly and that the terms of sale are correct, including any changes made to the standard terms. Although it’s possible to obtain a loan for the whole cost of a property (a 100 per cent mortgage) from some developers, particularly if you’re a first-time buyer, most lenders expect borrowers to pay a deposit of 5 to 25 per cent of the purchase price.
The average deposit paid is around a third of the value of a property in Sydney and some 40 per cent in Melbourne. The deposit is paid by the buyer to the agent and deposited in the agent’s escrow (trust) account until completion, which is usually around a month later. The deposit is forfeited if you pull out of a purchase after signing a contract and aren’t covered by a clause in the contract. However, a holding deposit paid before signing a contract (as a sign of ‘good faith’) is refundable if you change your mind.
After signing the contract, called ‘exchange’, both parties are legally obliged to go through with the deal, subject to cooling-off rights in some states, e.g. two to five working days in NSW, South Australia and Victoria; in NSW, buyers have from the day of exchange until 5pm on the fifth working day following, during which they can withdraw from the purchase with a limited penalty (0.25 per cent of the purchase price). Cooling-off rights don’t apply when buying at public auction, and in any case vendors sometimes refuse to sell unless a certificate waiving the cooling-off period is signed.
Any conditions attached to a sale must either be dealt with before the exchange or during the cooling-off period; otherwise, they must be included as a specific provision in the contract.
Conditional Clauses
Contracts often contain conditional clauses, such as the sale being conditional on a satisfactory survey. Conditions usually apply to events out of control of the vendor or buyer, although almost anything agreed between the buyer and vendor can be included in a contract. If any conditions aren’t met, the contract can be suspended or declared null and void and the deposit returned. However, if you fail to go through with a purchase and aren’t covered by a clause in the contract, you forfeit your deposit or might even be compelled to complete a purchase.
If you’re buying anything from the vendor such as carpets, curtains or furniture which are included in the purchase price, you should have them listed and attached as an addendum to the contract. Any fixtures and fittings present in a property when you view it (and agree to buy it) should still be there when you take possession, unless otherwise stated in the contract.
When signing a contract to buy a home or land on which you require a loan, you should complete the clause regarding your ability to obtain finance. This makes the contract ‘subject to finance’; if you cannot obtain finance within the time specified in the contract, e.g. 7 to 14 days, it becomes null and void and you won’t have to proceed. Without a finance clause, you could be sued by the vendor for failing to buy the property. If you cannot arrange finance in the specified time, you can ask for an extension to the settlement date.
Also in this section
- Introduction: An introduction to buying property in Australia
- Cost: What is the cost of buying a home in Australia?
- Title: Types of title
- Fees: Extra costs when buying property in Australia
- Estate Agents: All you need to know to deal with estate agents
- Buying at Auction: A common way of buying property in Australia
- Contracts: All there is to know about contracts of sale
- Conveyance: What is it and what does it entail
