What if I change my mind about buying a house?

Personal Finance Writer · 2 September 2021
Buying a home is a big step, but what happens if you have a change of heart? That’s when it helps to know about unconditional vs conditional contracts.

Buying a home means signing a contract of sale – and that’s a legally binding document. There can be opportunities to back out of the purchase if you change your mind, though it may leave you out of pocket. The key is to know what type of contract you’re putting your name to, and think about adding some conditions that help protect you from losing all or part of your deposit.

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House hunting can be a lot of fun. But it can also be a long and exhausting process, often calling for Saturday mornings to be devoted to open home inspections. Add in a competitive market, and it can be tempting to pick up the nearest pen and ask “Where do I sign?” when you find the place that’s right for you.

But when you do find a property you love – and the seller accepts your offer – it’s worth hitting the pause button for a moment. What if you change your mind about buying the house? Worse still, what if you can’t secure a home loan to go ahead with the purchase, or the place turns out to be full of termites?

That’s when it pays to understand what happens if you change your mind about buying a house.

When can you change your mind about buying a house?

It’s a no-brainer that buying a home is a big deal. There’s a lot of money at stake, it can be stressful, and you want to be sure everything is just right before you commit to buying a place. The question of when you can change your mind and back out of a purchase hinges around whether you’ve signed an unconditional – or conditional – contract of sale.

Here’s what you need to know.

How an unconditional contract works

An ‘unconditional’ contract means exactly that – you sign the contract of sale as it stands without setting any conditions of your own regarding the sale.

Let’s say, for example, that you and the seller (or ‘vendor’) have agreed on a price. The real estate agent hands you the sale contract to sign, and you ink the deal with no questions asked. Then you pay your deposit (usually 10–20% of the agreed price, but this can vary) to cement the deal. The seller also signs a copy of the contract, and you each receive a copy in a process known as ‘exchange’.

At this point, you may be entitled to a cooling-off period, during which you can get out of an unconditional contract and may get almost all of your deposit back. Be aware: this does not apply if you buy at auction. If you’re the winning bidder when the hammer falls at an auction, there is no cooling-off period.

How long is a cooling-off period?

Whether or not you’re entitled to a cooling off period, and how long it lasts, varies between each state and territory:

  • NSW: You have five business days, though you will forfeit 0.25% of the purchase price if you pull out of the sale. This works out to be $250 for every $100,000 you agreed to pay.
  • VIC: You have a cooling-off period of three business days from the time you, not the seller, signs the contract. If you bail out, you’ll forfeit $100 or 0.2% of the purchase price, whichever is greater.
  • QLD: The cooling-off period is five business days. If you back out of the sale, the seller can hold onto 0.25% of the purchase price.
  • SA: A cooling-off period of two business days applies. If you decide not to go ahead with the purchase, you may lose $100 of your deposit.
  • WA: No cooling-off period applies in WA unless the buyer and seller have agreed to add a cooling-off period to the sale contract.
  • ACT: The cooling-off period lasts five business days. You will forfeit 0.25% of the purchase price if you choose not to go ahead with the sale.
  • NT: In the Northern Territory, a cooling-off period of four business days applies, and you’re entitled to a full refund of your deposit during this time.
  • TAS: No cooling-off period applies to any sale of property in Tasmania.

Can you pull out of a house sale before settlement?

Once you’ve signed an unconditional contract, the sale process moves from exchange to settlement. This is when the legal work and conveyancing is completed to transfer the property out of the seller’s name and into your name.

A lot can happen in this time. You may struggle to get home loan finance, the home may receive a poor pest and building report, or you may simply see another property that you prefer. Whatever the case, backing out of the sale once the cooling-off period is over  and before settlement is completed can be very expensive.

The sale contract will often outline what happens under these circumstances, but as a rule you will lose the full amount of the deposit you paid. You can also be asked to compensate the seller for any expenses they have paid regarding the sale.  In a worst case scenario, the seller can take legal action to force you to proceed with the purchase.

How a conditional contract works

Signing an unconditional contract brings plenty of risks. These risks can be reduced by setting a few conditions of your own regarding the sale. This involves negotiating with the seller to have one or more conditions written into the sale contract, so you and the seller each sign what is called a ‘conditional contract’.

Adding some conditions of your own means the sale will only go ahead if those conditions are met.

The conditions you set can vary. It may be that you make the sale conditional on a problem-free pest and building inspection. Or you can make the sale conditional on gaining approval for a home loan. Or, you could set both of these conditions as requirements in the contract.

In fact, it’s common for sale contracts to include a ‘subject to finance’ condition. Not only does this give you time to line up a home loan if you haven’t done so already, it also means that if, for whatever reason, you don’t get loan approval, you can choose to end the contract and still get your deposit back.

The catch is that contracts can be complex legal documents. You need to be sure your ‘subject to’ clauses are correctly worded. This is an area where it is important to get help from a legal representative. It’s not a good idea to take up an offer from a real estate agent to adjust the contract – they may word the conditions in a way that favours the seller, not you.

The pros and cons of a conditional contract

The biggest benefits of a conditional contract can include giving  you time to arrange finance, being sure the property is in good shape, and ensuring whatever conditions you add to the contract are met. Put simply, you have more scope to change your mind about buying the place without concerns about losing your full deposit.

The downside of a conditional contract is that the property seller or vendor doesn’t have to agree to add any of your conditions to the contract. The more conditions you ask for, or the more demanding the conditions are, the more likely the seller may be to reject your offer.

All of this emphasises the need to have a sale contract reviewed by a solicitor or conveyancer before you sign on the dotted line. If the seller agrees to the conditions you request, it’s far more likely that you can walk away without being left seriously out of pocket if you change your mind about buying a home.

If you’re currently considering a home loan, the comparison table below displays some of the variable rate home loans on our database with links to lenders’ websites that are available for first home buyers. This table is sorted by Star Rating (highest to lowest), followed by comparison rate (lowest-highest). Products shown are principal and interest home loans available for a loan amount of $350K in NSW with an LVR of 80% of the property value.

Before committing to a particular home loan product, check upfront with your lender and read the applicable loan documentation to confirm whether the terms of the loan meet your needs and repayment capacity. Use Canstar’s home loan selector to view a wider range of home loan products.

*Comparison rate based on loan amount of $150,000 and a term of 25 years. Read the Comparison Rate Warning.

Main image source: By Asier Romero/Shutterstock/com.

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