What is a cooling off period when buying property?
A cooling-off period is a period of time after the buyer and seller have both signed a contract for a sale, during which the buyer is allowed to withdraw from the contract.
But cooling-off periods only in certain circumstances. They are typically only available for properties sold by private treaty (when a buyer makes an offer and a seller accepts it), and not those sold at auction .
If you choose to withdraw from a contract during the cooling off period, you may be required to pay a penalty. However, that penalty may be smaller than you stand to lose pulling out after the cooling off period.
Why would you withdraw from buying a property?
There are a number of reasons why you might withdraw from purchasing a property after signing a contract, for example:
- You learn of an issue with the property
- You learn something about the area that makes the property undesirable
- You can’t secure finance for the purchase price (though this is often a conditional clause in the contract)
- You experience an unexpected change in your financial position or personal life
- You simply change your mind about the purchase
While a seller may also pull out of the sale of a home before the contracts have become unconditional, a seller who does so could be sued by their real estate agent to recover costs and lost commission. They may also be sued by the buyer to recover money spent on legal fees, building and pest reports, and similar expenses. If you’re a buyer and find yourself in this situation, it may be worth seeking legal advice.
How long is a cooling-off period in Australia?
Cooling-off periods vary between states and territories, and some states don’t have them at all (unless you specify in the contract that you want one). Here’s a breakdown of cooling-off periods work around the country, as well as the penalty a buyer could face if they pull out within it.
The Australian Capital Territory
Cooling off period: Five business days.
Percentage of sale price forfeited: 0.25%.
For a $1,000,000 property, you’d need to pay $2,500. The period can be amended in the contract if both parties agree.
New South Wales
Cooling off period: Five business days (or 10 for a property bought off the plan).
Percentage of sale price forfeited: 0.25%.
For a $1,000,000 property, you’d need to pay $2,500. The period can be amended in the contract if the buyer and seller agree in writing.
Northern Territory
Cooling off period: Four business days.
Percentage of sales price forfeited: nil.
In the NT, a buyer can back out without incurring a penalty. The period can be amended in the contract if the buyer and seller agree in writing.
Queensland
Cooling off period: Five business days.
Percentage of sale price forfeited: 0.25%.
For a $1,000,000 property, you’d need to pay $2,500. The period can be amended if the buyer and seller agree in writing.
South Australia
Cooling off period: Two business days (from contract date, or from the time the Form 1 is provided to the purchaser, if this happens after signing).
Percentage of sale price forfeited: Up to $100.
In SA, the buyer is entitled to a refund of any deposit paid above $100. This means that, for a $1,000,000 property, you’d lose just $100.
Tasmania
Cooling off period: nil.
Percentage of sale price forfeited: 100%.
In Tasmania, there is no cooling-off period mandated by law. This means that a cooling-off period will only apply if you draft an extra clause into the contract and both parties accept.
Victoria
Cooling off period: Three business days.
Percentage of sale price forfeited: $100 or 0.20% of the purchase price (whichever is greater).
For a $1,000,000 property, you’d need to pay $2,000. The period can be amended in the contract if both parties agree.
Western Australia
Cooling off period: nil.
Percentage of sale price forfeited: 100%.
In WA, there is no cooling-off period mandated by law. This means that a cooling-off period will only apply if you add an extra clause into the contract and both parties accept.
How do you calculate the cooling-off period?
The cooling-off period generally starts on the day the buyer receives a signed copy of the contract of sale. It typically ends at 5pm on the final business day of the cooling-off period. For contracts that arrive on a weekend of public holiday, the cooling-off period will generally start the next business day.
Exact rules will vary on a state-by-state basis, however.
As mentioned above, Western Australia and Tasmania do not have statutory cooling-off periods that are mandated by law, but you can still add one in as a clause into the contract (though the seller might not agree to the clause).
How do you withdraw from a sale during the cooling-off period?
In general terms, you will need to tell the seller’s real estate agent that you want to withdraw from a property contract in writing before 5pm on the day the cooling-off period ends. Your lawyer or conveyancer may be able to write a letter on your behalf.
For more specific requirements, it’s worth checking with your relevant housing authority or peak body in your state or territory.
Can the cooling-off period be waived?
Yes, if you are particularly keen on purchasing a property, and you want the contract to go unconditional–meaning there’s no possibility of backing out without a potential penalty– you can ask the seller to waive the cooling-off period.
If you ask for the cooling-off period to be waived, in general terms, you would want to be confident that you will have access to finance, or include a finance clause in the contract. Applying for pre-approved finance is one way to gain peace of mind that you will likely have access to the funds you require from a lender.
