Who receives the penalty payment if the buyer backs out of a contract during a cooling-off period?

As the above table shows, you’ll have to pay a penalty when you terminate a contract during the cooling-off period. This amount is paid to the seller of the property. While it may be necessary for you to withdraw from the contract, it will likely cause stress and inconvenience to the seller. They would have paid legal fees and they also would have missed out on other potential buyers and offers while negotiating the sale of their property to you. This penalty is paid to the seller to compensate for their losses.

What if I want to back out of the contract after the cooling off period?

This can be costly. Your contract will contain details about the penalties imposed if you decide to withdraw from the binding agreement you have signed after the cooling-off period has expired. You’ll most likely have to pay default penalties and compensate the seller for any losses they have experienced. Plus, you will also lose the money you have already put towards legal and conveyancing fees, building and pest inspections, and any other property purchase expenses. If the contract has already become unconditional, it may not be possible to withdraw from the contract, and the seller can compel you to settle (or purchase) the property. If you're unsure about your rights in this situation or the implications of withdrawing from a contract after the cooling-off period, discuss your options with a solicitor.

What can I do if my buyer backs out in the cooling off period?

If you're selling your property and a buyer pulls out during the cooling off period, you will need to put your home back on the market. Because cooling off periods only count for properties sold privately, not at auction, you won't have to repeat an auction, but you can choose to sell your home that way next time.

What is a cooling off period when buying a house?

The cooling off period gives a property purchaser the chance to back out of the sale after the contract is signed.
The cooling off period only applies to private sales of properties, not auctions.
States and territories have different lengths of cooling off periods, with WA and Tasmania not offering cooling off periods at all.

What is a cooling off period?

When buying a property, there's a critical stage after you sign the contract called the 'cooling off period'. This is where you can cancel the sale for any reason you like – despite the fact you've signed a legally binding contract to purchase the property.

Each state and territory has different rules around cooling off periods and some states don't have cooling off periods at all. In those that do, cooling off periods only apply to a private settlement (or private treaty) when buying a house. They do not apply when you're buying a property through an auction. However, if the seller and buyer personally negotiate the contract after the auction, a cooling off period may apply.

If you decide to walk away from the property within the cooling off period, cancelling the contract may incur a financial penalty, generally equivalent to 0.20% to 0.25% of the final sale price of the property.

Compare the cooling off period in each state and territory

State	Cooling off period	Percentage of sale price you forfeit	What you stand to lose on a $500,000 purchase
ACT	5 business days	0.25%	$1,250
NT	4 business days	0	Nil
NSW	5 business days	0.25%	$1,250
Queensland	5 business days	0.25%	$1,250
SA	2 business days	Small holding deposit is forfeited (up to $100)	$100
Victoria	3 business days	$100 or 0.20% (whichever is greater)	$1000
WA	Nothing mandated by law, but you can add a clause in your contract	100%	$500,000
Tasmania	Nothing mandated by law, but you can add a clause in your contract	100%	$500,000

How does the cooling off period work?

As you can see, the cooling off period when buying a house is up to 5 business days (or 10 business days for off-the-plan contracts in NSW). In NSW and Queensland, it starts when you exchange contracts or receive a copy of the contract signed by both parties, and ends at 5pm on the fifth business day. Start and end times differ in other states, so check the rules where you're buying.

It's advisable to ask for a notice of receipt when the contract is delivered as proof of when the cooling off period started.

During this period your solicitor or conveyancer should make enquiries to detect any potential problems with the property. These enquiries may include a building and survey report, or the certificate of compliance secured from the local office. If there are any problems, you can use the cooling off period to terminate or cancel the agreement.

When you wish to rescind the agreement, you have to write a letter or notice of termination to the agent. You do not need to give any explanation as to why you are cancelling the contract. This letter should be rendered within the cooling off period and not after since you will be bound by the contract after that.

There are 3 ways you can render the letter of termination – given personally to the agent, mailed or delivered to the agent’s business address, or delivered to a place assigned in the agreement should a cancellation take place.

In Queensland, if you cancel the contract within the cooling off period, the seller must refund your deposit within 14 days, minus no more than the termination penalty.

Waiving the cooling off period

As the buyer, you can choose to waive or shorten the cooling-off period. You will need to put this in writing and clearly state:

That you choose to waive the cooling-off period entirely
That the cooling-off period will last until 5pm on a particular day.
In NSW, to waive the cooling-off period you must also give the seller a section 66W certificate under the Conveyancing Act 1919.
This certificate must be signed by your legal representative.

Waiving the cooling off period might make your offer more attractive to the seller; however, you should exercise caution before waiving it. Be sure that your conveyancer has already made all the necessary inspections like pest and building inspections. You should also make sure that your finances are ok, which means your loans have been approved.

Expert insight: Why the cooling off period matters

"Don't ever be pressured into waiving the cooling off period by the agent or the seller. This can happen when there are known but undisclosed problems with the house. You might think it's OK to waive the cooling off period at the time, but you'll probably come to regret it. Pressure to waive the cooling off period is almost never a good sign."

Aaron & Angelina Scott

Co-founders, bRight Agent

More questions about the cooling off period

As the above table shows, you’ll have to pay a penalty when you terminate a contract during the cooling-off period. This amount is paid to the seller of the property.
While it may be necessary for you to withdraw from the contract, it will likely cause stress and inconvenience to the seller. They would have paid legal fees and they also would have missed out on other potential buyers and offers while negotiating the sale of their property to you.
This penalty is paid to the seller to compensate for their losses.
This can be costly.
Your contract will contain details about the penalties imposed if you decide to withdraw from the binding agreement you have signed after the cooling-off period has expired. You’ll most likely have to pay default penalties and compensate the seller for any losses they have experienced.
Plus, you will also lose the money you have already put towards legal and conveyancing fees, building and pest inspections, and any other property purchase expenses.
If the contract has already become unconditional, it may not be possible to withdraw from the contract, and the seller can compel you to settle (or purchase) the property.
If you're unsure about your rights in this situation or the implications of withdrawing from a contract after the cooling-off period, discuss your options with a solicitor.

Finder writers are subject matter experts and use primary sources, in-depth research and interviews with other experts to ensure you're getting accurate, up-to-date information. Articles are fact checked in line with our editorial guidelines.
1. Cooling off periods by state, coolingoffperiod.com.au

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Rebecca Pike

Editor, Money

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Rebecca Pike is Finder’s money editor, with over 7 years of experience in mortgages and personal finance. A frequent TV and radio commentator, she frequently appears on Sunrise and 7News, Today and 9News, as well as Sky News, Channel 10 and across radio and print. Rebecca previously served as Editor of Mortgage Professional Australia. She has a Master’s degree in Journalism as well as ASIC-recognised certifications in Tier 1 Generic Knowledge and Tier 2 General Advice Deposit Products, which comply with ASIC guidelines. See full bio

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43 Responses

CathyMay 26, 2015

Having accepted a price for the sale of a property 10 days ago (being a Saturday) and contracts signed by our party 4 days later, building/pest inspection completed and other party’s banks valuation completed when should we expect exchange of contracts. Also when does the cooling off period start and finish. Is it from the acceptance date or from exchange of contracts? We are from NSW but unsure if the waiver was signed.

BelindaMay 29, 2015

Hi Cathy,

Thanks for your enquiry.

finder.com.au is an online comparison service and we cannot provide you with advice regarding your personal situation.

When you buy residential property in NSW, there is a 5 business-day cooling-off period after you exchange contracts.

In regards to the exchange of contracts, please speak with your solicitor.

Thanks,
Belinda

joeMay 23, 2015

is there a cooling off period in arizona, usa

BelindaMay 25, 2015

Hi Joe,

Thanks for your enquiry.

There is a cooling off period in Arizona. However, we suggest that you contact your state department directly to discuss this legislation.

Thanks,
Belinda

DaveApril 2, 2015

What happens if the real estate has not passed my request to terminate the contract within the cooling off period ?

I got really surprised today with such professional misconduct by this real estate who locked me in the sale of the contract after not passing my termination request to the vendor.

How can I go about this ?

Finder

ShirleyApril 7, 2015Finder

Hi Dave,

Thanks for your question.

In this unique case it’s best to speak to a certified legal practitioner or a buyer’s agent if you have one. If you have fulfilled all the requirements stated in your contract regarding the cooling off period, then your request should be fulfilled.

Cheers,
Shirley

geoffMarch 23, 2015

Can I cancel the contract as a seller during the cooling off period?

Finder

MarcMarch 24, 2015Finder

Hi Geoff,

Thanks for the question.

This is not possible as the cooling-off period is only designed to benefit buyers. We have written a guide on cooling-off periodswhen selling a home.

I hope this helps,
Marc

MaryMarch 13, 2015

I’ve put a $1,000 deposit to take a house and land off the market. I am yet to receive a copy of the contract, as the seller is waiting on three documents from the council. Can I stop the process and still get my $1,000 deposit?

Finder

ShirleyMarch 16, 2015Finder

Hi Mary,

Thanks for your question.

On the NSW Fair Trading website it states that, “When you buy a residential property in NSW there is a five business-day cooling-off period after you exchange sale contracts. During this period you have the option to get out of the contract as long as you give written notice. The cooling-off period starts as soon as you exchange and ends at 5pm on the fifth business day.

If you use your cooling-off rights and withdraw from the contract during the five business-day period, you will have to pay the seller 0.25% of the purchase price. This works out to be $250 for every $100,000.”

Should you require anymore information, please speak to your trusted solicitor or agent.

Cheers,
Shirley

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