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 can go up to 5 business days. It starts on the day you received a copy of the signed contract and ends at 5PM on the last day of the period.

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.

As the seller, once the contract is terminated within the cooling off period, you must give back the deposit within 14 days after the cancellation, with the penalty already deducted.

Steps to follow:

The agent must give you a copy of the unsigned contract at least one business day before the agreement is signed.
The agent must give you a copy of the consumer guide regarding agreements done when selling a residential property at least one business day before the agreement is signed.
You, the client, must sign the waiver form approved by the Office of Fair Trading before signing the agreement.

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.
You must also give the seller a 66W certificate in compliance to 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

Sources

Thank you for your feedback!

To make sure you get accurate and helpful information, this guide has been reviewed by John Pidgeon, a member of Finder's Editorial Review Board.

Written by

Rebecca Pike

Editor, Money

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

PoppiFebruary 20, 2015

We have exchanged contracts with a five day cooling off period in nsw. The cooling off period ends on 24/2/2015 and our conveyances has informed us in writing that the finance clause ( which we didn’t agree on ) expires on the 27/2/2015. In the meantime we also have been subjected to pool inspection and possible other electrical, plumbing, and conveyor and whatever else they please . We only agreed on a price reduction on sale of 10000 for a hassle free sale. What are our rights as the seller

Finder

ShirleyFebruary 23, 2015Finder

Hi Poppi,

Thanks for your question.

Generally the seller is locked into the contract and cannot withdraw from the sale.

If the buyer finds that for any reason he or she does not want to proceed with the purchase they can withdraw from the contract within the five day period.

You should consult your conveyancer and your estate agent regarding your rights as a seller.

All the best,
Shirley

sharaiJanuary 21, 2015

how many day s grace do you have after signing land settlement?

im in perth how many days do i have to change my mind

Finder

ShirleyJanuary 21, 2015Finder

Hi Sharai,

Thanks for your question.

It is not required by WA law that contracts for the purchase of property contain a cooling-off period.

If your contract does not include a cooling off period, you won’t be able to get out of a contract to buy a property due to a change your mind.

Cheers,
Shirley

JocelynSeptember 14, 2014

Do seller gets a 5 days cooling off period too? (QLD)

Finder

ShirleySeptember 15, 2014Finder

Hi Jocelyn,

Thanks for your question.

Unfortunately a cooling off period is only for the buyer and not the seller. For more information, please get in touch with your agent.

Cheers,
Shirley

peterJanuary 20, 2014

Hi, I am looking at purchase of a home, my finance is not yet approved due to paperwork we are waiting for from the ATO. this will take another 2 weeks. The real estate agent wants a .25% deposit with a 10 day cooling off period, but this will not be long enough for our finance. what do we do?

Finder

MarcJanuary 21, 2014Finder

Hello Peter,
thanks for the question.

Unfortunately I’m not able to give personal advice. Generally speaking, a couple of options would include speaking to the ATO to see if the paperwork can be fast tracked, or speaking to the real estate agent to let them know of the situation.

I hope this helps,
Marc.

JessDecember 21, 2013

When the cooling of period starts does it matter that I will be in Fiji for 5 days ?

Finder

MarcDecember 23, 2013Finder

Hello Jess,
thanks for the question.

There’s nothing on the NSW Fair Trading website which indicates that you need to be in the country when the cooling-off period begins, but you do need to submit a written notice if you want to use your cooling-off period rights, so keep this in mind. For more information please call the relevant Fair Trading office in your state.

Cheers,
Marc.

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