Buying a house: Understand the contracts when buying a house

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home loan contractThe secrets to understanding contracts when buying a property.

Buying a house can be a stressful experience, and complicated contracts of sale can serve to exacerbate this. Contracts of sale for property purchases can be confusing, and it's important to know what you should look for to ensure your transaction is a smooth one.

What should a contract of sale contain?

When you are buying a property and the time comes to sign the contract of sale and make your dream house a reality, be sure you know what to look for. Aside from making sure that it is drawn to your name, your home purchase contract of sale should include the following.

  • Names and addresses of both the seller and the buyer
  • A description of the property you are going to buy which includes the complete address and the exact measurement of the property.
  • Things that are included or excluded in the sale such as furniture and lighting fixture.
  • The total purchase price which includes the deposit
  • The amount of the mortgage to finance the house
  • Inspection reports and necessary inspections performed by the buyer before closing the deal.
  • Property taxes and other adjustments
  • Details of the settlement

Your home purchase contract of sale should also include contingencies which protect your rights as a buyer. This contingency contract gives the provision that you and the other party are legally obligated to the contract if such events stated in the contract happen. The situations stated in the contingency contract are usually categorised under 'subject to' clauses. A good solicitor will be able to draw up a contingent contract that will maximise your rights and protection as a buyer.

Contracts offer a protection to both parties, whether you are the seller or the buyer. Besides protecting both parties, contracts can also legally bind you, which means you can incur legal penalties for breaching the terms of the contract. Therefore, be very sure that you understand all the legalities and procedures before affixing your signature.

Stages of a contract of sale

Before you formally enter into a contract of sale, you're likely to go through a few stages.

  • Contract vs agreement - To put it briefly, a contract is an agreement between two parties, namely the seller and the buyer, which is enforceable by law. An agreement, on the other hand, is similar to a contract except that it is not enforceable by law.
  • Offer and acceptance – In legal terms, an offer is an expression of a person to another party of his willingness to do something under specified terms. An offer also includes the provision that if the offer is accepted, the person who made the offer is legally bound to it. In contrast, an acceptance is the agreement of the other party to the offer made.

Before a contract is ever drawn, it undergoes certain stages, the first two of which are the offer and the acceptance. After an offer and an acceptance are made, a counter offer and a request for information follow. A counter offer is made if the seller requests certain modifications or amendments to the original offer; while a request for information is made when the seller wants to clarify some things about the offer made.

After this, there is a consideration stage where both parties should receive something in return when they bind themselves to the contract. Once all of these have been fulfilled, a written contract is drawn and signed by both parties. The contract becomes binding once it is signed by one of the parties. While it will not be final until signed by both, even if the buyer has signed but the vendor has not the contract is still legally binding.

When a contract of sale isn't final

Once you have signed the contract of sale, many states provide what's known as a "cooling off period". The cooling off period is simply the period provided where you can cancel an agreement if you change your mind; otherwise, you are bound by the contract after that.

The cooling off period starts after the purchaser has signed the contract. This is usually 5 business days long, which means Sundays and public holidays are excluded; thus, if you received the contract on a Wednesday, your cooling off period will end at 5PM on Monday. The cooling off period, however, can be reduced or extended as per the seller's agreement.

It should also be noted that the cooling off periods are not the same in all states or territories; nor does it apply to properties sold at auctions. When you acquire a property at an auction, you will be asked to pay at least 10% of the purchase price. Therefore, you should be aware what the terms and conditions are before bidding. The best thing to do is ask your legal adviser concerning this before you place your bid.

A state-by-state guide to cooling off periods

Marc Terrano

A passionate publisher who loves to tell a story. Learning and teaching personal finance is his main lot at finder.com.au. Talk to him to find out more about home loans.

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19 Responses

  1. Default Gravatar
    peterJune 30, 2017

    My parents are in the process of selling their house. Would it be wise to put a offer and sign a contract on another unit they like or wait until their house has been sold?

    • Staff
      JonathanJuly 1, 2017Staff

      Hi Peter!

      If there’s no need to rush the sale, we always recommend that you consider the market first, as this will conclude if you’re selling at a “loss” or “gain”. Your major determinants in valuing the home are:
      – The current property marketing conditions
      – Interest rates and the availability of finance for buyers
      – The property type
      – The price at which similar properties in the area have sold for.
      We may suggest talking this with a local real estate agent if no one has the necessary experience in appraising your home or a conveyancer. You may want to check the full guide here.

      Hope this helps.

      Cheers,
      Jonathan

  2. Default Gravatar
    PilarMay 18, 2015

    I signed a house purchase contract on Friday, but during the weekend I have some familiar issues and I cannot buy the property. I would like to know if I need to pay the full deposit or to be able to pay only the termination penalty fee of the purchase price ?

    • Staff
      JodieMay 28, 2015Staff

      Hi Pilar,

      Thank you for getting in contact.

      You have reached finder.com.au, a financial comparison site, so we are not able to offer you personalised advice. In terms of termination of a property contract you would be best to check the terms of your contract as this would have the best information about your specific needs as each contract may have alternate terms.

      I would also recommend contacting your solicitor to discuss your change of circumstances and how you can proceed from here.

      Regards
      Jodie

  3. Default Gravatar
    DenisMarch 19, 2015

    After the cooling off period what is the situation if the purchaser wants to cancel the contract for the purchase of a property before the settlement date

    • Staff
      ShirleyMarch 19, 2015Staff

      Hi Denis,

      Thanks for your question.

      This question is best directed at your agent or lawyer. The buyer is bound by the contract of sale after the cooling off period has passed and so a legal agreement may have to be made.

      Cheers,
      Shirley

  4. Default Gravatar
    LolaMarch 2, 2015

    Does a Form 30c have to be on a contract to buy a property in Queensland

    • Staff
      ShirleyMarch 3, 2015Staff

      Hi Lola,

      Thanks for your question.

      Please note that finder.com.au is an online comparison service and is not in a position to provide legal advice. Please speak to your trusted solicitor regarding the process and forms you need to provide.

      Cheers,
      Shirley

  5. Default Gravatar
    hongmeiFebruary 18, 2015

    Do I need to check the land tax whether paid up to date or not by seller when purchase the house?

    • Staff
      ShirleyFebruary 18, 2015Staff

      Hi Hongmei,

      Thanks for your question.

      You are required to apply for a clearing certificate which states if there is any land tax owing on a property.

      If you are using a solicitor or conveyancer to help you purchase a property, he or she will generally apply for a clearance certificate for you.

      Cheers,
      Shirley

    • Default Gravatar
      hongmeiFebruary 19, 2015

      Thank you very much for your help.

  6. Default Gravatar
    JasonDecember 21, 2014

    Have a problem with getting a private sale contract re-installed. The original contract started well before Dec 1 2014 (when the law changed?) and I have been able to get extensions while my finance was being sorted, right up until friday 5/12 when they decided to terminate due to the process taking to long. The following Tuesday I was given FINAL APPROVAL from the bank and I was able to contact the seller and assure them of this and request we re-install the contract. The seller agreed to do this but hit a brick wall with her solicitor who refused to re-install due to the changes as of Dec 1 2014. The Solicitor will only accept a new contract marked as UN-CONDITIONAL meaning without a financial approval date, which my bank will not accept due to it being different to the original contract.
    The questions are,
    Is it possible to re-install contracts still (after dec 1, 2014) due to the original contract being terminated due to a misunderstanding and both parties are still interested in the sale?
    Is there a moratorium in regards to the changes as of Dec 1, 2014 while this transition stage is occurring, and if so who can I get to grant this?
    Is it possible for the bank to look at the new contract to confirm they will still release the funds which I have already been granted FINAL APPROVAL on before, (the new instrument is identical apart from the Unconditional portion)?

    • Staff
      ShirleyDecember 22, 2014Staff

      Hi Jason,

      Thanks for your questions.

      This enquiry is best directed to your conveyancer as they are licensed to provide with legal advice.

      Each state has an office that is dedicated to these type of disputes – in NSW it is the Department of Fair Trading. Their details can be found here.

      This will usually depend on the lender’s policy, in most cases they are happy to consider new contracts and will reassess your position from there. It might be best to speak to your lender directly about your options.

      Cheers,
      Shirley

  7. Default Gravatar
    HomegirlSeptember 2, 2014

    When signing a contract after having an offer accepted what questions do I need to ask about the contract etc? (NSW)
    Thank you :)

    • Staff
      ShirleySeptember 3, 2014Staff

      Hi Homegirl,

      Thanks for your question.

      Please get in touch with your solicitor or a legal professional in regard to this. finder.com.au can only offer general advice regarding product information.

      All the best,
      Shirley

  8. Default Gravatar
    KelleySeptember 29, 2013

    We put on offer in on a property in WA, the owners have countered, and we did agree verbally but have not signed anything, and due to circumstances we can on longer go ahead, are we liable for any penalities

    • Staff
      ShirleySeptember 30, 2013Staff

      Hi Kelley,

      Thanks for your comment.

      Since nothing as been signed, you may not be liable. However, it would be best to consult your agent or your solicitor.

      Hope this helps,
      Shirley

  9. Default Gravatar
    HurrellSeptember 21, 2013

    Does W.A. still not recognise a ‘cooling off period’ or has there been a change?

    • Staff
      ShirleySeptember 23, 2013Staff

      Hi Hurrell,

      Thanks for your comment.

      A cooling-off period for a contract for sale of land does not apply in Western Australia, but there are some exceptions such as retirement villages.

      Hope this helps,
      Shirley

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