The secrets to understanding contracts when buying a property.
When you are thinking of buying a house, there are two ways that you can go about it – through a private settlement or through an auction. The process involved between these two methods have some differences, one of which is the cooling period. In a nutshell, the cooling off period is simply the period provided for you 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 you received the signed copy of the agreement between you and the seller. 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.
Elements of a contract for buying a house
The process of buying a property is complicated and full of jargons which can confuse you, especially when it comes to contracts as there are a lot of misinformation and misconceptions that are sometimes involved. Before sifting through the anatomy of a contract, there should be a clear definition of terms in order to fully understand each component of the buying process.
- 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 the first four stages take place or are fulfilled, there is a consideration stage where both parties should receive something in return when they bind themselves to the contract. It is the classic give and take example. Once all of these have been fulfilled, a written contract is drawn and signed by both parties.
What should be inside a contract?
There are numerous kinds of contracts you can find – from building contracts to marriage contracts, there is a contract for every transaction or dealing you make. But no matter how numerous these contracts are, they have similar features and characteristics. So when you are buying a house and it is time to sign that contract to make your dream house become yours, be sure that you know what is inside a contract. Aside from making sure that it is drawn to your name, your home purchase contract 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 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 is 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 are always synonymous with buying a house. This offers a protection to both parties, whether you are the seller or the buyer. Besides protecting both parties, contracts can also legally bind you and in case you breach the contract, a penalty will be incurred. Therefore, be very sure that you understand all the legalities and procedures before affixing your signature.