The 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.