How cooling off periods work when buying a house
If you've just bought a house and are having serious doubts the cooling off period might be a life (and money) saver.
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When buying a property, there's a critical stage after you sign the contract called the cooling off period. During this period you can cancel the sale even though you've signed the contract.
This cooling off period starts on the day you sign and is usually five business days long, Sundays and public holidays not included, but it varies by state. If you change your mind about buying a property during this time, you can cancel the sale.
You should be aware, though, that cancellation of the contract incurs a penalty equivalent to 0.25% of the total selling price of the property. So if the property sells at $500,000, the penalty will be around $1,250. As the seller, on the other hand, 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.
The rules regarding cooling off periods can vary between states and territories. Some states might not even have a cooling off period; thus, it is advisable that you ask your solicitor what rules apply in your area. You can get an idea of the differences between states below:
Cooling off period
Percentage of sale price you forfeit
Five business days
Three business days
No cooling off period is mandated in WA law, so if your contract doesn't include one then it doesn't exist
Five business days
Five business days
Four business days if purchaser isn't represented by a conveyancer or solicitor
Two business days
Small holding deposit is forfeited (up to $100)
None (The Tasmanian govt will be introducing a two day cooling off period shortly)
Cooling off periods only apply to a private settlement (or private treaty) when buying a house, not through an auction. However, if the seller and buyer personally negotiate the contract after the auction, a cooling off period may apply.
Steps of the cooling off process
- 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.
How does the cooling off period work?
The cooling off period when buying a house is usually five 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. If there are public holidays or a Sunday in between the period, it will not be counted as part of the business days. It is advisable to ask for a notice of receipt when the contract is delivered as a proof when the cooling off period started.
During this time your solicitor or conveyancer can make enquiries to detect further problems. These enquiries may include building and survey report, or the certificate of compliance secured from the local office. If there are any problems, you have the option 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 without any explanations 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 three ways that 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.
If you are selling your house and have had your sale cancelled within the cooling off period, find out you can put your home back on the market.
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 amounts to 0.2% of the sale price in Victoria, or 0.25% in NSW. This amount is paid to the seller of the property.
While it may be necessary for you to withdraw from the contract, you must be aware that this will 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?
If you wish to back out of a contract after the cooling-off period has ended, it could 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 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.
Waiving the cooling off period
The government has provided buyers under the Property, Stock and Business Agents Act 2002 the right to waive the cooling off period. Under the Act, only the buyer has the right to waive the cooling off period following the strict guidelines under that provision. There are only three conditions provided in the Act for which a buyer can waive the cooling off period.
When you want to sign a waiver on the cooling off period, you must 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. Furthermore, you can not only waive the cooling off period, but you can also reduce or extend it according to you and the seller’s agreement.
Buying a home can be a complicated process with all the legal procedures it has to undergo and the legal documents you need to read and sign. If you are not careful, it can cost you more than you have planned. By having a solicitor to help you in every step of the way, you can get helpful advice what to do every step of the way. And before long, you can have the house you’ve been dreaming of.
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