Cooling-off periods for property: 4 things you should know
Property tends to be one of our greatest investments. As a result, buying property is a huge decision – especially for first-time or novice buyers. Mistakes can be made. Cooling-off periods are designed to ease the pressure and give buyers a chance to walk away from a sale if problems arise or they change their mind.
What is a cooling-off period?
A cooling-off period is a set number of days after a contract has been signed when a buyer can cancel the transaction. Cooling-off periods are essential to buyers who don’t have pre-approved lending in place with their bank or financial institution, and they offer buyers a little more leeway when making such a large purchase.
However, cooling-off periods vary state to state and don’t apply under every situation:
- Depending on the state, buyers may be liable to pay a termination fee
- There’s no cooling-off period for properties purchased at auction
- Buyers can elect to waive their right to a cooling-off period
- Tasmania has no legislation for cooling-off periods
Cooling-off periods state by state
Each state has their own policies in place regarding cooling-off periods, including the defined number of days:
Victoria: 3 business days. Buyer must pay 0.2% of the purchase price to the seller.
NSW: 5 business days. Buyer forfeits 0.25% of the purchase price to the seller.
QLD: 5 business days. Seller keeps 0.25% of the purchase price from the buyer’s deposit.
SA: 2 business days. Deposits paid over $100 are refunded in full, however the buyer forfeits their holding deposit.
WA: No cooling-off periods apply unless specified within the sale contract.
ACT: 5 business days. Buyer forfeits 0.25% of the purchase price to the seller.
NT: 2 business days. Purchase deposit and holding deposit are refunded to the buyer.
TAS: No cooling-off periods apply to the sale of any property in Tasmania.
Check out your local consumer affairs or real estate institution to understand the particular rules associated with cooling-off periods in more detail.
Why a buyer might back out during a cooling-off period
Because cooling-off periods are so short, it’s unusual for buyers to use this defined period to walk away from a sale – but, it can happen. In most cases, it can be related to buyers having their loan application turned down or delayed if they haven’t organised a pre-purchase loan. Sometimes, it can be related to issues that arise from a building or pest inspection. Or, perhaps they simply get cold feet.
What happens after a cooling-off period?
Once the cooling-off period is over, a buyer can no longer back out of a contract for sale without significant financial penalties. The contract for sale specifies what a buyer is liable to pay should they pull out after the cooling-off period. Such costs may include their initial deposit or expenses paid by the seller, such as legal or conveyancing fees and building valuation and inspection fees.
The next and final stage of the property sale process is settlement day.