When making a property purchase, any change in the state or condition of the house can be a deal breaker for buyers — including aspects of the deal that are seemingly minor. With the potential for property prices to enter into millions of dollars, it’s all the more important for buyers to know what their rights are.
In Australia, most real estate contracts have a cooling off period to protect buyers from being locked into an unfavourable transaction.
What is a cooling off period when buying property?
A cooling-off period refers to a set amount of time after the contract of sale for a property transaction is finalised, meaning that it has been signed by both buying and selling parties.
During this cooling off period, buyers can choose to pull out of the deal and cancel the transaction. No reasons or evidence will need to be provided, and buyers will not face any legal penalties in the process.
The main purpose of the cooling off period is to allow buyers to “cool off” after the (frankly, hectic) property transaction process and consider the full cost and implications of their purchase. Buyers may be rushed into making the deal or face significant changes in their lives that lead to a change in the decision to purchase.
How long is the cooling off period when buying a house?
Cooling off periods in Australia vary based on the state of where the transaction is taking place. The duration of cooling off periods for each state and territory in Australia are:
- New South Wales – 5 business days
- Queensland – 5 business days
- Australian Capital Territory – 5 business days
- Victoria – 3 business days
- Western Australia – No mandated period, but can be included in the contract by request
- South Australia – 2 business days
- Northern Territory – 4 business days, can be changed if both parties agree
- Tasmania – No cooling off period for any sale
In most cases, the cooling off period can be extended (or shortened) if the buyer and the seller both agree to it in writing. There is no official legislation, but the maximum duration of a cooling off period is usually recommended to be 10 business days. Beyond this, sellers may be inclined to not proceed with the sale due to the increase in liability and risk on their end.
When does the cooling off period not apply?
A cooling-off period is not applied in certain types of property transactions, namely:
- A property purchased at an auction, or
- An exchange of contracts in a private treaty on the same day the property was auctioned.
Buyers that make such purchases will not be given a cooling off period, meaning that they must be sure of the condition of the building beforehand, whether by completing a building inspection ahead of the auction or otherwise.
It is also possible for buyers to waive the cooling off period on a property transaction, thereby locking themselves into the contract once it is signed. Buyers can choose to do this to indicate a strong intention of purchase to the seller and increase their chances of securing the purchase over other potential buyers. This is sometimes done in an “unconditional contract of sale”, which holds a whole other set of considerations.
Under what circumstances should buyers make use of a cooling period?
A cooling-off periods act as a form of “safety net” for buyers — should they change their mind on the purchase, they can safely exit the sale without incurring any legal implications.
Some of the common circumstances where buyers decide to withdraw from a property transaction include:
- Discovering the presence of previously unaccounted-for issues with the condition of the house, such as water damage or a pest infestation.
- A change in the buyer’s opinion about the value of the property, or a preference for another property.
- A change in financial circumstances, causing the buyer to be able to complete the transaction.
- Sudden developments in the buyer’s personal circumstances.
- New information about the area surrounding the property, such as planned development.
What happens when you withdraw during the cooling period?
Upon withdrawing during the cooling period, the contract of sale will no longer be valid and is considered to be terminated. Making use of the cooling period may be without legal consequences, but there are still potential costs involved with doing so. Most states and territories in Australia rule that buyers will be liable to pay penalty fees to the seller as compensation for the time and effort spent on the transaction. As a result, buyers are not likely to get the full amount of their deposit back when withdrawing from a sale during the cooling-off period.
Penalty fees for withdrawing during a cooling period in each state are:
| State | Penalty fee |
|---|---|
| New South Wales | 0.25% of the property’s purchase price |
| Queensland | 0.25% of the property’s purchase price |
| Australian Capital Territory | 0.25% of the property’s purchase price |
| Victoria | 0.20% of the property’s purchase price, or $100, whichever is greater |
| Western Australia | 0.20% of the property’s purchase price, or $100, whichever is greater |
| South Australia | $100 is taken from the deposit amount |
| Northern Territory | N/A |
| Tasmania | N/A |
Considering that property prices amount to hundreds and thousands of dollars, buyers can incur quite a hefty cost withdrawing during the cooling period. Getting expert advice from a conveyancer can help buyers to avoid the potential pitfalls of a property early on, and smoothen the process of buying a property that meets their unique preferences.
Entry Conveyancing offers buyers the assistance they need to complete their property transactions seamlessly, and with as little risk as possible. We have teams of expert conveyancers in Sydney, Melbourne, and Queensland to help you purchase your next home.
