What is exchange?
Exchange of Contracts takes place once an offer has been accepted by you (the vendor). The Contracts are then signed and dated, this is the exchange date. From this day on the Contract is binding.
Types of Exchange
Contracts can be exchanged in three ways:
1. At Auction
When a Contract is exchanged at an auction, the deposit is paid by the purchaser and the Contract is signed by all parties immediately after the auction is finalised. The Contract is unconditional, meaning that both parties are bound by the terms of the Contract and that no changes to the Contract can be made after this date.
Prospective purchasers will need to submit any request to vary or amend the Contract to your real estate agent or solicitor/conveyancer prior to the auction. Any agreements to change or vary the Contract will be recorded for that purchaser. These will be binding should that purchaser be the successful bidder at auction.
On the day of the auction if the reserve is not met and the sale is passed in by the auctioneer, potential purchasers will still have the opportunity to negotiate a purchase with you on the auction day. If an agreement can be reached as to a purchase price by private negotiation on the auction day, the deposit will be paid, and the Contract signed and exchanged on the same auction conditions.
2. With a Cooling-Off Period
Should you agree to an offer, a purchaser can exchange Contract with a 5 business day cooling off period. Before the Contracts are exchanged, the purchaser must pay 0.25% of the purchase price as a holding deposit. The Contract will then be dated and the cooling off period will expire at 5pm on the 5th business day after the date of the Contract.
During the cooling off period the property is taken of the market while the Purchaser finalises their finance arrangements and reviews the building/strata reports for the property. Their solicitor/conveyancer will review the Contract of sale during this time.
It is normal, during the cooling off period, for the purchaser’s solicitor/conveyancer to request amendments to the Contract or additional information regarding the property. Your solicitor/conveyancer will Contact you to discuss these requests and enquiries and will respond on your behalf.
If the purchaser opts to rescind (pull out) of the Contract under cooling off, they must serve a notice of notice of rescission before the 5pm expiry of the cooling off period. Should the purchaser rescind the Contract they will forfeit the 0.25% holding deposit. This will be released by the agent to you and the property will be re-listed for sale.
If the purchaser opts to continue with the purchase, they must pay the remaining proportion of the deposit to the agent before the expiration of the cooling off period. At the expiration of the cooling off period, the Contract will become unconditional and fully binding on both parties.
3. With no cooling off period/66W Certificate
Should the Purchaser have their finances in order and are happy to proceed with the sale, the Contract can be exchanged without a cooling off period making the Contract binding on the day of exchange. The Purchasers solicitor/conveyancer will send a 66W Certificate to your solicitor/conveyancer which is a certificate stating the purchaser has waived their cooling off rights. The full deposit agreed to is paid on or before the date of exchange.
Once exchange occurs and Contract becomes unconditional and we can now work towards getting ready for settlement.
Exchanging with a Deposit Bond
A purchaser may request to use a deposit bond instead of paying a cash deposit. This is often requested when the purchaser’s funds are tied up in another asset. The most common circumstance is when a purchaser is funding the purchase of the property with a sale of their existing property. As the settlements will often take place on the same day, they may not have cash funds available until the settlement date.
If a deposit bond is requested, your solicitor/conveyancer will discuss this option with you. Whether you accept will often depend on your circumstances and whether you need the deposit to assist in financing a purchaser for yourself.
For more information on Selling Property check out our other blogs:
Part 2: Selecting an agent
Part 3: The Contract for Sale
You may also be interested in our Purchasing a Property series:
Part 1: Finance and Deposits
Part 2: Stamp Duty
Part 3: Review of the Contract
Part 4: Property Reports