In Part 5 of our guide to buying property, we take a look at the Exchange of Contracts once you have found your dream home.
What is exchange?
Exchange takes place once your offer has been accepted by the vendor and a Contract is signed by you and an exact counterpart copy of the Contract signed by the Vendor. The Contracts are then dated. This is the exchange date. From this day on Contracts are binding on both parties.
Types of Exchange
Contracts can be exchanged in three ways:
When a Contract is exchanged at an auction, you will bid against other interest parties. If the property passes the vendors reserve price and you are the highest bidder you will become the purchaser on the contract. If you are the successful purchaser you will need to pay the deposit and sign the contract as soon as the auction is finalised. The vendor will then sign the contract and the Contract is now 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.
As a prospective purchaser you will need to submit any request to vary or amend the Contract to the real estate agent or solicitor/conveyancer prior to the auction. Any agreements to change or vary the Contract will be recorded for you and will be binding should you be the successful bidder at auction.
If the auction reserve is not met and the sale is passed in by the auctioneer, you may still have the opportunity to negotiate a purchase price 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.
With a Cooling-Off Period
Should the vendor agree to your offer, you can exchange the 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 you finalise your finance arrangements and review the building/strata reports for the property. During this time, your solicitor/conveyancer will review the Contract of sale.
It is normal, during the cooling off period, for your solicitor/conveyancer to request amendments to the Contract or additional information regarding the property. The vendors solicitor/conveyancer will seek instructions from the vendor and advise as to the amendments requested.
If the you opt to rescind (pull out) of the Contract under cooling off, you must serve a notice of notice of rescission before the 5pm expiry of the cooling off period. Should you rescind the Contract you will forfeit the 0.25% holding deposit. This will be released by the agent to the vendor and the property will be re-listed for sale.
If you continue with the purchase, you 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.
With no cooling off period/66W Certificate
Should you have your finances in order and are happy to proceed with the purchase, the Contract can be exchanged without a cooling off period making the Contract binding on the day of exchange. Your solicitor/conveyancer will send a Section 66W Certificate to the vendors solicitor/conveyancer, which is a certificate stating the you have waived your 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
You may request to use a deposit bond instead of paying a cash deposit. This is often requested when your funds are tied up in another asset. The most common circumstance is when you are funding the purchase of the property with a sale of your existing property. As the settlements will often take place on the same day, you may not have cash funds available until the settlement date.
If a deposit bond is required, you will need to advise your solicitor/conveyancer so they can make the appropriate arrangements with the vendors solicitor.
For more information on Purchasing Property check out our other blogs:
Part 1: Finance and Deposits
Part 2: Stamp Duty
Part 3: Review of the Contract
Part 4: Property Reports
You may also be interested in our Selling Property series:
Part 2: Selecting an agent
Part 3: The Contract for Sale
Part 4: Exchange of Contracts
If you have any questions or need any assistance please do not hesitate to contact us at Southern Waters Legal. We offer a free 15 minute, no obligation chat if you want to go through your circumstances.