Until now the negotiations have been focussed on getting the two parties to agree to a price and a set of terms and conditions. None of the agreements are legally binding. To legally bind the two parties, contracts are “Exchanged” – the steps are as follows: -

Two identical contracts are drawn up by the vendor's solicitor/conveyancer, stating the exact terms and conditions of sale that have been negotiated and agreed upon through the agent, the respective parties and their conveyancer/solicitor; one contract is signed by the vendor(s) and one contract is signed by the purchaser(s)

The exchange can be conducted by either the agent or the solicitor/conveyancer. Both parties must fully understand the contracts and conditions before they sign the contracts.

The conveyancer/solicitor or agent checks to make sure the signed contracts are both identical and include the same information. Once this has been done the date is entered on to both contracts. This is the exchange date. Contracts are exchanged: the vendor receives the buyer’s contract and the buyer receives the vendor’s contract;

The buyer will normally lodge a 10% deposit on exchange of contracts. If there are good reasons why a 10% deposit cannot be secured, then it may be possible to negotiate a lower deposit. This money is held in a trust account (normally the agent’s trust account).

At this time the contracts become legally binding. The vendor is committed to the sale and cannot accept offers from other parties. The buyer usually has a period of 5 business days (variable)  known as the “cooling-off” period in which to complete inspections, formalise finance etc.

This "cooling-off" period gives the buyer the right to rescind the contract prior to 5.00pm on the fifth business day. Some examples where the buyer may rescind the contract are as follows: poor building inspection, the pest inspection may have indicated extensive termite damage,  the buyer may not have been able to get finance approved in time or for the required amount, the buyer may have doubts about committing to the property. In any event if the buyer rescinds the contract, then they forfeit 0.25% of the purchase price, which is paid to the vendor – the remainder of the deposit is returned to the buyer.

An extension of the "cooling-off" period can be requested if the buyer needs additional time (for example they may need additional time to complete inspections or arrange finance). "cooling-off" does not apply in the following cases: -

The buyer waives their rights. By presenting a signed certificate known as the “Section 66W Certificate” the buyer has acknowledged that they understand the obligations when waiving cooling off;

Properties selling at Auction 

The property has a land-size of more than 5 acres.

Note – the inspections are often carried out after the contracts are exchanged, it is, however, possible to conduct these checks before exchanging (or even closing out the negotiations). This will avoid risking losing the 0.25% of the purchase price, but does increase your chance of losing the property to another buyer whilst you are delayed with the inspections.