When buying residential real estate in New South Wales once negotiations are completed and the buyer has agreed to buy a property, the deal is made when Contracts are exchanged. Contracts can be exchanged either conditionally or unconditionally.

Conditional exchanges are subject to a ‘cooling-off’ period of five (5) business days. During the ‘cooling-off’ period the buyer is at liberty to withdraw from the purchase subject to a penalty – currently this is 0.25% of the purchase price of the property.

If it is intended to borrow money to buy a property, it is advisable for the buyer to obtain finance pre-approval. This means the finance provider is prepared to lend a certain sum of money based on the buyer’s financial situation but subject to valuation of the property to be acquired.

Obtaining finance pre-approval can often be a lengthy process and once you have found the property that you want to buy you want to avoid any unnecessary delays.

During the cooling off period the buyer should carry out any necessary investigations of the property, including arranging building and pest inspections as required, and obtain final finance approval which usually includes obtaining a valuation of the property.

With unconditional exchanges the cooling-off period is waived and this type of exchange usually takes place after the buyer’s legal representative has carried out any necessary investigations of the property and finance approval has been obtained.

The seller cannot “gazump” the buyer by accepting a higher offer for the property once contracts are exchanged.

The term “exchange contracts” means that two identical contract documents are actually physically swapped with the seller receiving a contract signed by the buyer and the buyer receiving an identical contract signed by the seller. The contracts are dated at the time of exchange thereby creating the legal agreement.

The date for completion of the transaction (settlement date) is agreed upon during preliminary negotiations and is then specified in the contract. It is usually between 4 to 6 weeks after the date of exchange of contracts.

A deposit of 10% of the purchase price (or some other negotiated amount) must be handed over on exchange of contracts.

Prior to exchange of contracts, the payment and receipt of a “holding deposit” neither commits the buyer to legally purchasing the property nor does it prevent the seller from legally entering into a contract with another buyer. The payment of a “holding deposit” is really only a gesture of good faith and intent.