When purchasing a property there are a number of steps which should be taken prior to exchanging Contracts:
- Obtain legal advice;
- Obtain written unconditional loan approval if borrowing money; and
- Obtain reports regarding the property.
There are 2 different ways of exchanging a Contract. The first is with an unconditional exchange of Contracts which normally takes place between the solicitor for the vendor and the solicitor for the purchaser. The second is with a cooling off Contract whereby the exchange is normally carried out by the real estate agent.
If Contracts are exchanged unconditionally, you are legally bound to proceed with the purchase. Normally you will have already obtained legal advice, had pest and building reports carried out together with any other searches which may be required such as a Survey or Building Certificate, obtain unconditional loan approval and the solicitor will have requested amendments to the Contract which are in your best interests.
If Contracts are exchanged with a cooling off period, you have 5 working days in which to decide whether to proceed. If you do not proceed you forfeit 0.25% of the purchase price. If you do proceed, Contracts become legally binding after 5 days and you pay the balance of the 10% deposit at the end of the cooling off period.
Cooling Off Period
It is important to remember that 5 days is usually insufficient time to obtain written unconditional loan approval and the cooling off period is often extended to 10 working days. An extension of the cooling off period to 10 working days should be requested prior to signing a Contract. During the cooling off period you will be able to obtain pest and building reports, carry out any other searches and enquiries and can request amendments to the Contract although it is always best to request those amendments prior to any exchange as the vendor is not required to agree to any amendments during the cooling off period and you may have less “bargaining power” than you may have had prior to entering into the cooling off period.
If a property is purchased at auction or on the same day as an auction, the Contract is immediately binding. It is therefore important to remember that legal advice, pest and building reports and other searches and enquiries together with written unconditional loan approval should all be obtained prior to the auction. It is important to remember that pre-approval of a loan is not binding and if you exchange with a pre-approval rather than unconditional approval you are at risk of being in default of the Contract if you cannot obtain unconditional loan approval.
Remember, a Solicitor can advise you of the steps you should take in purchasing a property and should always be consulted prior to signing a Contract.