Buying A Home -
How A Contract Is Exchanged

This is where then next stage of the home buying process occurs. This is when contracts for the home are exchanged. it is intended to explain this process and how it occurs.

HOW ARE THE CONTRACTS EXCHANGED?

There are 2 ways contracts can be exchanged!

Firstly, a real estate agent can do an exchange of contracts when you buying a home. This puts you in the driving seat, to a certain extent.

The vendor is locked in to the sale, and, only you, have the right to withdraw from the purchase, within 5 business days of the date marked on the contract, (called date of exchange). If you want to withdraw from the purchase, it must be in writing, and submitted to the vendor or their residential conveyancer or solicitor within the 5 days.

This is known as a cooling off period, and is designed so that when you are buying a home, you can make enquiries, such as pest and building inspections to ensure you want to proceed with the purchase. It is also designed for a rising market, so that you are not gazumped by another purchaser while you spend money on making your enquiries.

It is also the only time when buying your home that you can exchange contracts, without 100% knowledge that your home loan has been approved, however, you must ensure that before the cooling off period expires, that you have your loan for buying your home approved.

Cooling Off Period?

The cooling off period may be extended, if agreed to, by the vendor. You would seek an extension if you need more time to confirm the loan need to buy your home, or to complete your enquiries.

If the vendor will not agree to an extension of the cooling off period, unless you know your finance is available, you will have no option than to cancel or rescind the purchase, unless you want to risk losing a lot of money if you cannot get enough funds to complete the purchase of the home.

The cooling off period,comes at a price though. At the time of exchange, you must pay the agent 0.25% of the purchase price. If you decide to withdraw from buying your home, you lose this payment. It is retained by the agent for the benefit of the vendor. However, if you continue with the purchase, it forms part of the 10% deposit needed when buying your home.

Secondly, a solicitor or residential conveyancer may do the exchange for you. When buying a home, if they do the exchange for you, the vendor will require the solicitor or residential conveyancer to provide a certificate which waives your right to a cooling off period, which means that when the exchange occurs, there is no turning back from buying your home. You will be locked into the contract of home buying.

Before an exchange of contracts, when buying a home, the solicitor or residential conveyancer should discuss the contract with you and seek your advice as to any changes you want in the contract buying your home, before exchange. This is known as pre-contract negotiations.

Pre-contract negotiations when buying your home, can be done at any time before you are legally bound by the contract. This means that during the cooling off period, or before a solicitor or residential conveyancer exchanges for you without a cooling off period, when buying a home, you can still try and negotiate changes to the contract.

So, even after an agent has done an exchange, either you or your solicitor or residential conveyancer may ask for variations to the contract, including extensions of the cooling off period, before the cooling off period expires.

Remember, even though it comes at a cost, if the agent has done the exchange buying your home, with a cooling off period, you can still withdraw from the purchase of the home, before the cooling off period expires.

Almost anything can be varied or changed in the contract, when buying a home and you should seek the advice of a solicitor or residential conveyancer, but, any changes to the contract, must be done by agreement between you and the vendor. 

You might seek these changes through the real estate agent, even before the offer is finalised. A building inspection may show the property needs money spent, and you may try to negotiate a lower purchase price.

Remember, if you don't ask for a change of price, or of any of the contract terms and conditions, you will never get it.

Click to read more about what is in the Contract of Sale when buying a home.

When buying a home, even after contracts have exchanged and both you and the vendor are locked in, depending on the circumstances, agreement may still be reached to change certain parts of the contract. 

However,it is important that any changes, at all stages of the purchase, whether pre-exchange or post-exchange must be agreed to by both you and the vendor, and confirmed and recorded in writing.

After exchange is confirmed, either you, your solicitor, or residential conveyancer must undertake the necessary actions to make proper enquiries to ensure that when the money is handed over on settlement, you are the legal owner, and that there is nothing that should affect your ownership.