THE GUIDE TO BUYING A HOME
Step 11 – Sign and Exchange Contracts
The process to exchange contracts is when you and the vendor both sign a copy of the contract of sale, and then physically swap contracts. It is at this point that the contract becomes legally binding. This process is completed by your agent, solicitor or conveyancer. Upon exchanging contracts, you will be required to pay a deposit.
Deposits vary depending upon which state your home is in. At this stage you are generally required to pay 10% of the purchase price. However, this is open to negotiation and can sometimes be reduced.
The deposit should be held in a trust account by the agent or solicitor for the mutual benefit of the buyer and seller. It is common for the interest earned on the deposit to be equally split between the buyer and seller.
Cooling off period
In most states, there is a cooling-off period after the contracts have been exchanged. This means that the purchaser can change their mind and decide not to go ahead with the purchase. If you decide to withdraw for whatever reason, you must inform the vendor in writing, and the deposit will be returned.
However, the vendor may be entitled to retain up to 0.25% of the purchaser’s deposit. This may vary depending on the type of purchase, the contract and the state/territory you are in. Cooling off periods can also be waived, reduced or extended by negotiation. There is no cooling off period when purchasing at auction, or in Tasmania and Western Australia.