Buying your first property is a huge life step and a huge financial commitment. Once you've found the right place and your offer is accepted, things move pretty quickly. There are strict rules on how the sale must be finalised so it pays to know your commitments, and what to expect from the process before it even begins.

Buying by Private Treaty or Auction

Both methods have their own set of rules.

Auctions are airtight. As the highest and successful bidder, you are legally bound to purchase the property for the agreed price, and must hand over your 10% deposit on the auction day. While the binding nature of auction can be daunting, it does mean you can rest assured that the sale will definitely go through because you no longer have any buyers competing with you.

The Private Treaty method does give you room to negotiate on price. However, there is also the looming possibility of being 'gazumped' or outbid by another buyer's higher offer.

Expressing your interest

"Once you have made an offer on a property, you may be asked to pay an initial deposit for an expression of interest," says the NSW Office of Fair Trading. Bear in mind this deposit in no way secures the property for you - the agent is free to accept as many deposits as they like. You must be given a receipt for your deposit and if you do not end up entering into a contract to buy the property, your deposit must be fully refunded. Once your initial deposit is accepted, the agent is also obliged to let you know if any further offers are made.

Gazumping

Gazumping describes the situation where you have a verbal agreement with an agent to purchase a property and have left a deposit, but you are outbid by a higher offer. The property owner is free to negotiate with any buyer before contracts are exchanged and you are not entitled to any compensation if you have already spent money on inspections, legals etc.

Exchanging contracts

The NSW Office of Fair Trading says, "Exchanging sale contracts is the legal part of buying a home. Before exchange, the agreement is usually just verbal and not binding."

By this stage your licensed conveyancer or solicitor should have fully examined the sale contract on your behalf. A copy of the contract is signed by both the buyer and the seller, and they are swapped or 'exchanged'. You are also required to pay a 10% sale deposit.

Cooling off period

In most states except WA, buyers have a five day period in which they are free to change their minds after contracts are exchanged. The period runs until 5pm on the fifth business day. The Office of Fair Trading says, "If you use your cooling-off rights and withdraw from the contract during the five business-day period, you will have to pay the seller 0.25% of the purchase price. This works out to be $250 for every $100,000."

There is the opportunity to extend the cooling off period if the seller agrees, but waiving or shortening the cooling off period is generally more attractive to the seller.

A fast exchange is also a good way to avoid being gazumped by another buyer if there is heavy competition for a property. You can use the five day cooling off period to get any inspections carried out, though it is important to note that your solicitor or conveyancer should have fully examined the sale contract before you sign anything.

If a property gets passed in at auction and you do negotiate a price and exchange contracts on the same day, a cooling off period does not apply.

Settlement

This step confirms you as the new legal owner of a property. It usually happens six weeks after contracts are exchanged, but can be negotiated to be anywhere between 30 and 90 days. The balance of the property is also paid in full at this point.

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