What is a cooling off period, and how do they work?

What is a cooling off period, and how do they work?

A cooling off period is a length of time that follows signing a contract to purchase property, during which a buyer can choose to terminate the agreement without being in breach of contract and losing their deposit. This gives you a window of opportunity to change your mind about a property purchase if your circumstances change, or you decide it’s not right for you.

For example, if you signed a contract with a five-day cooling off period to buy a house, then changed your mind about the purchase, you could exercise the cooling off period to withdraw from the agreement within five days. You’d get your deposit back (minus a small fee), so you could still go out and make an offer on another property if you wished.

The exact rules around how cooling off periods work varies from state to state, so it’s important to check the facts before you sign on any dotted lines.

When should I use a cooling off period?

Some common reasons why a buyer might use the cooling off period include: 

  • If the building and pest inspection, or strata report, reveals issues with the property
  • Your mortgage finance is not approved by your lender (even if you had preapproval)
  • Your financial positions changes (e.g. you lose your job) and you can no longer afford the purchase
  • You change your mind about your purchase (maybe a better deal comes along, or you rethink your decision to buy)

What happens if I cancel a contract after the cooling off period expires?

The exact consequences of breaking a contract will vary, depending on the state or territory where you’re located, and what terms and conditions you’ve agreed to. You can often expect to lose your deposit on the property, as well as any other fees and charges you’ve paid during the purchase process.

There may be other legal repercussions for breaking a contract, so consider seeking legal advice before you consider doing so.

When does a cooling off period apply?

Not every real estate transaction comes with a cooling off period. Sales by private treaty often include cooling off periods, while cooling off periods are often waived when buying a property at auction. In these cases, it’s especially important to check the details of the contract before you sign, as you may not be able to easily back out of the deal. For example, you may want to organise building inspections and/or strata reports early, so you can find any problems before you buy.

What does a cooling off period cost?

While cancelling a contract during a cooling off period typically lets you get your deposit back, you may still need to pay a fee to the vendor as compensation for their inconvenience. This fee is typically a percentage of the sale price.

Cooling off periods state by state

Australia’s states and territories follow different rules when it comes to cooling off periods:

 State/Territory Cooling off period 

Fee 

NSW  5 business days (10 for sales off the plan) 0.25 per cent of the purchase price
QLD 5 business days 0.25 per cent of the purchase price
VIC 3 business days $100 or 0.2 per cent of the purchase price, whichever is greater
ACT 5 business days 0.25 per cent of the purchase price
SA 2 business days Your holding deposit, up to $100
NT 4 business days None
WA No mandatory cooling off period, but you can have one added to your contract -
TAS 3 business days (optional) None
  • IMPORTANT – Check with your solicitor, conveyancer, or legal advisor for more information around cooling off periods and contract law in your state or territory, as they can advise you how specific details in a real estate contract may affect your unique circumstances.

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