What is a cooling-off period?

Purchasing a house requires a lot of careful planning. Yet, sometimes you may want to back out of a well-thought-out purchase for reasons out of your control. For instance, if your financial position takes a turn for the worse (for example, you lose your job unexpectedly), or the lender doesn’t approve your loan after you exchange contracts with the seller – what can you do?

It’s also possible that some defects crop up in the property inspection report, and the house is no longer a good deal. A cooling-off period can be a godsend in such situations, allowing you to cancel the purchase agreement within a specified timeframe with minimal penalties in most cases. You don’t even have to give a reason for why you are cancelling the purchase during the cooling-off period. If you don’t want to buy the house – you can literally say ‘No’ without being answerable to anyone. You may be required to pay a small fee or a percentage of the deposit to the seller for their inconvenience, but that’s usually an insignificant price to pay compared to purchasing the wrong property.

What is a cooling-off period?

A cooling-off period is a length of time following the signing of a purchase contract during which the buyer may choose to terminate the agreement without incurring a significant penalty or losing their deposit.

As a buyer, it usually helps to have a cooling-off period built into your purchase contract. It gives you a chance to change your mind about the property if you made a hasty decision or find that the property is no longer right for you.

For instance, let’s assume you signed a contract with a three-day cooling-off period to purchase a unit. However, a better deal comes along your way the very next day, forcing you to rethink your decision about buying the property you signed up for. In such a situation, you may choose to exercise your right to withdraw from the purchase agreement during the cooling-off period. Depending on your contract and the relevant laws in your state, you’ll receive most of your deposit back minus a small fee. You are also free to make an offer on the other property if you plan to buy it.

How long is a cooling-off period, and how does it work?

Your cooling-off period ranges from 2 to 5 business days, depending on the laws in your state. The period starts on the day you receive a copy of the signed contract and ends at 5 pm on the last day of the specified timeframe. This usually excludes Sundays and public holidays.

During this period, you have the option to terminate or cancel the agreement without being in breach of the contract. If you wish to cancel the deal, you’ll need to send a written notice of termination to the seller or their authorised agent within the cooling-off period. If you delay the written communication and send it after the cooling-off period ends, you’ll be bound by the terms of the contract.

It’s also worth noting that cooling-off periods vary between states, and don’t apply to every situation. So think twice before getting carried away in a heated property market, especially when you’re buying at an auction, as you’ll not always have a cooling-off option at hand to rectify any hasty decisions or mistakes.

Here’s an overview of the cooling-off periods applicable in different states:

• ACT: 5 business days. You will forfeit 0.25% of the purchase price to the seller.

• NSW: 5 business days. You will lose 0.25% of the purchase price to the seller.

• NT: 4 business days. The full deposit will be refunded to you.

• QLD: 5 business days. You will pay 0.25% of the purchase price to the seller.

• SA: 2 business days. A small holding deposit of $100 will be payable to the seller.

• TAS: No cooling-off period applies, and you stand to lose the entire deposit if you rescind the contract after signing it.

• Victoria: 3 business days. You will forfeit 0.2% of the purchase price to the seller.

• WA: No cooling-off period applies unless you have one built explicitly into your contract.

While the above list gives you a general idea of the applicable rules as on date, it’s worth checking with your lawyer, solicitor or conveyancer for more information about the cooling-off period in your state. If you’re purchasing a property in Tasmania or Western Australia, you may be able to negotiate a cooling-off period with your seller even though it’s not mandated by law.

Is it possible to back out of a sale after the cooling-off period has expired?

It’s usually a lot more challenging to get out of a sale once the cooling-off period expires. As you’re already bound by the purchase contract, the same penalties as outlined in the agreement will apply. You are most likely to incur high costs, such as losing a larger percentage of your deposit (if not all), and the money you spent on legal and conveyancing fees, as well as other purchase costs.

If you are not sure about what it will cost you, take time to read your contract thoroughly and discuss your situation with your real estate agent or solicitor to understand the implications of any action you may decide to take.