What Is Exchange of Contracts in NSW?
It is the moment the deal stops being a handshake and becomes a legal obligation. Here is what happens, what you pay, and what you can still walk away from.
What is exchange of contracts in NSW? It’s the moment the buyer and seller each sign a copy of the contract, the copies are swapped and the deposit is paid, and the property comes off the market. Until that moment, nothing is settled and nothing is safe. An accepted offer is not a sale. A deposit paid to the agent is not a sale.
At a glance
- What actually happens at exchange? The buyer and the seller each sign a copy of the contract, the copies are swapped, and the deposit is paid.
- Can either side still walk away? Not after exchange. The seller is locked in, and the buyer usually has a 5 business day cooling-off period.
- How much deposit is paid? A standard NSW contract calls for 10%. With a cooling-off period, buyers commonly pay 0.25% on exchange and the balance when it ends.
- Is exchange the same as settlement? No. Exchange starts the clock, it does not hand over the keys.
What exchange of contracts actually means
There are two identical copies of the contract for sale. The buyer signs one, the seller signs the other, and the two copies are swapped. That swap is the exchange. From that moment there is a binding contract, with a date on the front page that every other deadline in the purchase is measured from.
Exchange can be arranged by your conveyancer or solicitor, or by the real estate agent if both sides agree to that. At auction it is simpler and far more final: the property is sold on the fall of the hammer and contracts are exchanged on the spot, with no cooling-off period at all.
In plain English
Before exchange you have an agreement in principle. After exchange you have a legal obligation to buy the property and the seller has a legal obligation to sell it to you. Everything in between offer and exchange is a race, and the property is still on the market for as long as it lasts.
The two things exchange needs
People often think exchange is a single event that the agent triggers. It is really two requirements, and until both are met nothing is secured.
The contract is signed by both the buyer and the seller
Your signature alone does nothing. A contract signed by you and sitting on the agent’s desk is an offer, not a sale, and the seller can still sign someone else’s.
The deposit is paid
This is the money agents sometimes call a holding deposit, which is not a thing. It is the initial deposit, and it only does its job as part of exchange.
Once both have happened and the copies are swapped, the seller cannot sell to anyone else. Until then, they can, and that is exactly how gazumping happens.
How much deposit is paid on exchange?
The standard NSW contract calls for a deposit of 10% of the purchase price, held in the agent’s trust account until settlement. How much of it you hand over on the day depends on how you exchange.
- Exchanging with a cooling-off period. Most buyers pay 0.25% of the price on exchange, then the balance of the 10% at the end of the cooling-off period.
- Exchanging with cooling-off waived, or at auction. The full 10% is normally payable on the day.
- A reduced deposit. A 5% deposit is common enough, but it has to be negotiated with the seller and written into the contract before exchange, not assumed.
- A deposit bond. If your cash is tied up in a property you are selling, a deposit bond can stand in place of the cash deposit, again only if the seller agrees.
The deposit is not an extra cost. It comes off the purchase price at settlement. What it is is money at risk, which is why the amount and the timing are worth getting right before you exchange rather than on the day. There is more detail in our guide on when you pay the deposit to the agent.
Can a buyer pull out after exchange of contracts?
Usually yes, but only inside the cooling-off period and only at a cost. Most NSW residential sales carry a 5 business day cooling-off period that ends at 5pm on the fifth day. Pull out inside it and you forfeit 0.25% of the purchase price, which is $2,500 on a $1 million property. You do not need a reason.
There are important exceptions. There is no cooling-off period on a property bought at auction, or on a contract exchanged on the day of an auction after the property is passed in. There is also no cooling-off period if you sign a 66W certificate waiving it, which sellers frequently ask for. Off the plan purchases run to 10 business days instead of 5.
After cooling-off ends, the contract is fully binding. Walking away then risks the entire 10% deposit, and the seller can also sue for the difference if they resell for less.
“Which is going to cause more tears? Losing the deposit or losing the house?”
That question comes up on almost every purchase, because exchanging with a cooling-off period always feels like the risky option. It rarely is. The cooling-off forfeit is small, known in advance, and buys you the one thing you cannot get any other way: the property off the market while you finish your finance, your reports and your contract review.
Can a seller pull out after exchange of contracts?
No. There is no cooling-off period for sellers in NSW. The moment contracts are exchanged the seller is bound to complete, even if a better offer arrives the next morning.
That is the asymmetry buyers miss. Before exchange, sellers hold all the power and can take another offer at any time. After exchange, the position flips almost entirely in the buyer’s favour.
Exchange is not settlement
Exchange is when the contract becomes binding. No keys, no ownership change, no money beyond the deposit.
Settlement is when the balance of the price is paid, the title transfers and you get the keys. In NSW that is usually 42 days after exchange, though 6 weeks is a default rather than a rule and can be negotiated.
What happens after contracts are exchanged
Exchange starts a lot of clocks at once. This is the stretch where your conveyancer does most of the work.
The cooling-off period runs
Five business days to finish your finance approval, your pest and building inspection and anything else outstanding. If something serious turns up, this is when you can get out for 0.25%.
The balance of the deposit falls due
Usually at the end of the cooling-off period. Missing it is a breach of contract, so diarise it the day you exchange.
Insurance and risk
In NSW the property stays at the seller’s risk until completion, and the seller must hand it over in essentially the same condition. Even so, most lenders want cover in place from exchange, so speak to your insurer that week.
Transfer duty is assessed
Stamp duty is payable within three months of the contract date or at settlement, whichever comes first. On a standard 42 day settlement that means at settlement. On a longer settlement it can fall due well before you get the keys.
Searches, requisitions and settlement booking
We raise requisitions on title, order the final searches, check rates and water adjustments, and book settlement in PEXA with your bank. You do a final inspection shortly before the day.
Contract in hand and an agent pushing for a date? Send it to us today and we will tell you what you are signing before you exchange.
Getting to exchange faster
Every day between an accepted offer and exchange is a day the seller can take a better offer. The buyers who exchange quickly are the ones who did the preparation early.
- Engage your conveyancer before you make an offer, not after it is accepted.
- Ask the agent for the contract as soon as a property is listed. You do not need permission and you do not need to be the only one looking.
- Have real finance pre-approval, not an indicative chat with a broker.
- Have the deposit funds where you can transfer them the same day, not in a term deposit or an account with a low transfer limit.
- Decide in advance whether you will exchange with a cooling-off period or wait for every report to land. Waiting feels safer and is usually how people lose the house.
The short version
Exchange of contracts is the point where an accepted offer becomes a binding sale. Both parties sign, the copies are swapped, the deposit is paid, and the property comes off the market. The seller is committed immediately, the buyer usually has 5 business days to change their mind for 0.25%, and everything after that is the run up to settlement. Nothing before exchange protects you, which is why the whole job is getting there properly and getting there first.
Ready to exchange?
Talk to Justin, Julie, Amanda or Nicole today. We review your contract, explain what you are agreeing to, and get you to exchange without the guesswork.
