What is exchange of contracts?
The exchange of contracts is a critical step in the process of buying or selling property. Exchange of contracts occurs when the buyer and seller swap signed legal contracts and the buyer pays a deposit. Once contracts are exchanged it becomes a legally binding agreement between both the buyer and the seller. Here’s how it works:
Review and negotiation
Before the exchange, both parties review the contract. The buyer’s conveyancer or property lawyer conducts various searches and inspections of the property. If necessary, the terms of the contract are negotiated.
Signing the contract
Once both parties are satisfied, they each sign a copy of the contract.
Exchange of contracts
There will be two copies of the sale contract: one for each party. You each sign one copy before they are swapped or ‘exchanged’. This is usually arranged by your solicitor, conveyancer or the agent. At the time of the exchange, the buyer will be required to pay a deposit, usually 0.25% of the purchase price.
How much deposit is paid on exchange of contracts?
Upon exchange of contracts, the buyer usually pays a deposit, typically 10% of the purchase price. This deposit is held in a trust until settlement.
In NSW, there’s typically a five business day cooling-off period after the exchange, during which the buyer can withdraw from the sale. However, this can be waived, shortened, or extended by agreement. If the buyer pulls out during the cooling-off period, they may have to pay a penalty (often 0.25% of the purchase price).
Learn more about the settlement process.
Can a vendor pull out after exchange of contracts?
There is no cooling off period for sellers. Once contracts have been exchanged, sellers are generally bound to complete the agreement.
Can a buyer pull out after exchange of contracts?
Buyers of residential property in NSW usually have a cooling off period of five working days following the exchange of contracts during which they can withdraw from the sale.
When is the exchange of contracts complete?
Exchanging contracts legally completes the property sale process. It means the seller has accepted the buyer’s offer on the home and both have signed the contract of sale.
It’s important to note that the exchange of contracts in real estate is legally binding, and failure to complete the purchase or sale can lead to significant legal and financial consequences. Professional advice from a solicitor or conveyancer is highly recommended throughout this process.
