What Happens If the Buyer Pulls Out After Exchange in NSW?
Once contracts are exchanged and the cooling-off period has passed, a buyer cannot simply walk away. Here is what you can do if they try.
What happens if the buyer pulls out after exchange in NSW? There are 2 answers, and they depend on the timing.
During the cooling-off period. If the buyer pulls out during the cooling-off period, they forfeit 0.25% of the purchase price and the property goes back on the market.
If the cooling-off period has ended. The buyer is in breach of the contract. Your conveyancer can serve a notice to complete, terminate the contract if they still do not settle, keep or recover the deposit, resell the property and claim any shortfall from the buyer.
At a glance
- Can a buyer back out during cooling-off? Yes, for any reason, within 5 business days of exchange. They forfeit 0.25% of the price to you, and the contract ends.
- Can a buyer back out after cooling-off? Not without breaching the contract. You have strong remedies, including keeping the deposit and suing for losses.
- What is the first step? Call your conveyancer before you do anything else. The order you do things in matters.
- Can I just resell straight away? No. Resell only after the first contract has been properly terminated.
First, which situation are you in?
Buyers “pulling out” falls into two very different situations, and the rules are not the same.
The first is the cooling-off period. In a standard NSW residential sale the buyer has 5 business days after exchange, ending at 5pm on the fifth day, to withdraw for any reason. The price of using it is 0.25% of the purchase price, paid to you. There is nothing you can do to stop it, and nothing you need to do except get the money and put the property back on the market. Our article on the cooling-off period covers how it works.
The second is after cooling-off has ended, or where the buyer waived it with a section 66W certificate. At that point the contract is fully binding. A buyer who says they will not settle is in breach, and that is where your remedies start.
In plain English
During cooling-off, the buyer is allowed to leave, at a known price. After cooling-off, they are not allowed to leave at all. If they do, you are the innocent party, and the law and the contract both back you.
What you can do if the buyer will not settle
These steps assume the buyer has stopped responding, told you they cannot proceed, or missed the settlement date. The order matters, so please do not skip ahead.
Check you are ready to settle
To serve a notice to complete, you must be ready, willing and able to settle yourself. That means your title is clear, your mortgage discharge is arranged, and any required certificates are in order. If you are not ready, the notice can be challenged.
Serve a notice to complete
Once the settlement date has passed, you can serve a notice to complete. It sets a new deadline, and in NSW 14 days is generally accepted as reasonable. The notice must be correct in form and properly served, or it will not hold up. This is the step where sellers most often go wrong on their own. Our article on what happens if settlement is delayed goes through it in detail.
Terminate if they still do not settle
If the buyer misses the deadline in the notice, you can terminate the contract. In some cases a buyer who has clearly said they will not complete lets a seller terminate without a notice, but we almost always serve one anyway, because it removes any argument later.
Deal with the deposit
On termination, you can keep the deposit the buyer has paid, and your contract lets you pursue the balance of the deposit up to 10% of the price. How much you can actually recover depends on what was paid and how your contract is worded, so we review that before anything is demanded.
Resell, then claim any shortfall
After termination, you can put the property back on the market. If it sells for less than the first buyer agreed to pay, you can claim the difference from them, along with costs you have incurred because of their breach. That can include extra interest, advertising, and holding costs. You can also charge penalty interest on a late settlement, which is typically 10% per annum under the contract, so check yours.
“Terminate first, resell second. Doing it the other way round is how a good claim turns into a bad one.”
What if the buyer says their finance fell through?
This is the most common reason buyers pull out, and it usually is not a reason the contract recognises. A buyer only has a finance exit if a finance clause was negotiated into the contract before exchange. Without one, a loan falling through is the buyer’s problem, not yours. If the cooling-off period is still running, they can leave and pay the 0.25%. If it has ended, they are in breach.
Where sellers get caught out
Reselling before terminating. If you sign a second contract while the first is still on foot, you can end up in breach to both buyers.
Serving a defective notice. A notice that is wrong in form, wrongly served, or served when you were not ready to settle yourself can be thrown out, and the whole process starts again.
Waiting too long. Delay costs you interest on your own mortgage and puts a purchase of your own at risk. If you are selling to buy, act early. See what happens after you accept an offer for the usual path to settlement.
Talking to the buyer directly. Informal messages like “that’s fine, take your time” can be read as an extension and weaken your position. Let your conveyancer handle contact.
Not keeping your insurance. Until a sale completes, the property is your responsibility. Do not cancel your building insurance because contracts were exchanged.
Can I make the buyer settle instead?
Possibly. A seller can sometimes ask a court to force the buyer to complete, which is called specific performance. But it is slower and more expensive, and you generally cannot both sue for that and terminate and claim damages. Most sellers choose to terminate, resell and claim any shortfall. Your conveyancer or a solicitor will advise which suits your situation. If a dispute is heading to court, we will tell you early when you need a litigation lawyer, because that is outside what a conveyancer does.
Buyer gone quiet? Call us before you reply to them, and before you relist.
The short version
During cooling-off, a buyer can leave at a cost of 0.25% of the price and there is nothing you can do to stop them. After cooling-off, a buyer who will not settle is in breach. You serve a notice to complete, terminate if they miss it, deal with the deposit, resell, and claim any shortfall. Do those things in that order, and get advice before you take the first one. The exchange-to-settlement stretch is covered further in our seller questions hub.
Is your buyer going quiet?
Talk to Justin, Julie, Amanda or Nicole before you respond to them. We will tell you where you stand and what to do next.
