Contract Exchange and Cooling-Off Period
The Sydney property market has become so heated in the last five years, that it is affecting the way buyers and sellers interact. As a result, it is quite common practice for vendors to refuse an offer unless they are presented with a Section 66W Certificate, which waives the buyer’s right to a cooling-off period. This phenomenon is somewhat unique to Sydney, due to increased competition amongst buyers in this area; in fact, in most other parts of the state, it is far less likely that a purchaser will offer to waive their cooling-off period. Here, we take a closer look at the cooling-off period and the arguments for and against using a Section 66W Certificate.
How does the exchange of contracts work?
When buying and selling property, the property is not taken off the market until an exchange of contracts occurs. This involves both buying and selling parties signing and dating a contract, before having them reviewed and compared. Once it is determined that each contract is identical, the contracts are exchanged with the parties; which is to say that the seller retains a copy of the contract signed by the vendor, and vice versa. Once these contracts are exchanged, and the applicable deposit is paid, the contract is then considered binding and the property can be taken off the market.any improvements to the land, or structures such as housing.
What is the cooling-off period?
By law (under Section 66ZB of the Conveyancing Act 1919), the purchase of a property through a private sale (except when bid on successfully at auction) is subject to a 5-day cooling-off period. This legislation is in place to allow buyers sufficient time to think on their offer, and to inspect the property for possible pest, building or maintenance issues. As the process of purchasing a property can be an emotionally-charged time for a buyer, this protection safeguards against unexpected changes of heart, or issues with the property which weren’t able to be determined at an earlier stage.
The 5-day period of cooling-off comes into effect from the date the contracts are exchanged, and finishes at 5pm on the fifth subsequent business day. At the exchange of contracts, a non-refundable 0.25% deposit is required to be paid by the purchaser to secure the property. The purchaser is then able to conduct any inspections required, and may rescind on the contract if they decide that the property is not right for them. If the purchaser does choose to rescind the offer, a Notice of Rescission must be issued within the cooling-off period. Failure to issue a Notice of Rescission to the seller within this time may result in the purchaser being liable for the full 10% deposit on the purchase price of the home.
Benefits to using a Section 66W Certificate
In such a competitive market, sellers are often at an advantage. While the buyer is protected by the contract from being outbid by another purchaser, they are still able to rescind on the purchase if they decide (due to building and pest inspection outcomes, or any other factor) that the property purchase is not right for them. The Section 66W Certificate can however, give buyers an edge when making an offer on a property, as it allows them to waive their right to a cooling off period, and may be more attractive to a seller who is hoping for a quick sale. Using this as a bargaining chip might just secure you the sale.
Arguments against using a Section 66W Certificate
The offer to waive rights to a cooling-off period has proven a successful tool for many buyers over the last few years, especially in the hot Sydney property market. There are however, definite drawbacks to waiving your rights in this area. For starters, a full deposit (normally 10%) will need to be paid upon the signing of contracts. Before the 66W can be submitted to the seller, the buyer’s solicitor or legal representative will need to discuss the terms of the waiver, and ensure that they are aware of the conditions. The buyer’s legal representative must sign then sign the certificate.
Providing a Section 66W Certificate will then waive the buyer’s right to cooling-off, even in the event of unfavourable pest and building inspections, or a fall-through of finance. For these reasons, it is important to have finance sorted before making an offer and signing a 66W, and for the buyer to be confident of the suitability of the property for their needs. Rescinding on the sale after the signing of a 66W will result in liability for the full deposit on the home. In short, by offering to waive your right to a cooling-off period, you are unable to rescind on your offer, and doing so could cost you quite a lot of money.
Is a Section 66W Certificate something
I should consider?
Ultimately, only you as the buyer can make that decision. There are obvious risks involved with the use of a 66W, however it may provide you with a competitive edge in times of heated competition. It is best to seek the advice of your solicitor before considering the waiver, and it is also worthwhile speaking with and experienced buyer’s agent. A buyer’s agent has a wealth of knowledge about the state of the property market, as well as often having an insight into the motivations of the seller and their willingness or otherwise to sell quickly. You may find that a 66W is not necessary in order to secure your property purchase, and this is something that only a skilled buyer’s agent can assist you with. For more information about purchasing property, and the use of a 66W, get in touch with Porters House today.