.jpg)
- Pulling out of a property purchase can have serious financial consequences, particularly if a contract is or has become unconditional.
- Cooling-off periods and penalties vary widely by state and territory, and the rules differ depending on whether you buy at auction or via private treaty.
- Doing your due diligence upfront could save you significant money and stress, as withdrawing late in the process may result in losing your deposit or paying additional legal and compensation costs.
You’ve probably heard of cooling off periods. As the name suggests they could provide a bit of leeway if you’re regretting putting the wheels in motion to buy a property. However, many buyers don’t realise what actually happens if they pull out of a property sale - or how costly it can be. Luckily, there’s not likely to be anyone waiting at your door to break your knees (probably), but you could be out of pocket.
What happens if I pull out of a property sale?
There are two main avenues for purchasing a property - by private treaty or at auction - and the process you've taken part in to purchase a property will impact your chances of pulling out of the sale scot-free:
- At auction
If you’re the successful bidder at an auction and later pull out of the sale - even if you do so immediately - the contract is usually unconditional. This means you’ll likely face significant financial consequences. You might lose your deposit and can be liable for additional costs. - Private treaty
When buying via private treaty, a cooling-off period typically applies. If you withdraw from the purchase during this period, you’ll usually pay a penalty that varies by state or territory, but it’s generally less severe than pulling out after the cooling-off period has ended.
Once the cooling-off period expires, the contract usually becomes unconditional, meaning pulling out can result in the loss of your deposit and potential liability for additional costs.
Pulling out of a sale also differs depending the state or territory in which you're purchasing. Buyer's agent Michelle May walked Savings.com.au through a few scenarios, with context particularly given to purchasing in New South Wales.
Buying at auction
When buying at auction, you know where you stand - put simply, if you bid you buy.
“As soon as you make a bid at an auction, you're committing to buy the property for the price you bid. When the hammer goes down, the sale becomes unconditional, and you don't have any cooling off period,” Ms May said.
“The contract for sale will outline the consequences for withdrawing, which usually includes default penalties and compensation for any loss the seller has incurred.”
If you're buying at auction, it's important you have a 5% to 10% deposit ready to go, with pre-approval from your lender.
Buying through private treaty
Private treaty is where it gets a little more convoluted and depends heavily on the state in which you purchase and whether the contract is unconditional (like at auctions) or conditional.
“Most contracts exchanged in a private treaty sale include a cooling-off period. Depending on pre-sale negotiations, it is possible to waive, reduce, or extend cooling-off periods on standard contracts,” Ms May said.
“In New South Wales, it's standard that you have five business days starting from the contract exchange until 5 pm on the fifth day to back out.
“If you withdraw during the cooling-off period, you'll have to pay 0.25% of the purchase price as a penalty and will also be out of pocket for any conveyancing or legal fees you've incurred.
“If you pull out of the sale after the cooling-off period, you'll have to pay a penalty of 10% of the purchase price, which can hit a few hundred thousand dollars in Sydney.
“In some circumstances, the property seller may even seek compensation for the difference between the buyer's offer that was pulled out and the price that the property eventually sold for.”
However, there is one method that could catch buyers out at private treaty - in New South Wales anyway…
Issuing a Section 66W Form (in New South Wales)
“This form allows the buyer to waive the five-day cooling-off period making the sale unconditional. Generally, a 66W makes an offer more attractive to the seller and can help the buyer secure the property in a competitive market,” Ms May said.
“However, as the sale becomes unconditional, the buyer will be penalised as per the original contract, generally 10% of the purchase price, if they pull out of the sale.”
Penalties for pulling out of an unconditional property contract
Buying a property via private treaty likely involves a cooling-off period, during which the buyer can renege on the purchase without major consequence. Here are the cooling-off periods and penalties in each state and territory:
| State | Cooling-off period | Penalty for breaking contract within cooling-off period |
|---|---|---|
| QLD | 5 days | 0.25% of purchase price |
| NSW | 5 days | 0.25% of purchase price |
| VIC | 3 days | The greater of $100 or 0.2% of purchase price |
| SA | 2 days | $100 of deposit |
| ACT | 5 days | 0.25% of purchase price |
| NT | 4 days | No penalty, full refund of deposit applies |
| WA | None | No cooling-off period applies |
| Tas | None / 3 days | Tasmanian contracts of sale include a tick-box allowing buyers to opt in to a three-day cooling-off period. If selected, the buyer can withdraw without penalty before the cooling-off period ends. |
Sources: Information correct at time of writing.
What happens if you pull out after the cooling-off period?
After a cooling off period, getting out of a contract without a valid clause becomes a lot more onerous and can result in significant penalties.
Such penalties could include a percentage of the deposit or total purchase price, plus any conveyancing fees, or building and pest inspection costs. As detailed above, in NSW the penalty in this case could be 10% of the property purchase price. You may also be liable for both the seller’s and your conveyancing or legal fees.
Buyer beware
“Sometimes people do get in too deep with an unsuitable property purchase and find themselves in an almighty scramble to get out,” Ms May said.
“Buying a property is a big deal and takes a lot of research, investment, and time. Unfortunately, in fast-moving markets, time is in short supply, and it can lead buyers to make decisions they regret.”
So, what do you do?
“It feels like my catch phrase because I always say that buyers should do as much due diligence as possible because pulling out of a property sale has significant consequences. In fact, it could cost you hundreds of thousands of dollars,” Ms May said.
“When you think about how much money is on the line, it highlights how important it is to understand your risks as a buyer.
“There may not be enough time to complete all inspections and go through any reports before the sale in the current market.
“In that case, make sure you do your due diligence in the five-day cooling-off period. The difference can save you a lot of money and stress.”
Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Extra Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
5.94% p.a. | 5.98% p.a. | $2,978 | Principal & Interest | Variable | $0 | $530 | 90% |
| Promoted | Disclosure | ||||||||||
5.89% p.a. | 5.80% p.a. | $2,962 | Principal & Interest | Variable | $0 | $0 | 80% |
| Promoted | Disclosure | ||||||||||
5.99% p.a. | 6.02% p.a. | $2,995 | Principal & Interest | Fixed | $0 | $0 | 60% |
| Promoted | Disclosure | ||||||||||
5.93% p.a. | 5.93% p.a. | $2,975 | Principal & Interest | Variable | $0 | $395 | 70% | Disclosure |
