When it comes to buying property, it can sometimes feel as though there’s a power imbalance that favours the seller. For buyers busily comparing properties and attending open homes, feeling pressure to act quickly when you do find one you’re interested in, can feel stressful. But that doesn’t mean that the seller has all the power. If, after signing the contract, the seller wants to back out of the sale (or if you do), you should discuss what options are available to you with your conveyancer.
Here is some helpful information that you should know:
What if the seller wants to back out of the contract?
Once you and the seller have both signed the contract and it has gone unconditional, the seller is legally bound to fulfil their end of the agreement, in accordance with the terms of the contract. This means that, if the seller changes their mind and wants to back out of the contract without valid justification, they might not be able to without facing legal and financial consequences. As the buyer, you would usually be legally protected in this situation, and should speak to your conveyancer to understand all your available options. As the buyer, depending on the terms of the contract of sale, you may be able to enforce the contract to ensure that the seller continues with the property sale. If they refuse to do so, you may be able to sue the seller for breach of contract and claim damages. The specifics of these situations are best discussed with your lawyer, but it’s worth knowing that you will likely have legal rights in this situation.
What if I change my mind and want to terminate the contract?
If you change your mind about buying the property and want to terminate the contract of sale, backing out of it as a buyer may not be an easy option. If a cooling-off period still applies, you can usually terminate the agreement but there could be a financial cost in doing so. After the expiry of any cooling-off period that may apply (and it’s important to talk to your conveyancer for clarity – because cooling-off periods vary across Australia), you, as the buyer, are legally bound to the contract of sale (depending on the terms of the agreement). Attempting to walk away from it could mean losing your deposit and might also come with the risk of being sued for breach of contract, or being required to proceed with buying the property, at the full purchase price.
If you try to terminate the contract of sale without any valid grounds, after the cooling-off period (if any) has expired, you could be sued for damages. If you’re having second thoughts about buying a property you have already agreed to purchase, you should speak with your conveyancer to see what options might be available to you. By understanding the potential legal and financial risks around terminating an agreement and not proceeding with the property purchase, you can make an informed decision about what’s best for your circumstances.
Remember, though: Once an agreement goes unconditional, you, as the buyer, are bound to it. Additionally, even if you are given the option to terminate the agreement during the prescribed cooling-off period (and remember that these periods vary, depending where the property is located), you may have to pay a small percentage of the property’s sale price to cover the seller’s administrative expenses. There may be some conditions in the contract that allow you to back out of the property purchase after signing the agreement, such as ‘subject to building and pest inspection’ and ‘subject to finance’ clauses.
Legal and financial penalties around this vary across Australia but the issue should always be taken seriously. In Queensland, for example, buyers who do not complete the contract by the settlement date can end up in a situation where the seller is legally entitled to claim the buyer’s deposit, charge the buyer penalty default interest and claim reasonable costs against the buyer. It’s a reminder that property is a significant purchase that should be treated with attention to detail and a full understanding of your rights and responsibilities as a buyer. For a clearer understanding of all your responsibilities and rights as a buyer, talk to your conveyancer.
Your right to the condition of the property
Committing to buy a house doesn’t necessarily mean you need to accept faults and flaws that are not obvious to you during your pre-contract inspection. If there is a clause in the contract that mentions the property sale is ‘subject to the buyer obtaining satisfactory results from a building and pest inspection – showing no major structural defects or pest infestation’, this will mean that, after the contract has been signed, you can arrange a building and pest inspection. Then, in the event the report shows major structural damage or a termite infestation (for example), you may be able to back out of the sale and be protected by the outlined clause.
A contract that is ‘subject to finance’
Another important part of the contract of sale is about whether or not the property sale is ‘subject to finance’. Buying property is usually quite expensive and, for the majority of Australians, taking out a home loan is the only way to afford it.
In some circumstances, even as a buyer who has received a pre-approval from a lender, you may, ultimately, be denied the full loan amount that enables you complete the successful property purchase – even after you have signed the contract of sale.
If this happens to you, and your own mortgage application is unsuccessful, when a contract is ‘subject to finance’, you may be able to terminate the contract before a mutually agreed deadline. For more detailed advice on this point, speak to your conveyancer as soon as possible.
Your right to a fair sale
Where the sale goes ahead, you are entitled to make sure the sale is fair, and that the property you’ve bought is handed over as expected. In the week before settlement day, all buyers are entitled to visit the property for a pre-settlement inspection. Depending on your location, this is usually organised by the real estate agent managing the sale.
If possible, you should try to attend this inspection yourself – or have a trusted representative there on your behalf. By viewing the property, you can make sure that it’s in the same condition it was in when you signed the contract of sale.
There should be no new damage to the property since you, or your buyer’s advocate or representative previously viewed it, and any repairs that were agreed upon should have been completed.
As the buyer, you should also check that certain inclusions that form part of the sale (such as the oven, hot water heater and any other fixtures) are still in the house and in working order. Exclusions, such as the previous owner or tenant’s fittings, such as fridges and other furniture that don’t form part of the agreed sale should be removed.
It is your right, as the buyer, to view the property before settlement to make sure its condition matches your contractual expectations. You can read more about pre-settlement inspections in our article here.
If you do discover anything that is broken or not in the same condition as it previously was during the pre-settlement inspection, fixing the issue may be as simple as asking the seller to attend to it, or pay you an agreed amount of compensation, if you can prove that the damage occurred after the contract had been signed by both of you.
Taking photos during the pre-contract inspection – if you were allowed to do so – may be used as proof. If you identify broken items during the pre-contract inspection, it’s smart to discuss these issues with your conveyancer at the time. That way, inserting a special term in the contract of sale that details specific repairs, and requires the seller to fix the issues before settlement, offers you legal protection.
It’s important to be aware of your rights whenever buying property. If you’d like to talk about any of the points above, get in touch with a member of our team today.
This article is provided for general information purposes only. Its content is current at the date of publication. It is not legal advice and is not tailored to meet your individual needs. You should obtain specialist advice based on your specific circumstances before taking any action concerning the matters discussed in this article.