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Why Signing an Unconditional Contract is Risky

The Australian property market can be quite competitive, especially in booming areas. When stock is low in the midst of high demand, buyers may become increasingly willing to make compromises to get their dream home.

One thing buyers can be tempted to turn to is an unconditional offer.

As its name implies, an unconditional contract contains no conditional clauses – meaning outside of a Buyer’s right under legislation, the Buyer must settle the property regardless of whether their finance is approved or not and whether the physical condition of the Property is acceptable or not., while a seller must proceed with the offer he/she chose to accept.

Such a contract must be followed as agreed upon by both parties and generally cannot be terminated half way through (unless exceptional circumstances arise). Unconditional contracts are typically observed at auctions, where bidders may be expected to sign such an agreement to take the home they won, regardless of its status.

The risks of entering into such contracts are high, especially when the Deposit amount requested by the Seller and agreed to by the Buyer is a large sum. As conveyancers, we see clients wrestle with some of the issues that can arise from these types of contracts, so here we highlight some of these risks:

1. Over and under valuation

A buyer may overvalue the property’s market worth in his/her haste to secure it, causing him/her to spend considerably more than they should. On the flip side, a vendor could undervalue his/her property, thereby losing out on profit.

Prior to making or accepting an unconditional offer on a property, both buyer and seller must do proper research to determine its correct value. This can be done by hiring a licensed valuer – their reports differ from agent appraisals in the sense that they must base the valuation on quantifiable facts regarding the property.

2. Lack of a finance clause

This is an important consideration especially for buyers who need to borrow money to complete the purchase. There is always the risk that lenders often won’t approve a loan, but since the sale is not contingent on the buyer having the money to pay up, he/she may end up having to forfeit their Deposit.

Thus, a buyer looking to make an unconditional offer should be satisfied that they will have the funds needed to settle the property, whether through his/her own savings or due to high confidence that a loan can be secured.

3. Lack of assurance regarding the property’s status

This is a big concern especially if the unconditional agreement is made where the buyer is unable to see the property properly for themselves. If the property happened to deteriorate in any way, such as pest infestations, the buyer must still finalise the purchase.

To avoid this, a buyer should do their best to first conduct a thorough, due diligence investigation of the property prior to making an offer to ensure that the property is as represented by the vendor (fair wear and tear excepted).

An unconditional contract is sealed by the seller’s signature, so if a buyer has already made an unconditional offer and would like to back out, the only way to do so is if the vendor hasn’t signed a document yet or under cooling off (if applicable).

Overall, unconditional contracts present many risks. Before signing one, be sure to speak with a licensed, experienced conveyancer so you are fully aware of the pros and cons of this strategy before you sign on the dotted line.

At Conveyancing.com.au we’re always on hand to help you with the legal process of buying and selling property. For an obligation-free chat about your situation, contact our friendly team on 1300 932 738 or request a free quote online.

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.

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