Should You Exchange Contracts With A Real Estate Agent?
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Buying a home can be very stressful, especially after your offer has been accepted. The biggest concern you have is making sure no one else buys the property from underneath you by outbidding you.
Biggest Mistakes When An Offer Is Accepted: Thinking a Deposit Will Take The Property Off The Market
There is a school of thought out there that if you leave a deposit with the agent, this takes the property off the market. THIS IS TOTALLY INCORRECT!
A property is ONLY “off the market” after contracts have exchanged.
Knowing this, your aim is to exchange the contracts as quickly but as safely as possible. As a buyer, you have 2 options when it comes to exchanging a contract:
1) Exchange with the Real Estate Agent
2) Exchange it with your conveyancer/lawyer
Things to consider when exchanging contracts with a real estate agent
By exchanging with the agent, you are taking the house “off the market” immediately. This means that the current owner of the property is NOT able to accept any other offers.
You will have a 5 business day “Cooling-Off” period, which gives you the right to withdraw from the purchase for any reason. If you are borrowing money to buy the property, we would suggest you request a period of more than 5 business days for your Cooling Off Period. This will GENERALLY ALLOW your lender or broker enough time to approve your loan UNCONDITIONALLY.
In order to exchange, you only require 0.25% of the purchase price. For example, $100,000 property requires $250 deposit. A $400,000 property will require a deposit of $1,000.
You must pay the full deposit (usually 10% of the purchase) before the 5 day cooling-off period expires.
Always check with your lender or broker and confirm with them that you have pre-approval. This is very important!
Video: What is a cooling off period in real estate?
What is the process of exchanging contracts? (3 things)
The 3 things required for a contract to be exchanged are:
- The buyer(s) must sign the Contract for Sale
- The buyer must deposit a minimum of 0.25% to the real estate agent’s trust account
- The current owner(s) of the property must sign.
The buyer can only control 2 of the 3 steps required.
What should a buyer do during the cooling-off period?
- Obtain a Pest & Building Report from a qualified inspector.
- If you are borrowing money, advise your lender or broker that you have signed a contract and make a time with them to sign any documents they require. Provide them with the contact details of your legal firm too.
- Contact your Lawyer/Conveyancer. During the COP, they will review the contract and provide you with the necessary legal information about that property.
- Transfer the remainder of the 10% deposit to the real estate agent’s trust account.
We have created a detailed checklist designed to take you step by step through all the necessary tasks you need to complete.
Feel free to download a copy: Home Buyers Checklist
What are the penalties if you withdraw from the contract during the Cooling-Off Period?
If you withdraw from the exchanged contract for any reason, you will lose (forfeit) your deposit of 0.25% to the vendor. This deposit is lost whether you sign with an agent or with your legal representative.
If you’re the current owner (vendor), what cooling-off rights do you have?
There are no cooling-off rights for vendors. Once contracts have been exchanged, the vendors are locked into the agreement. This can only be changed if the buyer agrees to withdraw as well.
What if you decide to wait for the Conveyancer or Solicitor to Exchange Contracts?
If you are uncomfortable signing a contract with the agent, you can exchange with your conveyancer or lawyer. The process here is very much the same except you have everything organised before signing and exchanging the contract. It would run something similar to this prior to signing:
- You organise a Pest and Building report;
- If you are borrowing money, your lender/broker will organise a valuation of the property;
- Contracts will be reviewed by your conveyancer or lawyer.
Once all the above is completed and you have UNCONDITIONAL LOAN APPROVAL, you will organise a time to sign the contract with the conveyancer/lawyer.
One of the advantages of signing with your lawyer or conveyancer is there is less of a risk of losing your deposit.
What Should You Consider if Signing with a Conveyancer or Lawyer?
Signing with your solicitor or conveyancer may slow the process by a day or 2. Whilever the contracts are not exchanged:
- You could still miss out on the property. Even though you have an offer accepted and you may have left a deposit with the agent, the property is still on the market. It is a possibility that someone else can buy the property from under you.
- If someone else does make an offer, there is a possibility the agent will let you know that someone else has made an offer. You will have an opportunity to respond with another offer and this goes back and forth between you and the other buyer until one party decides they are not paying anymore.
Just remember –
The decision on how you would like to exchange contracts is totally up to you. The cooling off period is there to protect the buyer. It allows the buyer to secure the property with minimum loss.
Do Not Be Afraid To Put Down A Deposit.
The maximum you can lose is 0.25% of the purchase price
ONLY if you withdraw (rescind) from buying the property
WITHIN the cooling-off period
The remaining deposit amount (usually 10%)
must be paid BEFORE the cooling-off period expires.
Remember to ask the real estate agent to email a copy of the exchanged contract to your solicitor or conveyancer within 24 hours.
If you would like to speak to one of our lawyers or conveyancers before making a decision, give RM Legal and Conveyancing a call. We’d be more than happy to help.