What happens if I pull out of a property sale?

Er, sorry, I've changed my mind…

Yes, sometimes people do get in too deep with an unsuitable property purchase and find themselves in an almighty scramble to get out. 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. 

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. 

Real Estate law in New South Wales is still very much summarised by the Latin phrase ‘Caveat Emptor’, which translates to 'let the buyer beware.' This puts the onus on the buyer to ensure they're happy with the quality and condition of the property before making an offer and signing the contract.

The consequences of pulling out of a sale vary depending on the situation. 

Buying At Auction

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. The contract for sale will outline the consequences for withdrawing, which usually includes default penalties and compensation for any loss the seller has incurred. 

Private Treaty

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.

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. 

Issuing a Section 66W Form

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. 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. 

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. 

Buyer Beware… And Be Prepared 

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. 

If you’d like to chat further about preparing to buy a property and the pitfalls you need to avoid, please don’t hesitate to get in touch.