Exchange of contract safer than holding deposits: Ray Ellis
GUEST OBSERVATION
Home buyers should not use a holding deposit when they want to secure a property purchase.
The preferable way to proceed is to exchange purchasing contracts, then use the cooling off period to complete enquiries.
With competition so strong for the nation’s limited housing stocks, purchasers need to better understand the legalities around how they secure their purchase and not leave themselves exposed to gazumping.
Buyers sometimes ask our agents to take a holding deposit, but then take their time to organise building and pest inspections as well as legal enquiries, mistakenly believing they have secured the property.
Paying a holding deposit does not mean the seller is legally obliged to sell you the property, or that you are legally obliged to buy.
Only an exchange of contracts constitutes a legally enforceable agreement. Without an exchange of contracts, buyers place themselves at the mercy of a very competitive buyer marketplace.
Real estate agents often don’t want to be seen to rush buyers into an exchange of contracts due to the relatively small penalty buyers incur if they decide to terminate their purchase during the cooling off period.
A cooling off period is the number of business days where a property buyer can walk away from a legal agreement to purchase a residential property. Buyers who do this usually have to pay the seller a small termination fee, which is often around 0.25% of the purchase price of the property. Any deposit above this will commonly need to be refunded.
But when you’re sure you’ve found the right property and want to complete your due diligence, many would argue it’s better to exchange contracts and secure the property, rather than risk being gazumped, having to continue the search for a property, and incurring yet more costs.
The best advice for buyers is to have finance approved and move quickly to complete enquiries. Sometimes, in the most competitive marketplaces, it’s in a buyer’s best interests to exchange contracts and make those enquiries during the cooling off period.
Ray Ellis is First National Real Estate's chief executive.
