New Victorian cooling-off rules could hurt vendors and agents
There was a significant change to Victorian law that came into force on March 1. In Victoria, buyers of property who sign a contract of sale have three clear business days with which to withdraw from the contract for any reason they choose. There were a few exceptions to this rule, the main two as far as the average buyer was concerned were: if you signed the contract of sale within three business days either before or after a publically advertised auction or if you had received advice from a legal practitioner before signing the contract. The latter no longer is in force.
You can now receive legal advice prior to signing the contract and you still have your cooling-off period. Even though I only work for buyers, this change to the law doesn’t necessarily help us. It removes the possibility of finality. It makes it impossible to offer a good deal that gives the vendor surety. We have made many deals happen specifically because of this. The three-day cooling-off period was designed to allow those purchasers who signed a contract without legal advice time to get someone to look over the deal they had made. It is now designed to allow people to change their minds.
There is one benefit that I can see for the prospective purchaser. Many times we have decided to buy with a condition subject to pest and building inspection and to soften the condition we agree to get the inspections within the three-day cooling-off period. To do this means we couldn’t in the past get legal advice prior to signing the contract: now we can.
This has significantly changed the negotiation landscape for buying property. If a selling agent wanted to do a deal before an auction, he or she would normally only take an offer if the purchaser had received legal advice. In other words, the offer was unconditional. That means they could call around to other interested parties and say, “We have received an offer that will buy the property prior to auction. If you wish to purchase the property please have your offer in by 5pm today.” They would normally give a fairly close indication as to the offer, in order to push up anyone else. They knew if they didn’t get any better offers they had the property sold regardless. This scenario is similar to a “boardroom auction”
With the change to the law on March 1st this year, this is no longer an option for selling agents. Boardroom auctions are no longer viable as they are not final (the offer would have a three-day cooling-off period). Sale by set date, tender and expressions-of-interest campaigns will no longer work as they were intended. These offers usually state that the purchaser must have attained legal advice prior to submitting an offer, thereby making all offers received unconditional. This is now no longer the case.
Even offers within the auction campaign will prove difficult. For example, an agent is given a very good offer on the Tuesday before a Saturday auction. If he takes it and lets all other interested parties know he has an offer that dramatically exceeds the range and will be accepted by the vendor if no better offer is received, he runs the risk of scaring off all the other contenders, albeit at a lower number, while he has to wait until Friday night to see if the purchaser cools off. If he doesn’t take the offer and this purchaser does not attend the auction, he may have made a substantial error for his client.
I can’t wait for someone to challenge the definition of a publically advertised auction. Can a publically advertised auction be “advertised” on the internet for today at 4? I am unsure of what the length of time needs to be before an auction is deemed “publically advertised”. If there is no time frame, can an agent who knows he is going to get an offer at 2.30pm advertise the property on the internet at 1pm that the property will be for public auction at 5pm on the same day and therefore avoid the cooling-off period?
The most interesting issue in this change and would probably come under the rule of unintended consequences is the fact that real estate agents now have an advantage over all others who put offers on properties outside the auction period. There offers will be unconditional and therefore if the numbers and terms are the same, better than someone else who has a three-day cooling-off period.
Ian James is director of JPP Buyer Advocates – the largest dedicated buyer advocacy in Melbourne. With extensive experience in all matters regarding real estate, JPP successfully purchases and negotiate more than $100 million worth of property each year for clients.
