BOTH BUYERS and sellers can find the property contract process quite intimidating.
In simple terms an offer to buy property can be either made verbally – or in writing by way of a contract signed by the purchaser, commonly referred to as “on paper”.
A verbal offer, even if accepted by both parties, is not legally binding on either party.
Whereas, an offer to purchase, committed to paper, signed by both parties and with a deposit paid, is a legally binding contract.
Both parties are bound by the terms and conditions of the contract with the main standard conditions usually – “subject to a satisfactory building and pest inspection” – and – “subject to satisfactory finance approval”, either of which must be satisfied within a specific time period, usually 14 days for the former and 28 days for the latter. The word “satisfactory” leaves many openings for the purchaser to terminate the contract on the basis the building inspection or application for finance is “not satisfactory”.
The standard contract also includes a “cooling off period” whereby on receipt of a fully signed copy of the contract, the purchaser has 5 working days to change their mind.
If they do trigger this clause they may be obliged to pay a penalty equating to 0.25% of the purchase price to the seller.
Given the fairly open-ended ability to “escape” a contract on the finance or building and pest, the cooling off clause is rarely triggered.
As you can see a verbal agreement is not binding, whilst a written agreement in the form of a contract is, but it is not secure until the terms and conditions of the contract are met – and remember – nothing is sold until it’s settled – and – unconditional contracts have been known to fail at settlement!
Unfortunately, the “hand shake” and “gentleman’s agreement” are all but things of the past.
Both buyers and sellers should always seek legal advice before signing any contract documentation.
John Taylor (23 years Range Real Estate experience)
Leave a Reply