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Understanding what a cooling off period is and when it does (and doesn't apply) is essential knowledge for prospective home buyers.

What does cooling off mean?

If you quickly change your mind about the property you just bought, you can sometimes terminate the contract by cooling off.

A cooling off period applies to all residential private sales / Expressions of Interest in Victoria, except in very limited circumstances (such as that the purchaser is a real estate agent, or the parties have previously signed a contract before for the same property, plus a few other very unusual exceptions). That means the purchaser can terminate the contract, for no reason, within three business days of them signing the contract (the date the purchaser signs, not the vendor - and the purchaser should always sign first).

There is no cooling off period when a property is purchased at an auction or under the Auction Rules.

If the purchaser cools off (by them or their lawyer/conveyancer sending a formal email to the vendor's lawyer/conveyancer), the vendor is then entitled to require payment of 0.2% of the purchase price as the cooling off fee, regardless of whether any deposit funds have been paid yet (they or the real estate agent can send the purchaser a tax invoice for it).

Cooling off can therefore be expensive for a purchaser, so it's far better to never sign a contract unless you are 100% sure you're going ahead (subject to the fulfilment of any special conditions, like subject to finance approval).

However, sometimes a cooling off period can be strategically used by savvy buyers, in order to secure a property in a competitive market, while undertaking further due diligence during the cooling off period, such as quickly getting a building and pest inspection done. The cooling off fee can be priced into the purchaser's budget, so the purchaser can factor it in as the cost of having a go.

If a legal review of the contract is unable to be arranged prior to the contract being signed, it is strongly recommended that a special condition be included in the contract, making it subject to a satisfactory legal review, and not just relying on the cooling off period.

Legal details regarding the cooling off period, and the purchaser's right to exercise it, are usually included in a fine print box on the front cover / signing page of the contract of sale.

Note: the above is general information and should not be considered as legal advice.

Photo by Sam Lion

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