A major milestone in the conveyancing process is the process of exchange. Understanding when this happens, when it should happen, and what happens during this process is important.
A contract to purchase residential property is always issued in duplicate – one copy for the vendors and the other for the purchasers. The contract is entered into when it has been dated and exchanged – that is, when the vendor is in possession of the purchaser’s contract and vice versa.
Once a contract has been exchanged, all other potential purchasers are locked out of the contract and the vendor cannot accept any other offers. By law, the purchaser also has the right to rescind the contract within a five business day period, unless they have waived such a right to do so or the contract has been exchanged following an auction.
If a purchaser exercises its cooling-off right however they will forfeit to the vendor a sum of money equal to 0.25% of the purchase price.
Locking into a contract has its benefits especially where time is short and there are many other potential purchasers looking to purchase the property.
That being said however, where possible, it is always advisable to carefully check the contract and conduct inspections on the property prior to signing and exchanging the contract. If the contract has not been exchanged and purchaser doesn’t wish to proceed after conducting its inspections, the purchaser is saved from forfeiting 0.25% of the purchase price.
There is no right way to go through this process and it will depend on the circumstances at the time as well as the property market at that time. Prospective purchasers will need to consider what is the right move to make at all times.