December 20, 2023

How Does A Contract Of Sale Work?

A contract for the sale of residential property is a legally binding agreement between the Buyer and the Seller. Individual contracts of sale vary in terms of what they require of both parties, but in general the contract will contain;

  • The agreed purchase price for the property
  • The names and details of both the Vendor and the Purchaser
  • The name and details of the real estate agent
  • A cooling off period (where one applies)
  • The deposit amount and when this is due to be paid by the Buyer
  • Any conditions the contract is subject to, such as building and pest or finance
  • Any chattels or fixtures to be included or excluded from the sale
  • The settlement period (the number of days between the contract date and when the property is due to settle) and the settlement date.

It is normal for the parties to negotiate through the real estate agent before arriving at a purchase price and other terms that are agreeable to both parties.

It is a good idea to have your conveyancing solicitor look over the contract for you before you sign. Most conveyancing firms will offer free pre-contract reviews when you engage their services.

Once both parties have signed the contract, it becomes a legally binding document.

Who Prepares The Sale Contract?

The contract of sale is prepared by the real estate agent, or the conveyancer or solicitor representing the Vendor. This depends on the state or territory in which the property is being sold, whether or not the property is being sold privately, and whether the complexity of any terms and conditions.

What Happens After The Contract Is Signed?

Once you have a signed contract, it should be forwarded to both the Buyer’s and the Vendor’s conveyancer.

Your conveyancer will then be in touch with you to formally appoint them to act for you in your sale or purchase if you have not already done so.

Just because the sale contract has been signed, this does not necessarily mean the property settlement must take place. Contracts of sale are usually subject to one or more conditions, for example;

Cooling Off Period

Some contracts are subject to a cooling off period, which allow the Buyer to cancel the contract within a set time frame. A termination penalty will usually apply to Buyers exercising their cooling off rights.

Finance Condition

If the Buyer needs to borrow funds to finance the purchase, the contract of sale should be subject to finance. This allows the Buyer to cancel the contract and retain their deposit if they are unable to obtain finance by a specified date.

Building and Pest Condition

Contracts are often subject to a satisfactory building and/or pest report. This condition allows the Buyer to cancel the contract without penalty if they are not satisfied with the results of an inspection report of the property.

Other Special Conditions

Other special conditions may be included in the contract by mutual agreement of the parties, for example;

  • Making the purchase subject to the sale of the Buyer’s existing property
  • Making the contract subject to satisfactory searches
  • Allowing the Buyer access to the property, or early possession of the property prior to settlement
  • Making the contract subject to the Seller having the property professionally cleaned prior to settlement

It is recommended that you have special conditions drafted by a conveyancer or solicitor, and remember to always seek legal advice prior to signing a contract.

Once all the conditions in the contract have been satisfied, the contract is unconditional and the parties are legally bound to proceed to settlement.

More Questions?

It is always a good idea to get independent legal advice before signing a contract. If you would like the property lawyers at Keylaw to review a contract for you, give us a call today, or reach out via our contact form.

The above is not legal advice and is general information only.