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A first home buyer with cold feet? Here are your options
Even first home buyers can get cold feet about stepping onto the property ladder.
A first home buyer with cold feet? Here are your options
Even first home buyers can get cold feet about stepping onto the property ladder.
Not every first home buyer who bids their way to top at auction sees the process through, but if you change your mind, it can be helpful to know what your options are.
It’s a harsh reality of the market, but not every successful auction ends in a final sale. Sometimes even first home buyers get cold feet about taking their initial step into the world of property ownership.
According to buyer’s agent Michelle May, “sometimes people do get in too deep with an unsuitable property purchase and find themselves in an almighty scramble to get out”.
She explained that buying the right property takes the right amount of research, investment and time. Even then, it might not work out.
“Unfortunately, in fast-moving markets, time is in short supply, and it can lead buyers to make decisions they regret,” she said.
In any case, it can be hard to know where to start when it comes to winding back the clock after landing a successful property deal.
Ms May said that the costs of pulling out of a property vary based on the situation, but if you secured the sale through an auction, then your options may be limited.
“When the hammer goes down, the sale becomes unconditional, and you don’t have any cooling-off period,” she said.
While you are committed to buy the property for the amount that you bid at the auction, Ms May noted that the final contract will usually outline the penalties of withdrawing from the sale.
Depending on the contract, this can range from industry-standard penalties to compensation for the seller.
On the other hand, private treaty sale contracts typically come with a cooling-off period. The length of this period can depend on pre-sale negotiations, but if the buyer backs out during the period, they pay a significantly smaller penalty than they would outside of it.
Using NSW as an example, Ms May noted that most contracts include a five-day cooling-off period as standard.
“If you withdraw during the cooling-off period, you’ll have to pay 0.25 [of a percentage point] of the purchase price as a penalty and will also be out of pocket for any conveyancing or legal fees you’ve incurred,” she said.
On the other hand, the costs of backing out after the cooling-off period are significantly higher.
“If you pull out of the sale after the cooling-off period, you’ll have to pay a penalty of 10 per cent of the purchase price, which can hit a few hundred thousand dollars in Sydney,” Ms May explained.
Some buyers even use a section 66W Form to waive this cooling-off period in order to make their offer more attractive to potential sellers. However, if they choose to do so, there’s no way to avoid the 10 per cent penalty if they do change their mind.
“In some circumstances, the property seller may even seek compensation for the difference between the buyer’s offer that was pulled out and the price that the property eventually sold for,” Ms May said.
Ms May said that in situations where there isn’t enough time for buyers to complete their due diligence, the cooling-off period can be a valuable window of opportunity.
Doing so can save buyers a lot of stress and money, either by giving them the confidence to go through with the sale or the chance to take advantage of the lower withdrawal costs associated with the cooling-off period.
“When you think about how much money is on the line, it highlights how important it is to understand your risks as a buyer,” she said.
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