Aaron Bell
Mary Flory
A property listed as under contract means the seller has accepted the buyer’s offer, and both parties have signed a contract of sale.
In this contract, however, conditions still need to be met before the sale is confirmed.
So, when you see a property listed as under contract, it has yet to be sold. So, it’s still technically on the property market, though it’s in the final stages of the sale process.
‘Under contract’ versus ‘under offer’
A property is under contract when the buyer and seller have exchanged legally binding contracts. Properties under contract are closer to the finish line, or the final sale, than those under offer.
A property is under offer when a seller accepts an offer, but the contract hasn’t been exchanged yet, meaning more conditions must be met than if the property is under contract.
These could include the property passing a building and pest inspection or confirmation of the buyer’s finances.
What happens when a property is under contract?
When a property is under contract, there are still things that need to occur before it is sold.
Exchange of contracts
Once a buyer and seller have agreed on terms, this information gets included in the contract of sale. Typically, a conveyancer or a solicitor prepares the contract, which is checked and approved by both sides of the transaction.
The purpose is to provide a legally binding document that confirms what the buyer and seller have agreed to. Contracts of sale may vary between states. However, it is best practice to include:
- The property address
- The full names of the buyer and seller
- Terms of payment and home loan details
- The deposit to be made by the buyer
- The total sale price
- Cooling-off period dates
- Settlement date.
Cooling-off period
The cooling-off period is for a specific number of days (usually between two and five) during which the buyer can change their mind about the purchase.
The state determines the period the sale occurs in, unless specifically changed in the contract of sale.
Cooling off period in each state
| State or Territory | Cooling-off Period | % of the purchase price paid as a fee for terminating the sale. |
|---|---|---|
| ACT | 5 business days | 0.25% |
| NSW | 5 business days | 0.25% |
| NT | 4 business days | 0% |
| QLD | 5 business days | 0.25% |
| SA | 2 business days | Instead of a % of the purchase price, a holding deposit is forfeited up to $100 |
| Victoria | 3 business days | 0.20% |
» MORE: 6 things to know about the Australian property market
Settlement
Once the contracts are signed there is a settlement period of usually between 30-90 days. During this time, your solicitor or conveyancer will assist in transferring the legal ownership of the property to you, the new owner.
The buyer will also have time to ensure things like home insurance, water and electricity are organised and that they have signed and sent off all required documents regarding the mortgage.
On settlement day, the seller legally needs to have vacated the property. Unless stated in the contract, they will have moved all their furniture, etc., so the new owners can move in. The new owner will then pay stamp duty and get the keys.
Can the sale still fall through?
Yes, because the terms of a conditional contract still have to be met before settlement. A sale may not get across the line if the buyer does not have their finances in order, for example.
In other cases, a building and pest inspection may reveal damage or maintenance issues. During the cooling-off period, the buyer may change their mind for any number of reasons and usually has to pay a fee, depending on the state where the property is for sale.
The settlement period consists of the final few weeks before you officially get the keys to your new property, but there are a few things to be careful of along the way. Transferring property ownership requires careful attention to detail. For example, not filing the correct paperwork on time could delay the purchase.
Ensuring all the information on the contracts and transfer of ownership are correctly completed before settlement is where conveyancers and solicitors can be especially helpful.
Potential pitfalls buyers should know
For buyers, there are a few important steps to take to avoid potential problems.
Getting pre-approval
Loan pre-approval is the process of going to a lender and having your finances checked. The lender will assess how much money they will let you borrow.
This helps you as a buyer to know what you can afford so you can submit offers to sellers with proof that you can afford the property. It also can help speed up the process once you submit an offer.
Including conditions in a contract
When you submit an offer, it is important to include the conditions that protect you as a buyer.
By including an offer pending a building and pest inspection, you can have an independent expert determine the quality and safety of the property you hope to buy. This can help you avoid committing to a purchase only to discover problems down the road.
About the Author
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