Understanding Contract Terms
Ensure you understand the process when buying your home by learning some of the 'lingo' when it comes to purchasing. This quick reference includes some of the terms you will hear through your purchase process:
- Contract - the contract is the document that sets out your accepted offer for the property; the price, details of the deposit, any conditions that the contract may be subject to such as finance, building and pest inspections (or other special conditions requested by you or the vendor) and the date that settlement will occur. It also contains other relevant information about the property. The contract becomes a legally binding document once you and the seller have signed, the deposit is paid, dated, and exchanged, it is from this contract date that the dates for settlement is calculated.
- Deposit - the purpose of a deposit is to show the seller that you are serious about purchasing the property and the amount can be negotiated between you and the seller not exceeding 10% of the purchase price. The deposit is generally held in the agent's trust account and can also be paid in 2 stages; with a smaller amount at the time of signing and a balance sum once the contract is unconditional. If you or the vendor terminate the contract before contracts are exchanged then you will be entitled to a full refund of the deposit.
- Cooling off period - a 5 business day cooling-off period applies to all contracts in NSW (excluding contracts formed at auction). This will begin on the day that contracts exchange and ends at 5:00pm on the 5th business day. The cooling-off period may be waived if agreed by both parties and a special condition will be added to the contract.
- Special condition - the contract may be subject to typical conditions such as finance and building and pest inspections however, if you would like some time to conduct a soil test (for example) then a special condition can be included in your offer that makes the contract subject to receiving a satisfactory soil test report.
- Unconditional contract - the term given to your contract once all conditions entitling you to terminate are satisfied or met. It basically means that both parties are bound by the contract and the sale must proceed.
- Chattels - items in the property that are easily moveable and not permanently fixed. They are generally freestanding items held in place by their own weight and include items such as washing machines, potted plants, swimming pool equipment and fridges. Chattels that the parties have agreed will stay at the property need to be listed in the contract as included chattels so as to avoid any confusion at a later date.
- Fixtures - any part of the property that is permanently fixed generally via screwing, gluing, nailing or bolting the item to the property. Carpet, blinds, clotheslines and television antennas are typically considered to be fixtures. Where the parties have agreed that the seller will remove a fixture, the item needs to be listed in the contract as an excluded fixture and the seller will need to repair any damage done to the property in removing the item.
- Settlement - the term given to the day where the remaining purchase price (taking into account adjustments for council rates and water charges etc) is given to the seller, the transfer of the title to the property takes place and keys are handed over to you. Unless you are self-acting, generally you will not be required to attend settlement as this takes place between the sellers solicitor and your solicitor and both financiers. Residential contracts in NSW usually note settlement as 28 or 42 days from the contract date however, it can be whatever length of time negotiated between you and the seller when you put forward your offer.
- Time of the essence - a legal term meaning that contractual obligations relating to time and date must be strictly complied with. Failure to meet a deadline within the timeframe can result in the contract being terminated or a breach of contract.