Cooling Off Period

After you have exchanged contracts, you usually will have a five business day cooling off period.  During this period you still have time to change your mind and withdraw from the contract.  The owner is entitled to keep 0.25% of the agreed purchase price if you pull out during this time.  The vendor does not have any cooling off period after exchange.

Deposit

A non-refundable percentage (usually 10%) of the purchase price paid by the buyer when contracts are signed and exchanged. The deposit must be held by the estate agency or seller's solicitor in a trust account or held jointly in a trust account by seller and buyer.

Deposit Bonds

A deposit bond or deposit  guarantee as they are also known is a substitute for a cash deposit between signing contracts and settlement.  They are used by people who do not have access to a 10% deposit.  At settlement you, the purchaser, are required to pay the full purchase price including the deposit.  The use of a Bond or Guarantee does not remove your obligations to pay the full deposit upon settlement.  For more information, please click here.

Exchange

Exchanging sale contracts is the legal part of buying a home.  Before exchange, the agreement is usually just verbal and therefore not binding.  After you have discussed the contract with your solicitor or conveyancer and all the necessary enquiries have been made, you will be ready to exchange contracts.  There will be 2 copies, one for you and one for the seller.  You each sign one copy before they are swapped or “exchanged”.  At the time of exchange you will be required to pay a deposit, usually between 5% and 10% of the purchase price.

Gazumping

Gazumping occurs when a buyer relies on the verbal agreement by a seller to sell a property at an agreed price.  The buyer may then spend money getting advice, reports etc only to find that the seller has accepted a higher offer from someone else.

Until you exchange contracts there is no legally binding agreement between you and the seller.  This leaves the seller free to get the best price for the property.

If you are gazumped, neither the agent nor the seller is obliged to compensate you for any money you have spent to date receiving advice, reports etc.

Lenders Mortgage Insurance (LMI)

Lenders mortgage insurance (LMI) is taken out by a lender to insure a mortgage against loss if sale of the security property does not fully clear the debt if the borrower defaults.  The beneficiary of the policy is the lender, not you, the borrower.

LMI usually comes into play when the borrower has less than a 20% deposit, however, with all securitised loans, sold mostly by the mortgage originators and building societies, all loans are insured.  The borrower is charged a once only premium based on the loan to value ratio.

Many people still believe the LMI covers them for default through unemployment etc, but this is not the case.  There are insurance policies to cover loan repayments and many people in occupations without sick pay entitlements etc should consider taking out this type of protection.

Settlement

This is the final stage of the sale when the purchaser completes the payment of the contract price to the vendor and takes legal possession of the property.  This is when you become the legal owner of the property.  Settlement usually takes place between four and six weeks after contracts are exchanged.

Valuation

A written assessment of how much a property is worth, by a registered valuer.

For other relevant definitions relating to the purchase or sale of property, please see the Real Estate Institute of Australia’s website on www.reiaustralia.com.au/consumer/glossary.asp.

What is a deposit bond?

A deposit bond is a guarantee or bond that substitutes for a cash deposit between signing contracts and settlement.  The bond can be used for all or part of the deposit required up to a maximum of 10% of the purchase price.

At settlement you, the buyer, are required to pay the full purchase price including the deposit.  The use of the Bond does not remove your obligation to pay the full deposit upon settlement.

Who uses a deposit bond?

Deposit Bond users include existing property owners who wish to purchase property and investors who wish to expand their property portfolio.

Like many of today’s buyers, cash for the deposit required is often tied up in the current home of other investments.  A deposit bond offers an efficient, secure alternative that saves you time and money.

Can I use a deposit bond at auctions?

Yes.  A deposit bond can be issued prior to you attending an auction.  The guarantee amount is fixed but not the property details.

When does my deposit bond expire?

The Guarantee ceases when the Contract of Sale is completed, terminated, reclined or the expiry date occurs, whichever happens first.

Can I obtain a refund if I don’t use my deposit bond?

Yes.  If you return the unused, original Guarantee Certificate within 60 days of issue the fee will be partially refunded.  An administration fee will be deducted and the balance will be mailed to you.

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