The offer and acceptance process when buying a property

Have you finally found the perfect property but now have no idea how to take the next step?

Don’t worry, like many buyers out there, you’re not alone!

To help make things a little easier for you, in this article we get down to the nitty-gritty of making an offer and tell you exactly what you need to know.

And as you'll see, the offer and acceptance process varies from state to state.

Is an offer on a house legally binding?

An offer on a house or unit is not legally binding until both parties have signed a contract of sale and a deposit has been paid.

Agents are also allowed to take multiple offers and offer them all up to the vendor, or even put forward a higher offer after you have submitted yours.

So how can you make an offer on a house legally binding?

This varies from State to State but in general, the offer is not legally binding on both parties until the buyer and seller have signed a contract of sale (and in Victoria or section 32), the contracts have been exchanged and the deposit has been paid. 

When making an offer to purchase a property, it is important to be aware of the following:

• The agent must submit all offers in writing to the vendor. So rather than making a verbal offer, if you’re serious about securing the property put your offer in writing together with a holding deposit.
• The property remains on the market whilst the vendor considers all offers. Just because your offer is the first one submitted or even the highest offer, this does not necessarily mean that it will be accepted.

So before you make an offer, you may wish to first consult with a solicitor or conveyancer who can outline your rights and obligations.

Engaging a lawyer early in the process can help mitigate any miscommunication surrounding the agreement.

What happens after you submit your offer differs in each state… so here’s a state-by-state rundown.

Victoria

Interestingly, sellers who thought they had an advantage by signing an ‘unconditional’ contract in Victoria, don’t really have the upper hand.

Whenever the agent takes an offer to the vendor now, instead of being able to say, ‘sign this and it’s a done deal’ now they say, ‘you can’t back out but the buyer can’.

Before you could take the unconditional contract to a solicitor and they would waive the cooling-off period.

Now you could take it to the Queen, and you would still need your cooling-off period.

There is, however, still no cooling-off period three days prior to the auction, at an auction, and three days after the auction.

If you decide to get out of the deal during the cooling-off period, you have to pay 0.25% of the property’s purchase price.

However, this is a relatively cheap ‘get out of jail’ card compared to the cost of the property.

When you make an offer on a property in Victoria, you actually write and sign a contract.

You can of course make an offer as an expression of interest, but your offer will only be taken seriously if it’s on an actual contract.

It’s important to know that agents still have the right to ‘gazump’ you even after you’ve signed a contract (as long as the vendor has not countersigned it.

Gazumping occurs when a higher offer from someone else is accepted, nullifying yours.

This practice can also be referred to as ‘shopping the offer’ in instances where agents use your offer to encourage other buyers to outbid you.

The agent is legally obliged to work in the best interests of the vendor.

There’s nothing to stop someone else from coming along and saying:

“I’ll give you an extra $5,000!”

As for off-the-plan land sales, developers and buyers could previously hold money in a joint account, but deposits must now be held in a trust by a legal practitioner, conveyancer, or real estate agent.

This ensures that if any money is misappropriated, the buyer has access to a statutory compensation scheme and gets a refund.

New South Wales

It’s handy for buyers in New South Wales to have some spare cash – you’ll need it to make an offer on a property you like or pay an initial deposit as an expression of interest.

This won’t mean the property is yours or that it gets taken off the market.

It merely proves to the seller your offer is serious.

However, when you pay a deposit, the agent must provide you with a receipt and tell you in writing that:

• They have no obligation to sell the property to you,
• You have no obligation to buy the property, and
• They’ll refund your deposit if you don’t end up entering into a contract to buy the property

The agent must also let you know if someone else makes an offer on the same property.

If your offer is accepted, be ready to sign the sale contract and proceed with the exchange process.

However, before you sign the contract, the vendor is free to negotiate with other potential purchasers, even if they’ve verbally accepted your offer.

If the vendor accepts another offer and exchanges contracts with another buyer, you’ve then been gazumped.

If you’re gazumped, you won’t be compensated for the money you spent on inspection reports.

In NSW, you have a five-day cooling-off period from the time contracts are exchanged.

However, be aware that if you decide not to go ahead with the purchase, you’ll lose 0.25% of the purchase price to the vendor.

The amount forfeited will be recovered from the deposit you paid.

Any deposit (normally 10% is required) will be paid by your solicitor or conveyancer to the real estate agent and held in the real estate agent’s trust account.

Queensland

Queensland buyers have a five-business day cooling-off period, which starts the day the contract is signed by both parties.

If the contract is signed on the weekend, the cooling-off period starts Monday morning and ends at 5 pm on the fifth day.

The buyer can, however, waive or shorten the cooling-off period by giving the seller’s agent a form that’s been signed by a lawyer.

On the other hand, if a contract is terminated within the cooling-off period, the seller must refund the buyer’s deposit within 14 days, but can still deduct a termination penalty equal to 0.25% of the purchase price.

Buyers normally write their offer on an actual contract, which becomes binding once the vendor also signs it.

Agents must submit all offers to the seller, but they also have a right to shop your offer around.

The agent is obliged to let you know whether or not you’re in a ‘multiple offer’ situation, where there are at least two offers on the property.

Buyers are encouraged to pay a deposit when signing the offer but if the contract falls through, the buyer is entitled to receive a full refund of their deposit.

The money is normally held in a real estate agent’s trust account.

Western Australia

Gazumping doesn’t exist in WA but there is what’s known as a ’48-hour clause’.

"If a second buyer comes in and they’re really keen on the property, they can invoke the 48-hour clause.”

“What it means is that if the original purchaser can’t come up with the finance within that period (48 hours), then the second offer can supersede it, provided that the seller has agreed to that."

For example, this means if someone has already offered $450,000 for a property and it’s under contract, which includes the 48-hour clause, you could offer $460,000.

The seller could then go back to the original purchaser and tell them they have to come up with the $450,000 within 48 hours, or they’ll accept the higher offer.

"This isn’t a standard part of the contract, it’s normally inserted when the buyer wants to make an offer that’s conditional upon the buyer selling their own property."

If you’re a keen bidder and love the thrill of auctions, you’re looking in the wrong place.

Only 2-3% of properties are sold through an auction in WA.

Most offers are through private treaties and the agent is required by law to present all offers, usually written on a contract, to the vendor.

What tends to happen is when you get to that point, you get into the bartering process.

The contract goes back and forth until a final price is agreed upon.

Although, strangely enough, the exception is retirement villages.

There’s also a cooling-off period if an agent gets a listing by randomly knocking on someone’s door or making a phone call.

However, you can still protect yourself by making a contract subject to finance and you’ll get all of your deposit back if the sale falls through.

Any deposits are held by an agent, solicitor, or conveyancer.

South Australia

If you find a property you instantly fall in love with in South Australia, don’t bother making an offer over the phone.

Whether it’s a contract or a letter of offer, all offers have to be made in writing.

The agent then has 48 hours to present this to the vendor, unless the buyer gives the agent a strict deadline of, say, 5 pm that day.

Agents are also allowed to receive multiple offers and shop them around, as the contract is only legally binding once the vendor signs it.

The Real Estate Institute of South Australia (REISA) acknowledges it receives complaints about this, but there’s not much it can do.

"The reality is, you may only get one chance to make one offer so we always recommend it’s your first and final offer.”

Ask yourself: ‘How much am I willing to pay?’ and consider this in making an offer."

If your offer does go under contract but you suddenly wake up at 2 am and realise you’ve made a terrible mistake, rest assured buyers have a cooling-off period, albeit a very short one.

It expires two business days after the buyer receives what’s known as a Form 1, required by law, which includes information about the property such as title particulars, covenants, and zoning.

Dummy bidding or fake bidding at an auction is against the law in SA, but the auctioneer is allowed to make up to three vendor bids if the amount is less than the reserve price.

A vendor bid is a type of bid made by the auctioneer on behalf of the vendor as a tactic to keep the bids moving.

It’s supposed to be clearly announced so that genuine bidders know what’s going on.

A 10% deposit is payable after the contract has been signed.

The money is usually transferred to the vendor’s agent or conveyancer, who will then place it in a trust account.

If you’ve engaged a conveyancer, they can organise this for you.

ACT

The Australian Capital Territory is the only state in Australia that has pre-preparation of contracts, according to Craig Bright of the Real Estate Institute of the Australian Capital Territory

"For a property to go on the market, the contract has to be pre-prepared.”

“That involves the preparation of a contract with everything inserted but the purchaser’s details, just like in an auction contract."

• Also read:Pre-settlement inspection guide: what to inspect, why and when
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• Also read:Guide to Downsizing a House in Australia

The contract must be accessible to the buyer prior to them making an offer and include a building and pest report, along with an energy rating of the property.

There’s a provision of costs in the contract for reimbursement, which is capped.

A buyer would normally seek legal advice before signing a contract.

Most real estate agents allow up to 10 working days to sign a contract, which means the five-day cooling-off period is rarely used.

"Most people waive the cooling-off period because they’re not required to exchange contracts until finance is formally approved.”

“Around 99% of contracts would exchange unconditionally."

This means offers are usually made by verbal agreement.

However, if someone comes along and offers a higher price for a property, the original purchaser could miss out and there’s nothing they can do.

In an active market, that can happen.

The standard 10% deposit is normally held in a trust account by the vendor’s agent.

Most buyers also pay a $1,000 holding deposit, which is then refunded if the offer falls through.

If the offer is accepted, the agent will send out the sales instructions, which allow the buyer’s solicitor to complete the original contract.

Tasmania

If you find a property in Tasmania, be prepared to write any offer on a formal contract.

This contract is legally binding as soon as the vendor signs it.

Until then, the price can be amended and the contract may go back and forth.

The deposit payable is usually 10%, which is retained in a trust account by the real estate agent.

While agents in Sydney will sometimes list homes for sale at a ridiculously low price prior to auctions to get people excited, Tassie agents are breaking the law if they do this.

‘Bait advertising’, where a property is advertised for a price lower than what a vendor would accept, isn’t allowed.

New legislation is also about to be enforced in Tasmania, which will require a vendor statement to be provided and signed by the vendor.

The Real Estate Institute of Tasmania (REIT) says:

"This document will confirm details to any potential buyer, in relation to key elements of the property.”

“Information in the vendor statement will be legally binding and any inaccuracies could lead to legal proceedings."

A cooling-off period has also just been introduced, which gives buyers two business days to withdraw their offer if they get cold feet, (apart from buying at auction of course).

However, be careful with how many offers you make on different properties – if a buyer makes multiple offers for a number of different properties on the same day, the cooling-off period only applies to the first property.

Good luck figuring out how to prove which offer you made first!

Also, don’t bother submitting any ridiculously low offers in Tasmania.

Agents aren’t legally required to present them to vendors.

Like WA, Tasmania also has the 48-hour clause.

This means if another buyer comes along and offers a higher price, the first buyer has 48 hours to come up with the full finance.

Otherwise, the vendor can accept the higher offer.

Northern Territory

Most offers in the Northern Territory are made with a verbal offer and you only sign a contract once the offer is verbally accepted.

The Real Estate Institute of Northern Territory’s training manager Jock McLaughlin says.

However, it doesn’t become a contract unless the last party signs it, which is usually the vendor, and it’s dated.

Director of K.G. Young and Associates Tony Pickering adds until a contract is signed by both parties, the owner can accept any higher offers.

Normally once the contract is there, the agent works to that end.

However, if someone was to ring (with another offer) before a contract was exchanged, the agent is legally obliged to pass that on to the owner.

Buyers have a four-day cooling-off period, which starts the business day after the contract is exchanged.

So if you sign a contract on Saturday and exchange it on Monday, the cooling-off period doesn’t start until Tuesday.

There’s a seven-day period allowed for a building and pest inspection and a 10-day period for finance.

You can also make the contract subject to an engineer’s report, a cyclone rating, and a swimming pool safety report.

Any deposit would be held in a real estate agent’s trust account or alternatively, a solicitor or conveyancer’s trust account.

Most people prefer a 30-day settlement, but since the global financial crisis, a 40 to 45-day settlement period is more realistic in the NT.

McLaughlin notes you only need a 10% deposit for a property if you buy it at auction.

A deposit isn’t required for a legal contract.

Signs that your offer on a house will be accepted

There are many factors for a seller to take into consideration when it comes to accepting an offer - not only the price but also the conditions and whether you have finance pre-approval.

Then market demand will also affect how quickly a seller will approve or reject an offer.

Waiting to find out if your offer has been accepted is a nail-biting time.

Here are 4 signs to look out for that could mean things are on the right track for you.

1. The agent or vendor asks for clarification

Generally, if the seller's agent, or even the seller themselves, contacts you to ask for clarification on anything in your offer, you can take that as a promising sign.

Any questions about your timeline, offer price, contingencies or any other terms suggests that the seller is considering your offer and it hasn’t just been swept off the table.

2. Asking for proof of funds or loan pre-approval

If the seller has further questions or wants more information, they may ask their agent to speak to you.

Again, this is a great sign because it indicates that the seller is already interested in your terms.

3. Getting a counteroffer

In some cases, your offer might not be immediately accepted and instead, the vendor will come back with a counteroffer.

Again, this is an excellent sign that you could be accepted to buy the property - while your offer hasn't yet been fully accepted, it means the vendor is happy with the terms and contingencies but wants to negotiate on the remainder (likely this will be down to price).

4. Hearing that the vendor is interested

This might be an obvious one but the seller’s agent contacting you to tell you that the vendor is interested in your offer is also obviously a sign that that is genuinely the case.

Withdrawing an offer on a house in Australia

You’ve found a house, and submitted an offer but now your situation has changed leaving you questioning… “can I withdraw an offer on a house once it has been accepted”?

There are steps you can take to revoke your offer to purchase the property that depends on what point you are in the sale.

Withdrawing an offer BEFORE it is accepted

If the seller has not yet accepted your offer and signed the contract of sale you are able to revoke your offer in writing.

You need to do this quickly and in writing and deliver it to the agent or seller before the offer is accepted.

You don’t have to give a reason why the offer is being revoked.

Withdrawing an offer AFTER it has been accepted

Once your offer has been accepted it becomes a legally binding agreement and you enter into a cooling-off period.

But there is still an opportunity to terminate a contract for any reason.

After the offer is accepted you’ll move to a cooling-off period at which point you can back out of the sale at any point.

If you want to revoke your offer during the cooling-off period you’ll likely need to pay a percentage (usually around 0.25% or a forfeited deposit) of the property purchase price as a penalty to the seller as explained above… and this differs in each state.

Withdrawing an offer AFTER it has been accepted and AFTER the cooling-off period

It is still possible for a buyer to withdraw after the cooling-off period, but it will come with a penalty or fine.

That’s because the buyer will have to compensate the seller for legal fees and other expenses.

So if you are considering terminating a contract under the cooling-off condition it is important that you seek the advice of your conveyancing solicitor as they will ensure your rights are protected.

Ways to protect yourself from being gazumped

No one likes being gazumped, especially when it means missing out on a dream property you had your heart set on.

In most states of Australia, it’s legal to be ‘gazumped’ – where you miss out on a deal because someone else comes along with a higher offer than the one you made – but many believe it’s morally wrong.

The Office of Fair Trading suggests the following steps can protect you from being gazumped.

1. Have your finance pre-approved and make sure you can pay the 10% deposit so there’s no delay when you go to exchange contracts on a property.
2. Get a copy of the sale contract as soon as possible and get your solicitor to check it as soon as you can.
3. Try to exchange contracts with the vendor as soon as you can so there’s no time delay for the vendor to pull out of the deal.
4. Insist on the agent passing your bonafide offers to the vendor and obtaining written proof of this occurring. The law requires agents to do this.
5. If you’re advised that other offers have been made, demand to see written evidence so you know whether or not the agent is bluffing.
6. Be ready to exchange a signed copy of the contract and follow through with another trusted person to ensure the exchange. Buyers should also put a timeframe on their offer. For example, demand an answer by 5 pm the day you make an offer.
7. If you’re making an offer with a timeframe, do it on a day when there isn’t an open inspection.
8. This reduces the agent’s chances of having another offer on the same day.
9. If you really can’t bear the thought of missing out on the property you love, be ready to possibly increase your purchase offer to the vendor.
10. Alternatively, if you really can’t stand the thought of being gazumped, consider buying property through auctions.

A seller’s secret weapon: the 48-hour clause

When selling property, vendors in Western Australia and Tasmania can use what’s known as a 48-hour clause in a contract.

This can be used if the buyer and seller enter a contract, but someone then comes along and makes a higher offer.

If that happens, the original buyer has 48 hours to come up with the finance for the amount they offered.

Not many people are aware of it, but Perth investor Ray Bradbury is.

He recalls a time when he was 48 hours away from owning what would have been his dream property in Maylands, Perth.

"It already had an offer on it but it was below the asking price.”

“That offer was presented and accepted but the vendor put a 48-hour clause into the contract, so if someone came along with a better offer, they could accept the higher amount."

Ray put in a higher offer, using this clause, which was closer to the $450,000 asking price.

That gave the original buyer 48 hours to come up with the full finance to seal the deal.

If they hadn’t been able to do this, Ray would now be living in a property he believes has since doubled in value.

Unfortunately for Ray, the dream ended before it started – the buyer managed to come up with the goods.

"It was a bit annoying but I knew the situation and understood the circumstances.”

“I thought it was worth a try because it was a great house in a great area, right on the river.

“Most people don’t know about the 48-hour clause but the agent told me about it to try and get as much money as he could."