Key points:
- You’re free to change your mind about buying a home if you’ve not signed a sales contract.
- However, once you sign a sales contract on a home, you become legally bound by the terms of the contract.
- If the contract is unconditional, you’re likely to face stiff financial penalties, including the loss of your deposit, for reneging on the deal.
- Signing a conditional contract means you can pull out of the deal according to the conditions stipulated in the contract.
- Buying a house at auction is similar to signing an unconditional contract, and you can face stiff penalties for not going through with the sale.
Buying a house is a serious decision, and once you sign a sales agreement, your purchase becomes legally binding. So if change your mind and try to pull out of the deal, you can expect to face serious legal and financial consequences.
Canstar explores what could happen if you change your mind about buying a house.
When you can change your mind about buying a house
If you’ve not signed a sales contract, or made a winning bid at an auction, you can walk away from a house sale at any time.
But the moment you sign on the dotted line, you’re legally bound by the terms of the sales contract. That’s why it’s advisable to seek professional legal advice when considering a property purchase.
However, depending on the contract you’ve signed, and the clauses it contains, you might be able to change your mind about purchasing a home.
Ultimately, the question of whether you can change your mind and back out of a property deal hinges on whether you’ve signed an unconditional or conditional contract of sale. Here’s what you need to know:
Unconditional contract
As its name suggests, an unconditional sales contract is a straight sales contract between you and the vendor. There are no conditions set for the sale to proceed.
Usually, once the contract is signed, the vendor pays a deposit, generally 10-20% of the agreed price, after which the sale process moves towards the settlement date. This is when the balance of the price is paid and possession of the property is transferred to the purchaser.
If you try to pull out out of an unconditional contract for any reason, you’re likely to forfeit your deposit, at the very least. You might also be sued by the vendor, who could seek redress for any losses they’ve incurred due to your failure to complete the sale.
In the worst case scenario, you could be forced to go ahead with the purchase.
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Conditional contract
If you’ve purchased a home and signed a conditional contract, you may be able to change your mind about buying the home, depending on the conditions stipulated in the contract.
For example, if you make an offer on a home that is accepted, but you want more time to thoroughly research the property – for example to arrange a building inspection – and to arrange your finances, it’s a sensible idea to ensure that the sale is conditional upon these criteria.
Having these conditions stipulated in the sales contract means that if your financing falls through, or you discover structural faults with the home, you’ll be able to withdraw from the sale without any penalty.
However, it’s worth noting that a lack of finance clause isn’t a get-out-of-jail free card when it comes to backing out of a property sale.
Backing out of a property purchase for financial reasons
When possible, borrowers should obtain home loan pre-approval (known as approval in principle) so that they don’t have to back out of a property sale due to financial reasons.
Under the standard Agreement for Sale and Purchase issued by the Real Estate Institute of NZ and the Auckland District Law Society, if there’s a finance condition in a sales agreement and the purchaser uses it to renege on a deal, they must supply evidence backing their lack of finance or face legal action by the vendor.
Therefore, borrowers should not sign an unconditional contract if they have any doubts about getting finance for a property purchase.
If your finance has been rejected and you’ve already paid a deposit and exchanged contracts on a property, conveyancing experts recommend that you seek immediate legal advice.
Buying at auction
Purchasing a home at an auction is, essentially, the same signing an unconditional contract. Once the hammer falls, there is no further opportunity to negotiate the conditions of the sale. If you make the winning bid, you’re expected to sign the contract and pay a deposit immediately.
Therefore, before committing to purchase a house at auction, it’s essential to have completed all your research on the property and to have your finance in place.
As with pulling out of an unconditional contract, reneging on a purchase made by auction means you’re likely to lose your deposit, and become liable for the vendor’s costs and losses, including any price difference if they’re forced to resell at a lower price.
Changing your mind about buying a house
Ultimately, as with any major financial decision, it always pays to seek expert advice and to do your research before committing to a home purchase.
Because if you decide not to go through with the deal, unless it’s for a valid reason covered by a condition of sale, it’s likely that you’ll face stiff financial penalties.
About the author of this page
Bruce Pitchers is Canstar NZ’s Content Manager. An experienced finance reporter, he has three decades’ experience as a journalist and has worked for major media companies in Australia, the UK and NZ, including ACP, Are Media, Bauer Media Group, Fairfax, Pacific Magazines, News Corp and TVNZ. As a freelancer, he has worked for The Australian Financial Review, the NZ Financial Markets Authority and major banks and investment companies on both sides of the Tasman.
In his role at Canstar, he has been a regular commentator in the NZ media, including on the Driven, Stuff and One Roof websites, the NZ Herald, Radio NZ, and Newstalk ZB.
Away from Canstar, Bruce creates puzzles for magazines and newspapers, including Woman’s Day and New Idea. He is also the co-author of the murder-mystery book 5 Minute Murder.
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