How NSW real estate contracts are exchanged – and why finance and inspection conditions are rare

Buying property in New South Wales works differently from other states and territories, and understanding this process can save you from costly mistakes.

The following is some general information about the NSW contract exchange process, which you may not be familiar with if you haven't purchased a property in NSW before or recently.


1. Contract listing and offers

All residential properties must have a listing contract prepared by a lawyer or a licenced conveyancer before they are listed for sale in NSW.

Buyers should obtain legal advice on the listing contract before submitting an offer and the team at lawlab can do a contract review quickly to help you buy securely.

Once a buyer and seller have agreed to the sale terms through the sales agent and buyer’s agent where applicable (such as price, deposit, settlement period, etc) a sales advice is usually prepared by the sales agent and sent to the legal representatives of the buyer and seller. There is no legally binding deal until a contract has been signed by both buyer and seller in what is called a contract ‘exchange’.


2. Negotiating contract changes can take time so obtain legal advice early

It is common industry practice in NSW for the seller’s legal representative to include contract special conditions that usually favour the seller and for the buyer’s legal representative to request amendments to some of these, where they may be unreasonable to the buyer.

Securing the purchase of a property in a timely manner is usually very important to buyers, especially in a hot market, and a good legal representative like lawlab will help secure a deal quickly.

However buyers do need to be aware that the contract negotiation process can sometimes take several days as the seller’s legal representative will need to consider these requests, advise the seller, seek the seller’s instructions and then respond to the buyer’s legal representative, for each round of negotiation required to finalise the contract terms.


3. How are contracts exchanged in NSW?

A contract exchange happens when:

• The buyer and seller sign identical copies of the contract;
• Traditionally these signed copies are swapped or exchanged between the legal representatives (but it can also be done by the sales agent);
• The buyer pays a deposit (commonly 10% of the purchase price but the amount can be negotiated and sometimes only a small deposit equal to 0.25% of the price is paid where there is a cooling off period, with the balance payable at the end of that period).

Once exchanged:

• The contract is legally binding and both buyer and seller are locked into the deal, subject only to certain rights to terminate like the buyer’s right to terminate under any cooling-off period;
• The standard settlement period is 42 days (6 weeks), though this can be negotiated.
  
  

4. Why finance conditions are rare

Unlike other states, NSW contracts don’t include a standard “subject to finance” condition. Sellers and their legal representatives generally refuse these conditions because NSW practice expects contracts to be unconditional upon exchange.

If a buyer is unable to obtain finance approval to complete a purchase after exchange:

• The buyer risks losing the deposit;
• They may also face legal action for breach of contract, including being sued for damages on ay loss on a resale.

Buyers should always try to obtain unconditional finance approval before exchanging contracts or obtain this during any cooling off period.

5. Building and pest inspections conditions are not standard

NSW contracts also don’t include a standard “subject to building and pest inspection” condition either. Buyers are expected to arrange inspections before exchange or during any cooling-off period.

6. Cooling-off period explained

For most residential sales:

• Buyers have a 5 business day cooling-off period after exchange (and 10 business days for off the plan purchases);
• If a buyer terminates under cooling off, they must pay the seller a termination fee equal to 0.25% of the purchase price;

No cooling-off applies if:

• The property is bought at auction;
• The buyer waives the cooling off period by obtaining legal advice and having their legal representative sign a Section 66W certificate.

In a hot market, many sellers will require the cooling off period to be waived by the buyer.


FAQs about NSW real estate contracts

Q1: Can I make my contract “subject to finance” in NSW?
Technically yes, but most sellers won’t accept it. NSW practice expects unconditional contracts at exchange. If you haven’t obtained unconditional finance approval before exchange and need to exchange quickly, make sure you have at least a cooling off period.

Q2: What happens if my finance falls through after exchange?
You risk losing your deposit and could face legal action for breach of contract, unless you can terminate during a cooling off period.

Q3: Do I need a lawyer or licenced conveyancer to exchange contracts?
It is highly recommended - they can help you buy securely and manage the exchange process.

Q4: Can I waive the cooling-off period?
Yes, by obtaining legal advice and asking your legal representative to sign a Section 66W certificate—but only do this if you have obtained finance approval and are satisfied with your inspections of the property.

Q5: How long is settlement after exchange?
The standard is 42 days (6 weeks), but this can be negotiated.

Q6: Are building and pest inspections mandatory?
No, but they’re strongly recommended before exchange or during cooling-off.

Q7: What’s the penalty if I terminate the contract during cooling-off?
You lose 0.25% of the purchase price, deducted from your deposit.