A contract ripped in half

Australia is home to one of the most thriving real estate markets on the planet – aspiring homeowners and investors alike are jumping in, eager to take advantage of the  prospects. Even with the current market slowdown, there is no shortage of interested property buyers.

That said, sometimes mistakes are made. Overeager would-be investors or homeowners end up signing something they later regret, or circumstances change overnight and the property's location is no longer ideal.

Simply having second thoughts about the property is not typically a justifiable reason for you to get cold feet and cancel your contract. Not only will this cost you but it may also lead to a lawsuit, especially if you put your seller at a great inconvenience.

However, there are instances when you can successfully opt out of your contract. First, though, it's important to know what you're getting into.

The cooling-off period
Private home sales typically have contracts which indicate cooling-off periods. This clause can be discussed and agreed upon by both parties. However, different states have different legislations surrounding cooling-off periods and financial penalties for cancelling sales contracts.

For example, buyers in Queensland and New South Wales have five business days after the exchange of contract to sign the deal. This period of time is the cooling-off period. Once the time lapses and the buyer decides not to push through, the seller is entitled to a penalty of 0.25% of the purchase price. Remember, you should use your cooling-off period to discuss any certain clauses that you want to add to or remove from the contract your conveyancer and your seller.

Check with your local real estate institutes and law societies' to know more about their particular rules with regards to cooling-off periods.

Playing your contingency cards
Assuming that you already inked the contract, there are other problems that may arise.

Backing out after signing a real estate deal is sometimes caused by denied home loan applications. This is one of the most common issues buyers face when entering a real estate contract. The work-around here is obtaining a pre-approval with your lender -- this way, you are increasing your chances of getting your application approved.

Other issues that could lead you to terminate the contract may arise from inspections. For instance, if your property inspector finds that the house needed major repairs that would cost significantly, then you can discuss with your solicitor or conveyancer on how you can terminate your deal. Another example is when your inspector uncovers pest infestation or poor quality of foundation. In such cases, it is important that you fully understand the conditions stated in your contract. If you wish to pursue buying the property, you might want to renegotiate the price with your seller.

Dealing with buyer's remorse
The sense of regret after buying something, be it the latest phone or a new pair of jeans, is usually because of fear of making the wrong decision. Most property buyers feel the same way, particularly first-timers.

Typically, property buyers deal with remorse after discussing their purchase with family and friends who would often question their decisions. While it is not necessarily bad to ask other parties regarding your choices, it is best to stand your ground and know how to weigh their inputs. You should not be easily swayed by others' opinion, especially those of someone who may not necessarily know the ins and outs of the market. Talk to your real estate agent should you encounter any problems.

Another common reason for buyer's remorse is your continuous search for other properties even after signing a purchase contract. You will always assume that there are better choices if you keep looking. As you continue searching through listings, you might overlook properties which would turn out to be the best fit to your standards.

Knowing what the contract contains
A sales contract is an essential part of any real estate transaction, whether you are buying a property for an investment or as a new place to lay your head.

The contract contains all the relevant information about the transaction, including the price of the property, the settlement and cooling-off periods, and all pertinent attachments such as zoning and property certificates and home warranty certifications.

This document also puts into detail several conditions which are agreed upon by the buyer and the seller. We'll skip the details now, but if you're interested in the nitty-gritty of sales contracts, they can be found in our home loan guide on the topic we have an entire article dedicated to it.

Settlement and the non-refundability period
Most contracts contain a clause indicating the non-refundability of the initial deposit should you fail to settle within a given period of time. This time frame, known as the settlement period, begins on the day the contract is signed by both parties and can range from two weeks up to three months. As each state has different rules and regulations regarding settlement, it's best to see our in-depth article on the process.

Before signing, make sure that you and your seller agree to any clauses that will be listed. Don't be afraid to seek legal help if necessary – no one wants to face a lawsuit for breaking a sale if it's possible to avoid.

Seeking professional help
The best thing to do in every part of the home buying process is to consult a legal professional. Have the contract closely checked by a legal advisor to make sure your interests are protected.

There are also plenty of real estate organizations which can help you in your home buying process. They can also help in determining possible solutions to immediate problems so you would not have to break your contract.