Contract of Sale: This term is common enough in the real estate industry, but how much do you really know about it? Let’s take some time to explore this subject in a little depth. Read on for a few answers to questions you may have regarding contracts of sale in the real estate market.
Contracts of sale are agreements in writing. That statement may seem obvious but it is possible for people to enter into some types of contracts on a verbal or a written basis. Verbal contracts are informal agreements and, in some business transactions, quite binding on both parties. In the real estate arena, however, the parties to transfers of property title must transform their verbal agreement’s terms and conditions into a written document.
Section 126 of the Instruments Act 1958 provides that any contract for the sale of real estate must appear:
- in writing
- signed by both parties to the contract, or
- signed by an authorised representative of the party charged.
What that means in practical terms is that a verbal contract for the sale of real estate is unenforceable under the law. Rather, the sale of real estate proceeds according to the terms and conditions of a Contract for Sale of Real Estate.
Who prepares the legal contract for sale? A lawyer or conveyancer generally prepares the contract of sale according to the terms and conditions agreeable to both parties and sets out the rules by which the sale will take place, including title transfer and settlement. Most conveyancers use the standard form Contract for Sale of Real Estate.
Whose lawyer draws up the Contract of Sale? The lawyer for either the buyer or seller in the sale may draw up the contract and the lawyer of the opposing party should review the document to ensure that the terms are in his client’s best interest. As a matter of common practice, the seller’s lawyer draws up the sales contract.
You said a lawyer usually draws up the contract for sale. Are other professionals authorised to draft the contract for sale? Yes. Both lawyers and conveyancers may draft contracts for sale of real estate.
We note that Estate Agents are not authorised to draft legal documents. (The Real Estate Institute of Victoria (REIV) is in open violation of this law when it supplies Estate Agents with draft “special conditions”. Use of the “special conditions” by Estate Agents is a criminal offense.) One exception is that Estate Agents may fill in the standard form sales contract which should then undergo review by a lawyer.
What is the standard form Contract for Sale of Real Estate? The standard form Contract for Sale of Real Estate has been in effect since October 1, 2008. The standard form contains all the standard terms and conditions pertaining to the sale of real estate and is useful for providing consistency within the industry. A review of the standard form contract will explain in detail the rights and responsibilities of the parties to the contract.
Is the sale of property ever final before the parties affix their signatures to the contract? Several rules apply to signing the contract for sale:
- no sale is final until both parties sign the written contract;
- the buyer should never sign a contract until the buyer’s lawyer or conveyancer has reviewed and approved the terms and conditions as they apply to the buyer’s situation; and
- once the parties sign the contract, no changes may happen unless agreed to in writing and signed by both parties.
So once the buyer signs the contract for sale, it’s final. What if the buyer changes his mind? That’s a great question. If buyer’s remorse sets in on a sale for a non-commercial property transfer, the law provides the buyer relief by way of a “cooling off” period. The three-day cooling off period begins on the day the buyer signs the contract for sale, even if the seller signs later.
The three-day cooling off period does not apply to:
- sales within three business days before or after a publicly advertised auction;
- a buyer who is an estate agent or a company;
- sales where the parties entered into the sale of the same property before under similar circumstances; or
- sales for land used for commercial or industrial purposes or land greater than 20 hectares primarily for farming.
The cooling off period’s intent is to help the buyer when he makes a mistake. Buyers should never plan to use a cooling off period; it’s not a sales option. It’s far better for the buyer to conduct the appropriate research on the property, including property inspections by a professional inspection company. The prudent buyer also will obtain financing, and pursue their conveyancer’s review of the contract’s terms and conditions – all before they sign on the dotted line. Following these simple rules will eliminate the need for a cooling off period except where the buyer is wrongfully enticed into the contract by a deceiving seller.
Our final word: Caveat Emptor. The old maxim “Let the buyer beware” applies to real estate transactions. Remember that contracts for sale of real estate are generally drawn in the seller’s favour. That’s why it’s important that the buyer’s conveyancer reviews the terms and conditions with an eye toward what is best for the buyer. The conveyancer’s industry experience will tell him whether the estate agent’s “special conditions” are unfavorable to you.
Read to sign a contract but haven’t had it review yet? We can help with that.