Buying a home will probably be the most expensive thing you ever do, so it’s important to know as much about the process as you can. With so much to think about and so much money at stake, every decision counts.

Before you decide to buy a home it makes sense to take the time to look around and get to know the market. This will also help you understand how it all works so you can make a well informed decision when you find the property you want.

Paying an 'expression of interest'

Once you have made an offer on a property, you may be asked to pay an initial deposit. This won't mean that the property is yours or that it gets taken off the market. It only proves to the seller that your offer is serious. The seller or agent can take as many preliminary deposits as they like for the one property. However, when you pay this 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
• they will 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 a later offer on the same property.

It is important to remember that the agent selling the property is not working for you, the buyer, but for the seller.

Gazumping

Gazumping occurs when you have a verbal agreement with an agent or seller to buy a property at an agreed price; and you pay an 'expression of interest', but the property is not sold to you in the end.

Exchanging contracts

By law, a residential property cannot be put on the market until a sale contract has been drawn up. You have the right to examine the contract at any time during the buying process, even before you make an offer.

Exchanging sale contracts is the legal part of buying a home. Before exchange, the agreement is usually just verbal and not binding. Up until you exchange contracts both you and the vendor have the right to change your mind.

After you have discussed the contract with your solicitor or licensed conveyancer and all the proper inquiries have been made, you will be ready to exchange contracts. There will be two copies of the sale contract: one for you and one for the vendor. You each sign one copy before they are swapped or 'exchanged'. This can be done by hand or post and is usually arranged by your solicitor, conveyancer or the agent. If the agent is handling the exchange, you must expressly authorise them to do so.

At the time of the exchange you will be required to pay a deposit, usually 10% of the purchase price. Following exchange, you have a financial interest in the property so it's wise to get it insured.

Cooling-off period

When you buy a property in NSW there is a five business-day cooling-off period after you exchange contracts. During this period you have the option to get out of the contract as long as you give written notice. The cooling-off period starts as soon as you exchange and ends at 5pm on the fifth business day.

A cooling-off period does not apply if you buy a property at auction or exchange contracts on the same day as the auction after it is passed in.

You can waive the cooling-off period by giving the seller a '66W certificate'. This is a certificate that complies with Section 66W of the Conveyancing Act 1919. The certificate needs to be signed by your solicitor or conveyancer.

If you use your cooling-off rights and withdraw from the contract during the five business-day period, you will have to pay the seller 0.25% of the purchase price. This works out to be $250 for every $100,000.

Sometimes, there are more buyers looking for homes than there are properties on the market. This is called a sellers' market. In this case, you may want to organise a quick contract exchange. This way you can reduce the possibility of someone beating your offer and get your building and pest inspections done during the cooling-off period. You will still be able to back out if there is a problem.  However, it is important to have the contract checked by your solicitor or conveyancer before you sign it.

It is possible to waive, reduce or extend the cooling-off period with the consent of the seller. If your solicitor or conveyancer has examined certificates from the appropriate authorities, a pest and building inspection has been done and your finance has been approved, then deciding to waive the cooling-off period could make your offer more attractive to the seller.

Settlement

Settlement usually takes place about six weeks after contracts are exchanged. This is when you become the legal owner of the property. The balance of the purchase price and other adjustments are paid on this date.

Buying at auction

Buying at auction can be a nerve-racking experience so it’s a good idea to familiarise yourself with the process first. Go to our page on auctions for more information. Once you know what's involved, attend an auction or two as a spectator before you make your first bid.

In response to consumer concerns about the fairness of auctions, new auction laws were introduced in NSW on 1 September 2003 .

If you are thinking about buying a residential or rural property at auction you need to read the following information. It is also a good idea to attend an auction or two as a spectatator to familiarise yourself with the auction process.

Before the auction

It is important to have your solicitor or conveyancer examine the sale contract before the auction to make sure that everything is in order. It is also important to have your finance arranged and that you have made all the necessary quality inspections.

Take the time to find out what prices properties in the area have sold for, so you have a guide for the market value of the home you want.

If you want someone else to bid on your behalf, they must give the auctioneer a written authority from you, before the auction starts. The letter must include your name, address and details of proof of identity, such as your driver's license or passport number.

Register to bid

From 1 September 2003 , you will not be able to bid at an auction of residential and rural property in NSW unless you give the selling agent your name and address and show proof of your identity. Your details will be recorded by the agent in the Bidders Record and at the auction you will be given a bidder's number. Registering for an auction does not mean you must bid. Registering simply gives you the right to bid.

Agents are required to give all potential bidders a copy of a Bidder's guide fact sheet prior to the auction. The information contained in the fact sheet is listed below.

If you are bidding to buy the property jointly with another person, for example, a spouse or partner, only one of you needs to register.

You need to register if you are bidding for another person or a company, and you need to show the agent a letter of authority from them, authorising you to bid on their behalf. This also applies if you are bidding on behalf of someone on the telephone.

If you are bidding for another person:

• the letter of authority must include the person's name, address and the number on their proof of identity (eg, driver's licence or passport number)

If you are bidding for a company:

• the letter of authority must be on the company letterhead and the ABN will be recorded in the Bidders Record as the company’s proof of identity.

When to register

Your can register with the selling agent at any time prior to the auction, such as when you inspect the property, or on the day itself.

If you pre-register, you will need to show the agent your proof of identity on auction day. The agent will then give you your bidder's number.

What happens at registration

The agent will write your name, address and the number of your proof of identity in the Bidders Record and, if you are bidding for someone else or a company, their name, address and proof of identity details. The agent will then give you your bidder’s number, which you must display when you bid.

What kind of proof of identity is needed to register?

A card or document issued by government or a financial institution, and that shows your name and address. Here are some examples:

• Passport
• Driver’s licence or learner’s permit
• Senior’s Card
• Vehicle registration paper
• Council rates notice
• Centrelink card, etc

If you do not have this kind of proof of identity, you can use two documents that together, show your name and address. Here are some examples:

• One must show your name and be issued by a government or financial institution, for example:
  • Medicare card 
  • ATM card
  • Credit card or store card 
  • Birth certificate
  • Citizenship papers, etc
    
  and

• One must show your address, for example:
  • Utilities bill (eg gas, electricity, telephone)
  • Real estate rental agreement
  • Statutory declaration stating your address

Your privacy

The agent is not permitted to show the Bidders Record containing your details to anyone, including the property owner. Only an authorised person from the Office of Fair Trading is permitted to see the Bidders Record.

The agent must store the Bidders Record securely and cannot use the information it contains for any purpose.

What if you arrive late at the auction?

If you arrive after the auction has started and wish to bid, you will need to quickly find the agent and register or present your proof of identity, if you have pre-registered. It should only take a few moments for the agent to note your details and give you a bidder number.

If you need to make a bid immediately, hold up your hand to let the auctioneer know you are going to make a bid after you have registered. As soon as you have a bidder number, the auctioneer can accept your bids.

Reserve price

Before auctioning a property, the seller will nominate a 'reserve' price which is usually not told to the interested buyers. The reserve price is the lowest price that the seller is willing to accept. If the highest bid is below this price, the property will be 'passed in'. The seller will then either try and negotiate a price with interested bidders or put the property back on the market.

If the bidding continues beyond the reserve price, the property is sold at the fall of the hammer. If you are the successful buyer, you must then sign the sale contract and pay the deposit on the spot (usually 10%). Remember there is no cooling-off period if you buy at auction.

Dummy bidding

It is illegal to make 'dummy' bids at an auction.

The seller of the property is entitled to make one bid or have one bid made on their behalf. When the seller's bid is made the auctioneer must announce it. For this reason, the seller's bid can only be made with the auctioneer’s knowledge. Once this bid has been used, no more bids can be made by or for the seller.

If you make 'dummy' bids for the seller, you may be prosecuted and fined up to $22,000. The property seller who asked you to bid can also be fined up to $22,000, as can the agent and the auctioneer if they were involved in the arrangement.

Successful bidder

If you are the successful bidder, you must then sign the sale contract and pay the deposit on the spot. This is usually 10% of the purchase price. Remember, there is no cooling-off period when you buy at auction. If the property is passed in at auction but you end up exchanging contracts on that same day, the cooling-off period does not apply.

After the exchange of contracts, your solicitor or conveyancer will carry out various searches on the property prior to settlement. Your solicitor and the seller's legal representative will then arrange for settlement. You must pay the balance of the purchase price upon settlement.

Auction conditions

In NSW, auctions of residential and rural property are conducted under certain conditions that are set by law.

The auctioneer will have these conditions on display before the auction so that you can read them. The auction conditions include:

• the highest bidder is the purchaser, subject to any reserve price
• the property seller is entitled to one bid only
• before the auction, the auctioneer must announce if the seller has reserved the right to make a bid
• the auctioneer must announce when the seller's bid is made (if it is used)
• the auctioneer can refuse a bid that is not in the interests of the seller
• the auctioneer has no authority to accept a late bid, that is, a bid after the fall of the hammer
• if there is a disputed bid, the auctioneer is the sole arbitrator and makes the final decision
• the successful buyer's name must be given to the auctioneer as soon as possible
• it is an offence to collude with someone to interfere with free and open competition at the auction, for example, by arranging to make 'dummy' bids.
  
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