Cooling Off Period in NSW — What Buyers Need to Know

How the cooling off period works

When you exchange contracts on a residential property in NSW, the cooling off period begins at the moment exchange occurs and ends at 5:00 pm on the fifth business day after exchange. Public holidays do not count as business days.

During the cooling off period, you can withdraw from the purchase by notifying the vendor's solicitor in writing. If you withdraw, the vendor keeps 0.25% of the purchase price from your initial deposit payment. For a $1 million property, this is $2,500.

The cooling off period applies to most residential properties in NSW. It does not apply to properties bought at auction, where exchange occurs under the hammer and the contract is immediately unconditional. It also does not apply if the buyer's solicitor gives a certificate under Section 66W of the Conveyancing Act waiving the cooling off period.

Using the cooling off period for due diligence

In practice, the cooling off period is used to complete key due diligence that was not possible before exchange. The most important steps are:

Building and pest inspection: a licensed building inspector will examine the structure, roof, sub-floor, and visible elements of the building for defects, rising damp, timber pest activity, and other issues. For units, this may be replaced or supplemented by a strata records inspection.

Finance confirmation: your lender will typically require a valuation before issuing formal approval. If the valuation comes in below the purchase price — sometimes called a "short val" — you may need to renegotiate, increase your deposit, or pull out.

Legal review: your solicitor reviews the draft contract for any unusual conditions, easements, encumbrances, caveats, or outstanding orders that were not apparent from the marketing material.

Note: starting building inspections and instructing your solicitor before exchange (in the pre-exchange period) is strongly advisable in competitive markets. Waiting until after exchange means you are already committed to the 0.25% penalty if you need to pull out.

Waiving the cooling off period

In competitive markets, vendors sometimes request or require buyers to waive the cooling off period as a condition of accepting an offer. Waiving the cooling off period is done via a Section 66W certificate signed by the buyer's solicitor — it means exchange is immediately unconditional, exactly as if you had bought at auction.

Waiving the cooling off period significantly increases your risk. If your finance is not fully approved, if the building inspection reveals unexpected defects, or if you simply change your mind, you have no easy exit. You would need to default on the contract, losing your full deposit (usually 10% of the purchase price) and exposing yourself to a claim for further damages by the vendor.

Solicitors are legally required to advise you of the risks before signing a 66W certificate. Only waive the cooling off period if your finance is unconditionally approved, your building inspection has been completed, your solicitor is satisfied with the legal due diligence, and you are certain you want to proceed.

Cooling off period at auction

Properties sold at auction have no cooling off period. Exchange occurs at the fall of the hammer, the contract is unconditional immediately, and the buyer typically pays a 10% deposit on the day. This means all due diligence must be completed before the auction.

For first home buyers bidding at auction, the standard pre-auction checklist is: building and pest inspection completed, finance unconditionally approved (or as close as possible), solicitor has reviewed the contract and cleared any concerns, and you have a clear maximum bid in mind and the discipline to stick to it.

If you are outbid at auction, your preparation costs (inspection fee, solicitor review fee) are unrecoverable. This is the cost of participating in auction markets in Sydney and should be budgeted as part of your property search costs.

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