Cooling-off period changes in Victoria could lead to duplicitous buyer strategies
On March 1 (last week) the cooling off laws were amended so that now almost all purchases, except those transacted three days either side of an auction, are subject to a cooling-off period. Previously agents could remove the purchaser’s ability to end a contract within three business days of signing by forcing them to seek legal advice prior to making an offer.
Will this amendment have any material effect on the upper end market?
It might. What’s likely is that we’ll see fewer agents considering offers that come in well before auction day, and agents busier than ever before on the three days just before and after the auction when an agreement can be locked in with more certainty.
We may also see less of the early auction ring-around with a good offer. Let’s say an agent receives a $3,5 million offer in writing on a $3 million home three weeks before the auction. Why would the agent do the ring-around to other buyers, potentially scaring them away from the home at $3. 5million if there was a possibility that the $3.5 million buyer might exercise his right to cool off? That would significantly affect the auction momentum. What’s more likely now is that the seller will simply accept the $3.5 million, wait till the cooling off is over and then tell other buyers the deal is done – perhaps creating more heat between selling agent and buyers.
Alternatively, there may now be a potentially acceptable buyer strategy where the buyer makes a high offer, then takes advantage of the protection of the cooling-off period to end the contract and then come in later at a lower amount and perhaps under another name – having seriously disrupted the sale process.
What about a boardroom auction? Does this qualify as a publicly advertised auction in all cases with regards to cooling off? What is the definition of publicly advertised? We are looking forward to a clarification on this from the REIV and the government.
Cooling off raises other issues, too – especially if you are involved in long negotiations. What most people don’t realise is that your cooling-off period begins when you make an offer, not when agreement is reached with the seller. So if the negotiating process takes longer than three business days, you will have lost your cooling-off period. There are also some other tricky issues re forfeiture of monies, and the actual process of claiming cooling off. So get some legal or buying agent advice before relying on it as a strategy.
Personally we think you are unwise to use cooling-off as a strategy in negotiation. We as an organisation do not use it as a negotiating strategy. Our strong recommendation is that you do all your due diligence prior to signing.
Mal James is principal of James Buyer Advocates, which advocates on behalf of buyers of property over $1 million. Mal writes weekly auction reports, advice and in-depth market analysis on James' website.