The NSW real estate market has been hitting record highs in the past two years. It has become one of the hottest markets in Australia as investors and buyers flock to the state in search of greener pastures and handsome returns.
This has affected the way most property buyers and sellers interact. Now, it’s not unusual for vendors and their agents to turn down an offer unless they’re presented with a Section 66W Certificate.
In today’s blog post, we’re going to look at what a Section 66W Certificate is and everything else you need to know to help you understand this document.
What is a Section 66W Certificate (S66w)?
A Section 66W Certificate is a legal document that helps a buyer waive their cooling-off period rights.
According to the Conveyancing Act 1919, all NSW property transactions in private treaty sales are subject to a 5-day cooling-off period once contracts are exchanged. But a Section 66W Certificate allows buyers to get into the contract unconditionally immediately after signing it.
Using this document makes sense when you’re in a competitive market and wish to beat other competing buyers. It helps you lock down the property and secure it for yourself.
Some vendors may also request that you provide a Section 66W Certificate to evaluate your level of commitment to the purchase. It makes your offer more attractive than when you have a cooling-off period that allows you to pull out of the contract.
What is included in a Section 66W Certificate?
For a Section 66W Certificate to be considered valid, it has to include the following contents:
- The legal practitioner, conveyancer, or solicitor’s name and their details, such as where they’re admitted to practice
- A reference to the names of the said property, the vendor, and the purchaser
- A statement that the legal practitioner is acting for the buyer, not the vendor
- A statement that the certificate has been provided in line with Section 66W of the Conveyancing Act 1919
- Confirmation that the buyer wishes to rescind the cooling-off period
- Confirmation that the legal practitioner has explained to the buyer the nature of the Section 66W Certificate and its effects on the contract of sale and the cooling-off period
How a Section 66W Certificate impacts the Buying Process
By obtaining a s66W certificate, you essentially waive your rights to a cooling off period. You must ensure that you’ve done your due diligence and have gotten your finance approval prior to exchanging contracts.
If you wish you terminate the contract while a s66W Certificate is present, then you will have to forfeit the 10% deposit in full.
A s66W Certificate speeds up the buying process, making it similar to an Auction sale.
Process of obtaining a Section 66W Certificate
A Section 66W Certificate is not signed by you. Instead, it’s signed by the conveyancer or solicitor acting on your behalf.
Once you’ve spoken to your solicitor and expressed your interest in locking down the property through a Section 66W Certificate, they need to confirm that you’re well prepared and in a position to legally commit to the purchase.
They’ll check whether you have obtained financing approval, conducted building and pest inspections, and understood the terms and conditions that come with the contract.
If you’ve taken these measures, they submit a signed Section 66W Certificate to the seller’s agent or solicitor.
[.callout]💡 First home buyers: beware of agents pushing for a Section 66W Certificate [.callout]
The vendor’s agent may push you to submit a Section 66W Certificate with your offer. But sometimes they don’t have the best intentions.
Some agents do that to lock you into the contract and ensure the sale goes through fast, therefore assuring their sales commission. Others do this to ensure you can’t back out of the contract even if you discover structural issues or serious pest infestations.
If you’re a first-time homebuyer, we generally advise that you steer clear of Section 66W Certificates. We’ve seen many cases where first-home buyers are being forced to make offers with a S66W Certificate.
Benefits & Risks of Using a Section 66W Certificate
A Section 66W Certificate has some good benefits and potential downsides as well. Let’s look at the benefits and risks associated with this document:
Benefits for property purchasers
1. Competitive Advantage over other buyers
A Section 66W Certificate works well when applied in a competitive market. If you’ve just found your dream property and you know that many other buyers are willing to make higher offers to outbid you, it makes sense to use a Section 66W Certificate to your advantage.
Since you’re waiving the cooling-off period, you come across as a serious buyer. This is especially attractive to a vendor hoping to make a quick sale.
2. Ability to fast track the property transaction
Vendors tend to react well to purchasers who present Section 66W Certificates since it gives them certainty that they’re ready to buy.
This allows the purchaser to fast-track the purchase of the property, which is important during time-sensitive situations.
3. Helping with negotiations
Since a Section 66W Certificate demonstrates to the seller that you’re willing to legally commit to the purchase, they become more open to negotiations. They become more inclined to accept terms that are favourable to the buyer.
For example, the seller may be persuaded to accept a lower purchase price or an extended settlement period in exchange for the certainty of exchanging contracts without a cooling-off period.
Potential Risks and Drawbacks for property purchasers
It’s without doubt that Section 66W Certificates also have some potential risks and drawbacks. They include:
1. Waiving the cooling-off period
While this can be seen as a benefit, it can also backfire.
Once you present a Section 66W Certificate, you waive the cooling off period alongside the benefits that come with it and commit to the sale unconditionally.
You risk committing to a property that may not be up to your standard. For example you’ve rushed into the property with a s66W and you’ve performed a building and pest inspection after settlement and find that your property is infested with termites. That will be a cost that you will need to front for repairs.
2. Not having your finances finalised
There is always a risk of not getting your finance approved by the bank. Whatever the reason is, you are still legally bound to the sale. By not getting your finance approved, you are at high risk of breaching the contract.
If you are unable to proceed with the sale because of finance approval, then you’ll have to forfeit the 10% deposit.
3. Costly penalties when backing out of the contract
If you pull out of the contract during a cooling-off period, you forfeit only 0.25%.
On the other hand, if you change your mind and wish to pull out of the sale after issuing this certificate, you’re liable for the full deposit (10% of the purchase price). On top of that, the purchaser may sue you for the difference between the original offer and the subsequent sale price.
For example, let’s assume the property’s purchase price is $1,000,000. If you pull out of the contract during a cooling-off period, you forfeit $2,500. As opposed to if you withdraw after submitting a Section 66W Certificate, you forfeit $100,000.
That’s a difference of an astonishing $97,500.
How to prepare for purchasing a property using a s66W certificate
To avoid the possible risks that might come after issuing a Section 66W Certificate, you must be well-prepared.
Ensure you do the following before exchanging contracts through a S66W Certificate:
- Get an unconditional financing approval
- Conduct due diligence on the property. For example, get a building and pest inspection report
- Have the contract reviewed by a property lawyer
- Deposit the available funds and learn about deposit rules
Once you’ve gone through these steps, talk to your solicitor to prepare the certificate. The solicitor will also sign the certificate and issue it to the vendor or the vendor’s agent.
Going through these steps in preparation will make the s66W process smoother and reduce a lot of stress for you.
Seek legal advice with Arver Law today
Sometimes, it’s necessary to act fast and get the property locked down based on the situation. But the seller’s agent could also be coercing you to submit a Section 66W Certificate so they can get their commission.
Working with a property lawyer will help you protect yourself in situations where the agent’s intentions aren’t clear. On top of that, if the situation is genuine, they’ll help you be well-prepared to avoid any potential risks and losing your hard-earned money.
Book a free consultation with Arver Law to see how a Section 66W Certificate can work for you, or feel free to call us on (02) 7806 0623.
