Exchange of Contracts Explained: What It Means When Buying Property in Australia

The exchange of contracts is one of the most important moments in any Australian property transaction. It is the point at which the deal becomes legally binding — both the buyer and the vendor are committed to completing the sale. Yet many buyers, particularly first-timers, are unclear on exactly what exchange means, what obligations it creates, and what happens between exchange and settlement. This guide explains the entire exchange process, including state-by-state variations, your cooling-off rights, and the consequences of pulling out after exchange.

What Does Exchange of Contracts Mean?

Exchange of contracts is the formal step where the buyer and vendor each sign identical copies of the contract of sale, and these signed copies are swapped (or "exchanged"). Once exchange occurs, both parties are legally bound to complete the transaction on the agreed terms — including the purchase price, settlement date, and any special conditions.

In practical terms, exchange is the moment the deal moves from negotiation to commitment. Before exchange, either party can walk away without penalty. After exchange, walking away carries serious legal and financial consequences.

What Happens at Exchange

The exchange process involves several key steps that happen simultaneously or in quick succession:

Cooling-Off Period After Exchange

In most Australian states, the buyer has a short cooling-off period after exchange during which they can withdraw from the contract, usually by paying a small penalty (typically 0.25% of the purchase price). The length of the cooling-off period varies by state:

Cooling-off does not apply to auction purchases or where the buyer has waived the period with a solicitor's certificate. For a full breakdown, see our complete guide to cooling-off periods.

Your Obligations After Exchange

Once contracts are exchanged and the cooling-off period has expired (or been waived), both parties have binding legal obligations:

Buyer's Obligations

• Pay the balance of the purchase price on settlement day
• Satisfy any subject-to conditions within the agreed timeframes (e.g., obtaining finance approval within 14-21 days)
• Arrange building insurance from exchange (in some states, risk passes to the buyer at exchange)
• Attend the pre-settlement inspection
• Complete settlement on the agreed date

Vendor's Obligations

• Deliver the property in substantially the same condition as at exchange
• Ensure all inclusions listed in the contract remain with the property
• Discharge any existing mortgage on the property at settlement
• Provide clear title free of undisclosed encumbrances
• Vacate the property by settlement day (unless otherwise agreed)

Exchange vs Settlement: What Is the Difference?

Exchange and settlement are two distinct stages separated by a period of weeks:

• Exchange is when the contract becomes binding. The buyer pays the deposit and both parties are committed.
• Settlement is when the transaction is completed. The buyer pays the remaining purchase price, the title transfers, and the buyer receives the keys.

The period between exchange and settlement is typically 30-42 days (though it can be negotiated to be shorter or longer). During this time, the buyer's conveyancer conducts searches, the buyer finalises their finance, and both parties prepare for the handover. For full details on what happens during this period, see our guide to the settlement process.

State-by-State Exchange Variations

The mechanics of exchange differ slightly between states:

NSW: Counterpart Exchange

In NSW, the buyer and vendor each sign separate but identical copies of the contract. Exchange occurs when these signed counterparts are swapped between the parties' solicitors. This is the classic "exchange of counterparts" system. The vendor must attach a Section 149 planning certificate and other prescribed documents to the contract before exchange.

QLD: Single Contract System

Queensland uses a different approach. Instead of two counterpart contracts, there is a single contract document. The buyer signs first and presents it to the vendor. If the vendor countersigns, the contract is formed. There is no physical "exchange" of two copies — the contract is binding when the vendor signs and the buyer is notified.

VIC: Section 32 Vendor's Statement

In Victoria, the vendor must provide a Section 32 vendor's statement before the buyer signs the contract. This document discloses key information about the property, including title details, planning restrictions, building permits, and any notices or orders. Exchange occurs when signed counterparts are swapped, similar to NSW.

Other States

WA, SA, TAS, ACT, and NT each have their own standard contract forms and exchange procedures. The fundamental concept is the same — both parties sign, and the contract becomes binding — but the specific documents required and the manner of exchange may differ. Always consult a local conveyancer or solicitor who understands your state's requirements.

Can You Pull Out After Exchange?

Pulling out of a property contract after exchange is possible but carries significant consequences:

• During cooling-off: You can withdraw by paying the prescribed penalty (usually 0.25% of the purchase price). Your deposit minus the penalty is refunded.
• After cooling-off (conditional contract): If the contract has subject-to clauses that have not yet been satisfied (e.g., finance was not approved), you may be able to terminate under that condition without penalty.
• After cooling-off (unconditional contract): Withdrawing from an unconditional contract is a breach. The vendor can keep your entire deposit (often 10% of the purchase price) and may sue you for additional damages if they sell the property for less than your agreed price.

Use Realestate Lens AI contract analysis to understand the specific termination clauses in your contract.

Timeline: Exchange to Settlement

Here is a typical timeline of events between exchange and settlement:

Disclaimer: This article provides general information only and does not constitute legal advice. Property law varies between Australian states and territories. Always consult a qualified solicitor or conveyancer before signing a contract of sale.