Exchange of contracts explained — when you become legally bound in NSW and Victoria

The short version

Exchange of contracts is the point at which the buyer and the seller are both legally bound to the sale. Each side signs a copy of the contract, the two copies are swapped, and the buyer pays the deposit — usually 10%. Before that moment, an agreed price and a handshake bind no one. After it, you own the deal: subject only to any cooling-off period or conditions written into the contract, you've committed to buy and the seller has committed to sell.

What actually happens at exchange

In a private-treaty sale, exchange has three parts. The seller signs their copy of the contract, the buyer signs theirs, and the two identical copies are then physically or electronically swapped — that swap is the "exchange". The buyer pays the deposit at the same time, into the agent's or the seller's solicitor's trust account. From that point a binding contract exists, dated as of the day of exchange.

In New South Wales the language of "exchange" is used every day and the mechanics above are the standard. In Victoria the same result is usually reached by the buyer signing the contract of sale first and the seller (the vendor) then signing and returning it — the binding moment is when both parties have signed and the buyer has been told the vendor has signed. The word "exchange" is used less, but the effect is the same: a signed, communicated contract on both sides is what binds you.

Nothing binds the seller before exchange

This is the part that catches buyers out. Agreeing a price, paying a small holding deposit, even receiving an email that says "congratulations, it's yours" — none of it stops the seller selling to someone else, because there is no contract yet. Being outbid in that gap is called gazumping, and a holding deposit does not prevent it. The only reliable defence is to reach exchange quickly, which usually means having your finance, deposit and contract review ready before you make an offer.

Exchange at auction is immediate

When you buy at auction, exchange happens on the spot. The winning bidder signs the contract and pays the deposit at the auction, and the sale is binding the moment the hammer falls — with no cooling-off period. There is no gap to be gazumped in, but there is also no way back out, which is why the contract has to be checked and the finance arranged before you bid. There's more in our guide on reviewing the contract before you bid.

Cooling off starts at exchange

For a private-treaty sale, the cooling-off clock starts running from exchange. In NSW that's five business days; in Victoria it's three clear business days. During that window you can pull out, though it usually costs a small forfeit. That right can be given away: in NSW a Section 66W certificate waives cooling off, and an unconditional contract has no exit at all. Read what you're signing before exchange, because after it your options narrow fast.

Exchange versus settlement

Exchange is not the day you get the keys. It's the day you become legally committed. The deposit is paid at exchange; the balance of the price is paid at settlement, which is typically several weeks later (six weeks is common in NSW, 30 to 90 days in Victoria, but the contract sets the date). Between the two, the contract is what governs the deal — which is why what's in it at exchange matters so much.

What to check before you exchange

1. The whole contract, not just the price. After exchange you're bound by every clause, so the special conditions, the settlement date and the disclosure documents all need reading first.
2. Your cooling-off position. Whether the contract keeps the standard cooling-off period, asks you to waive it with a 66W, or is unconditional.
3. Your finance. Unless the contract is genuinely subject to finance, exchange binds you whether or not your loan comes through.
4. The deposit. How much is due at exchange (10%, or a negotiated 5%), when, and how you'll pay it.
5. Who holds the deposit. It should go to a trust account, not straight to the seller, unless the contract clearly says otherwise.

Common questions

Am I locked in the moment I sign?

Not quite. In a NSW private sale, signing your copy isn't enough on its own — you're bound once the copies are exchanged. In Victoria you're bound once both parties have signed and you've been told the vendor has signed. In practice these happen close together, so treat signing as the point of no easy return and be sure of the contract first.

Can I still pull out after exchange?

Only if the contract gives you a way. A cooling-off period lets you rescind within the window for a small forfeit; a condition such as subject-to-finance may let you out if it isn't met. Beyond those, walking away after exchange usually means losing your deposit and risking further liability, so this isn't a decision to leave until after you've committed.

Does the seller have to go ahead once we've exchanged?

Yes. Exchange binds both sides. Once contracts are exchanged the seller can't accept a higher offer from someone else — that's exactly why exchanging quickly is the cure for gazumping. The obligations run in both directions from the moment of exchange.

Is exchange the same everywhere in Australia?

The idea — a binding contract on both sides, deposit paid — is national, but the terminology and the fine print differ by state. This guide covers NSW under the Conveyancing Act 1919 (NSW) and Victoria under the Sale of Land Act 1962 (Vic). If you're buying in another state, confirm the local process before you rely on any of the detail here.