14 Red Flags in a Property Contract That Could Cost You Thousands

Picture this: you've spent months searching, attended dozens of open homes, and finally had your offer accepted on a property you love. The contract lands in your inbox. It's 40 pages of dense legal language. You skim it, trust that everything looks "standard," and sign on the dotted line. Six months later, you're staring at a $15,000 bill for a swimming pool fence that doesn't meet compliance — and the contract you signed made it entirely your problem.

It happens more often than you'd think. Property contracts in Australia are legally binding documents, and vendors (or their lawyers) draft them to protect the seller's interests — not yours. Every clause, every special condition, and every exclusion has been placed there deliberately. The question is whether it's been placed there fairly.

The good news? Most contract red flags follow predictable patterns. Once you know what to look for, you can spot them before they cost you money. Here are the 14 warning signs that should make you pause before signing any property contract in Australia.

The 14 Red Flags Every Buyer Should Know

1. Unusually High Penalty Interest Rate

Most contracts include a penalty interest clause that kicks in if settlement is delayed. A rate around 10% per annum is fairly standard across Australia. When you see a rate above 14%, that's a red flag.

Why it matters: If anything delays your settlement — even a minor bank processing hold or a public holiday falling at the wrong time — you could be paying hundreds of dollars per day in penalty interest. On a $700,000 property at 18% per annum, that's roughly $345 per day. A one-week delay costs you over $2,400, and you'll have almost no room to negotiate once the contract is signed.

What to do: Ask your conveyancer or solicitor to negotiate the penalty rate down to something reasonable — typically between 8% and 12%. If the vendor refuses to budge from an unusually high rate, treat that as a warning sign about how they might handle the rest of the transaction.

2. No Subject-to-Finance Clause

A subject-to-finance clause gives you a defined period (usually 14 to 21 days) to secure formal loan approval. Without it, the contract is unconditional on finance — meaning you're legally committed to buying the property whether or not your bank comes through.

Why it matters: If your loan falls through and there's no finance clause, you could lose your entire deposit (typically 10% of the purchase price) and potentially face legal action from the vendor for breach of contract. On a $600,000 property, that's $60,000 at risk because of a missing clause.

What to do: Unless you've already received unconditional loan approval in writing from your lender, always insist on a subject-to-finance clause. Be specific about the amount, the lender, and the timeframe. Pre-approval is not the same as formal approval — don't let anyone tell you otherwise.

3. Vendor Warranty Exclusions and "As Is" Clauses

Watch for clauses where the vendor disclaims responsibility for the property's condition. Phrases like "sold as is," "the purchaser acknowledges they have not relied on any representation," or "the vendor makes no warranty regarding the condition of the property" should raise immediate concerns.

Why it matters: These clauses are designed to shut down your ability to claim against the vendor if you discover defects after settlement. Structural cracks, faulty plumbing, a leaking roof — if the contract says "as is" and you didn't do proper inspections, you're likely on your own. Repair costs for serious structural issues can easily reach $50,000 or more.

What to do: Never accept broad "as is" clauses without first completing thorough building and pest inspections. If the vendor insists on selling "as is," ask why. Sometimes it's legitimate (deceased estates, for example), but often it's a sign they know about problems they'd rather not disclose.

4. Missing or Incomplete Section 32 (Vendor Statement)

In Victoria, the vendor must provide a Section 32 Vendor Statement before you sign the contract. Other states have equivalent disclosure requirements. This document must include title details, planning overlays, easements, covenants, owner-builder information, and any notices that affect the property.

Why it matters: A defective or incomplete Section 32 can actually give you the right to withdraw from the contract — but only if you spot the problem in time. More importantly, missing information might mean you don't know about a planned freeway through the back fence, a heritage overlay that prevents renovations, or an easement that runs through your dream extension.

What to do: Have your conveyancer review the Section 32 before you sign anything. Check that every required attachment is present and current. If information is missing, request it in writing before proceeding. Don't accept verbal assurances — everything needs to be documented.

5. No Building and Pest Inspection Clause

Some contracts, particularly those drafted by the vendor's solicitor, won't include a subject-to-building-and-pest-inspection clause. Without it, you have no contractual right to pull out if the inspection reveals major problems.

Why it matters: A building inspection might uncover termite damage, asbestos, cracked foundations, or major electrical faults. Without a clause that lets you exit the contract based on inspection results, you're stuck buying a property with potentially tens of thousands of dollars in hidden repair costs. Termite damage alone averages around $10,000 to fix, but can run well beyond $100,000 for severe infestations.

What to do: Always include a building and pest inspection clause with a reasonable timeframe (usually 7 to 14 days from signing). Make sure the clause clearly states you can rescind the contract if the inspection reveals defects that are unacceptable to you. Be specific about what constitutes a valid reason to withdraw.

6. Early Deposit Release to the Vendor

Standard practice is for your deposit to be held in a trust account — usually the real estate agent's or the vendor's solicitor's — until settlement. Some contracts include a clause allowing the vendor to access your deposit before settlement occurs.

Why it matters: If the vendor receives your deposit early and then can't complete the sale (financial trouble, disputes, or they simply change their mind), getting your money back becomes a legal battle. You could be waiting months or even years, with legal costs piling up. In worst-case scenarios involving insolvent vendors, you may never recover the full amount.

What to do: Unless there are exceptional circumstances, never agree to early release of the deposit. Your deposit should remain in a controlled trust account until settlement is completed. If the vendor insists on early release, ask your solicitor to push back firmly.

7. Unreasonable Special Conditions Favouring the Vendor

Special conditions are additional clauses added to the standard contract. While both parties can add conditions, vendor-favourable conditions sometimes creep in that give the seller unusual powers — like the right to extend settlement indefinitely, the right to continue showing the property after the contract is signed, or the ability to terminate the contract under vaguely defined circumstances.

Why it matters: One-sided special conditions can leave you locked into a contract where the vendor holds all the cards. You might be unable to move forward with your own property sale, miss out on interest rate lock periods, or find yourself in legal limbo while the vendor decides what they want to do.

What to do: Read every special condition carefully and ask your solicitor to explain any that seem unusual. If a condition only benefits the vendor, push to have it amended or removed. Every special condition should represent a fair balance between both parties.

8. Sunset Clause Favouring the Developer

Sunset clauses in off-the-plan contracts set a deadline by which the development must be completed. If the project isn't finished by that date, the contract can be terminated. In theory, this protects buyers. In practice, some developers have used sunset clauses to deliberately delay projects, cancel contracts, and resell at higher prices.

Why it matters: Imagine waiting three years for your off-the-plan apartment, only to have the developer trigger the sunset clause so they can sell your unit to someone willing to pay $100,000 more. Several Australian states have now introduced legislation to limit this behaviour, but the protections vary and older contracts may not be covered.

What to do: Check the sunset clause carefully. Ensure the clause requires the developer to obtain your written consent before exercising the sunset clause to terminate (this is now required by law in Victoria and NSW for contracts entered into after their respective reform dates). For off-the-plan purchases, get independent legal advice — don't rely on the developer's solicitor.

9. Incorrect Property or Party Details

This sounds basic, but errors in the contract are more common than you'd expect. Wrong lot numbers, misspelled names, incorrect property addresses, or mismatched title references can all appear in a contract of sale.

Why it matters: At best, errors cause settlement delays while corrections are made. At worst, you could end up in a contract that's technically for a different property or that's unenforceable because the parties aren't correctly identified. Title issues discovered after settlement can cost thousands in legal fees to resolve, and in extreme cases, may affect your ownership rights.

What to do: Verify every detail personally. Check the property address, lot and plan numbers, title reference, and the full legal names of all parties. Cross-reference the contract details against the certificate of title. Don't assume someone else has checked — make it your responsibility.

10. No Cooling-Off Period (Auction Purchases Without Pre-Review)

When you buy at auction in most Australian states, there is no cooling-off period. The fall of the hammer creates a binding, unconditional contract. If you haven't reviewed the contract before auction day, you're committing to a legally binding purchase with no safety net.

Why it matters: Without a cooling-off period, you can't withdraw if you discover a problem with the contract, the Section 32, or the property itself. You're locked in. If you can't settle, you'll lose your deposit and potentially face damages claims from the vendor. This is one of the most expensive mistakes buyers make, particularly first-time buyers who don't understand that auction purchases work differently from private sales.

What to do: If you plan to bid at auction, review the contract of sale and the Section 32 (or equivalent disclosure document) at least a week before auction day. Have your solicitor or conveyancer review them too. Complete your due diligence — inspections, finance, strata searches — before you raise your hand. By the time the auction starts, you should be comfortable buying the property unconditionally.

11. Hidden Fees Charged to the Buyer

Some contracts include clauses that shift costs traditionally borne by the vendor onto the buyer. These might include preparation costs for the contract, the vendor's legal fees, adjustment calculations that favour the seller, or nomination fees if you want to change the purchasing entity before settlement.

Why it matters: These costs add up quickly. A $2,000 to $5,000 contract preparation fee, combined with unfavourable adjustments for rates and water, can add thousands to your purchase cost that you didn't budget for. In some off-the-plan contracts, buyers have been charged for marketing levies, defect rectification funds, or community management setup costs.

What to do: Check every clause that mentions costs, fees, or adjustments. Ask your conveyancer to prepare a full breakdown of all costs you'll be responsible for under the contract. If you spot fees that seem unusual or unfair, negotiate to have them removed or reduced before signing.

12. Vague Settlement Terms or No Settlement Date

A clear settlement date gives both parties certainty and allows you to plan your move, arrange removalists, and coordinate with your lender. Vague settlement terms — like "within a reasonable time" or "at a date to be agreed" — leave you in limbo.

Why it matters: Without a fixed settlement date, you can't lock in a moving date, your lender may not be able to finalise your loan documentation, and you could end up paying rent and mortgage simultaneously if the timing goes wrong. In the worst case, vague settlement terms can lead to disputes about whether either party has actually breached the contract, triggering expensive legal proceedings.

What to do: Insist on a specific settlement date in the contract, typically 30, 60, or 90 days from the contract date. Make sure both parties understand and agree to the timeline. If there's a reason the settlement date can't be fixed (for example, an off-the-plan purchase), ensure the contract includes clear mechanisms for determining the date and adequate notice requirements.

13. Owner-Builder Works Without Permits

If the vendor has done renovation or building work as an owner-builder, the contract should disclose this. Check whether the work was done with proper council permits and whether a certificate of final inspection or occupancy permit was issued.

Why it matters: Unpermitted building work is a liability that transfers to you on settlement. Council can require you to retrospectively apply for permits, modify the work to meet current building codes, or in extreme cases, demolish non-compliant structures. The costs of rectifying unpermitted owner-builder work regularly exceed $30,000 and can reach six figures if structural work is involved. Your insurer may also refuse to cover damage related to unpermitted work.

What to do: Check the Section 32 or disclosure documents for any owner-builder declarations. Ask for copies of all building permits and final inspection certificates for any renovation work. If permits are missing, get a building inspection specifically focused on the unpermitted work, and factor the cost of bringing it to compliance into your purchase decision.

14. Swimming Pool Non-Compliance Transferred to Buyer

Properties with swimming pools or spas must comply with state-specific safety barrier requirements. Some contracts include clauses that transfer responsibility for pool compliance from the vendor to the buyer — meaning any fencing, gate, or barrier upgrades become your problem after settlement.

Why it matters: Bringing a non-compliant pool up to current safety standards can cost anywhere from $5,000 for minor fencing upgrades to $20,000 or more for a complete barrier replacement. Beyond the cost, non-compliant pools are a serious safety hazard and a legal liability. If someone is injured due to a non-compliant pool on your property, you could face significant legal consequences, even if you've only just moved in.

What to do: Before signing, request evidence of current pool compliance — specifically a valid pool safety certificate or equivalent under your state's legislation. If the pool is non-compliant, either negotiate for the vendor to bring it up to standard before settlement, or negotiate a price reduction that covers the full cost of compliance work. Never accept a blanket transfer of pool compliance obligations without understanding exactly what work is needed and what it will cost.

Key Takeaways

Don't assume any contract is "standard." Every contract is drafted to favour the party that prepared it. In most property transactions, that's the vendor's solicitor. Your job is to identify the clauses that shift too much risk onto you and push back before signing.

Get professional advice before you sign, not after. A conveyancer or property solicitor will review the contract for a few hundred dollars. That's a fraction of what it costs to deal with a problem you didn't spot.

Everything is negotiable until the contract is signed. Penalty interest rates, special conditions, settlement dates, inspection clauses — all of these can be amended. Vendors expect negotiation. Don't be afraid to ask for changes that protect your interests.

Pay special attention to what's missing. Sometimes the biggest red flag isn't what's in the contract — it's what's been left out. No finance clause, no inspection clause, no clear settlement date. Omissions can be just as costly as unfavourable inclusions.

Auction purchases require extra preparation. If you're buying at auction, you lose most of your safety nets. Do all your due diligence before auction day, because once the hammer falls, you're committed.

The right contract protects both parties and gives everyone a clear path to settlement. If the contract in front of you doesn't do that, it's worth asking why — and making changes before you sign.