Buying Property For Dummies Read online

  You offer $445,000. The vendor offers $450,000 — your initial price plan.

  5. You accept the price and the property is yours.

  A more complicated negotiation develops when other people are interested in the property, too. The agent is obliged to inform you if someone else puts in an offer that exceeds your own, although he doesn’t have to tell you how much the new offer is for. In that case, you need to put in your best offer and hope for the best.

  Negotiating doesn’t have to be fraught with difficulties. Follow these suggestions:

  Start negotiating by offering a realistic price that shows you’re serious about buying the property. If you offer too low a price, the selling agent may not pass on the offer to the vendor if the vendor has asked not to be told about offers below a certain price. Alternatively the vendor may come back with the original price. From your research into similar properties in the area (refer to Chapter 5), you have an idea of how much properties similar in size and condition are usually worth.

  Understand your position as the purchaser. When you begin negotiating a private treaty sale, you have no clear knowledge of how many other people are interested in the property and how much they’re prepared to pay. If the selling agent tells you they have a higher offer, you could ask to see it in writing but they aren’t legally obliged to show you.

  Negotiate with the agent. Even if you have an option to deal with the vendor rather than the agent, using the agent may better help your cause. Vendors can have unrealistically high expectations of what their property is worth, and their selling agent can give them guidance on whether they should concede a little in the money stakes.

  Stick to your plan. The art of negotiating includes working out a starting price and a finishing price. Be prepared to walk away if the vendor’s final offer isn’t acceptable to you.

  Beating down the price

  When you’re negotiating a price on a property, try to keep your enthusiasm for the property to yourself. Even when you’re very keen, maintaining a ‘take it or leave it’ approach is important, especially when you’re getting close to your top price.

  While you may find keeping your emotional attachment to a property in check a challenge (especially when your dreams already place you sipping a glass of wine beside ‘your’ fireplace), an agent who senses your enthusiasm may emphasise that many others are interested in the property in a bid to get you to offer a better price.

  You can withstand a ploy by the agent to get a better deal for the vendor when

  Your research on the area (refer to Chapter 5) gives you a fair idea of how much the property is worth. So, with this information at your fingertips, you can point out to the agent why the property isn’t worth more than you’re offering.

  You know how much you can afford to pay. Be prepared to walk away, reminding yourself that there will be other properties that will fit your criteria just as well.

  You may find that the agent comes after you suggesting that the vendor is considering the price after all.

  Some buyers are scathing about the faults and flaws with a property in an attempt to convince the agent, and the vendor, that the property is worth less than they hope to sell it for. There is nothing wrong with making the vendor aware that you know about the problems with their property and to give them the opportunity to adjust the price accordingly. But doing this to the point of rudeness is counterproductive. The vendor has a choice whether to accept an offer or not, and some vendors aren’t particularly keen to sell the home they’ve put years of hard work and love into to someone who clearly doesn’t appreciate the property.

  You can investigate how keen the vendor is to sell. Ask the selling agent the following questions:

  Why is the property on the market?

  Has the vendor already bought another property?

  Is the sale due to separation or divorce?

  Is the vendor in financial difficulty?

  Be clever about how you interpret the selling agent’s answers to these questions. For instance, be aware that you represent an opportunity for the agent to spin a story about how if you were to offer a certain amount, the vendor would probably accept the offer, and then use your firm offer as a platform to tell another buyer a similar story. Regardless, you may be able to ‘read’ the agent’s responses to get some idea as to the truth.

  Making an offer

  When you want to make an offer, in some states you need to put it in writing, often by filling out and signing a particular form. In New South Wales, Queensland and Victoria as well as the Northern Territory and the ACT, you can put in a verbal offer, but it will be taken more seriously if it is in a written form. If the vendor agrees to your offer and any conditions you put on it, in most states and territories you both sign and exchange the contract document and the agreement becomes legally binding (subject to a cooling-off period, which I discuss in detail in Chapter 13).

  Understanding the private lingo

  You may come across the term private sale rather than private treaty sale. A private sale is a sale that doesn’t involve a selling agent. However, many property advertisements use this two-word shorthand even if an agent is involved.

  You can be confident that a property is for sale by negotiation (private treaty sale) if the advertisement:

  Gives a single price rather than a range.

  Uses the words For Sale without a mention of an auction date and time.

  You follow the procedure set down in each state or territory:

  Australian Capital Territory: Buyers can make an offer verbally, unless the agent stipulates that it must be in writing. Agents may have a particular form, or may be happy with an email. Agents are legally obliged to communicate all offers to vendors, although the vendor can ask, in writing, not to be notified of offers below a certain price. When the vendor accepts the offer, she sends a contract and other documentation to a buyers’ solicitor. This contract becomes legally binding when it has been signed by both the buyer and the vendor and exchanged.

  New South Wales: Buyers can make offers verbally, via email or even write them on the back of a paper napkin, and agents are required to communicate all offers, unless the vendor stipulates that it has to be in a certain form, or above a certain amount. (The vendor can also ask not to receive any offers that contain certain conditions added by the purchaser, such as ‘subject to finance approval’.) However, the more serious the offer looks on your part the more seriously the vendor is likely to take it. An offer doesn’t become binding until both you and the vendor sign and exchange the contract after the vendor accepts your offer.

  Northern Territory: Buyers can make verbal offers, and all offers must be communicated to the vendor. But a vendor’s agreement to your offer is not legally binding until you both sign and exchange a Contract of Sale, available through the NT Department of Justice — Consumer Affairs.

  Queensland: Though verbal offers are possible, agents are only legally obliged to pass on written offers (in the form of a Contract of Sale) to vendors. When you make an offer, the selling agent provides you with a PAMD Form 27c Disclosure to Buyer and a Contract of Sale with a Warning Statement attached. This informs you of your rights under the contract, including when the cooling-off period starts and ends, and advises you to seek independent legal advice and a valuation before signing the contract. The form also provides special warnings with regard to house-and-land packages.

  Negotiations on price or terms and conditions can still take place after the initial offer is submitted to the seller for consideration, and buyers can choose to withdraw their offer at any stage before the seller signs the contract.

  South Australia: Buyers must submit a Contract Note, which includes their name and contact details, the offer amount, settlement date and any conditions, and is signed and dated. The offer is not legally binding until the vendor also signs the Contract Note.

  Tasmania: Buyers should make an offer in writing, generally using the Law Society/REIT (Real Estate In
stitute of Tasmania) Contract of Sale provided by the agent. You can also exercise your right to ask your lawyer to draw up your own offer document. The agent is morally obliged to pass on any offers, but may not do so if an offer is less than the amount stipulated by the vendor. The contract becomes legally binding when the vendor signs it to show he agrees to your offer price and your terms and conditions.

  Victoria: Buyers can make offers in verbal or written form. However, if you want the vendor to take your offer seriously, it helps to fill out, sign and submit the Contract of Sale available from the agent, as well as offer a deposit. The agent is legally obliged to pass on all offers, verbal or written, to the vendor, unless the vendor has given written instructions not to. The contract becomes legally binding when both parties sign and date the agreed price and any terms and conditions, and exchange the documents.

  Western Australia: Buyers must fill out and sign a Contract for the Sale of Land by Offer and Acceptance (‘O and A’) form to put in a written offer. The agent produces the necessary form when you suggest you would like to make an offer. The agent presents the offer to the seller and the seller may counter, accept or reject the offer. The real estate agent has an obligation to inform the seller about all offers, although the seller can decide whether she wants to be presented with them all. The offer becomes a legally binding contract when the vendor signs the O and A form to show she agrees to your offer price and your terms and conditions. There is no exchange of contracts.

  The agent can ask you to pay a holding deposit. This amount of money isn’t the same as the deposit paid when you exchange contracts (see Chapter 13 for more on contracts of sale). A holding deposit is a small amount of around $1,000 and, depending on what arrangement you and the vendor agree to, is ordinarily refundable if you don’t go ahead with the purchase within an agreed period of time.

  Paying a holding deposit isn’t common practice in all states, but it is a signal that you’re serious about a property. The seller may still consider other offers because placing a holding deposit doesn’t secure the property for you.

  The rules and procedures for putting in an offer may change. Please check with your state or territory Real Estate Institute or consumer affairs department for the latest rules.

  Putting conditions on your offer

  When you put in an offer in a private treaty sale, you have the opportunity to write conditions into the offer. If the stated conditions aren’t met, you can pull out of the sale.

  The following are some conditions that you might put in your offer to purchase:

  Making the purchase subject to whether you can get finance to purchase the property

  Making the purchase subject to a satisfactory building inspection report

  Stipulating a longer or shorter settlement period

  Stipulating a lower deposit amount (5 per cent rather than 10 per cent, for instance)

  Stipulating items of furniture or fittings to be included in the negotiated price

  Making your offer subject to conditions may give you a chance to pull out of the sale if you encounter problems, but the vendor isn’t obliged to accept your conditions. If you’re buying in a very heated market, and other buyers are as keen on the property as you are, the vendor may accept another offer with fewer conditions. Conditions are part of the negotiation process, just like price.

  If you’re very keen on a property and the vendor has particular needs — for a longer or shorter settlement, or even a larger deposit, for instance — you may be able to gain a more favourable position over another less flexible potential buyer if you can meet those needs.

  Put in an unconditional offer (an offer with no conditions of your own attached) if you’ve thoroughly checked out the property, you’re absolutely certain that you want it and you have the finance to pay for it. As soon as the vendor accepts the offer, you’re legally obliged to go through with the sale (subject to a cooling-off period where applicable — see Chapter 13).

  Understanding what happens after the vendor agrees to your offer

  After some to-ing and fro-ing, the day may come when the agent calls you to tell you that the vendor agrees to your last offer price. Or the agent may come back with a price from the vendor that you’re happy to agree to.

  As soon as you agree on an offer, you should ask the agent to call the vendor to come in to sign and exchange a contract of sale with you (see Chapter 13). At this point in the process, you can also negotiate further conditions that you want to write into the contract (remember, though, the vendor may not agree to them). You’re also required to hand over a cheque for a 10 per cent deposit or another amount that you’ve negotiated.

  Avoiding being ‘gazumped’

  Even if the seller accepts your offer, the agreement isn’t legally binding until you exchange signed contracts for that property with the vendor. Until this time, the vendor can accept a higher offer from another buyer. This process is called gazumping, and is a real problem in private treaty sales, especially in a heated market.

  Getting on with the exchange — quickly!

  Even though friends of mine carefully researched the auction processes, they didn’t pay much attention to what happens when you buy a property by private treaty sale. When they found a house that was advertised at a price that was well within their budget, the first mistake they made was to offer a higher price than the property was advertised for. That offer immediately signalled their keen interest in the property. Unsurprisingly, the vendor happily accepted their offer. That was when they made their second mistake. Instead of insisting the vendor meet them immediately to sign and exchange the contracts of sale, they signed a contract and handed over their deposit to the agent to pass on to the vendor. Later that day, the agent called to tell them that another buyer had put in a higher offer. My friends were not told how much the other offer was, but were told they could send in a sealed bid (a document containing the amount they were prepared to pay, sealed in an envelope), and the person with the highest bid would be able to buy the property.

  Without knowing what the other offer was, my friends panicked, thinking they could either lose the property with a bid of just a few hundred dollars less than the other party, or unnecessarily put in an overbid of thousands of dollars. Seeking advice from other friends, one recommended they seek the service of a buyers’ agent (an agent with expertise in buying and negotiating for property who acts solely for you, the buyer, rather than the selling agent). He met them at the real estate agent’s office, had some words with the agent and emerged to tell them a figure they ought to offer to secure the property. They made the offer and gratefully took possession of their new home 60 days later.

  To this day, my friends are unsure if another genuine buyer existed. But the agent certainly took advantage of their ignorance. The lesson: When the vendor accepts your offer, request the agent immediately arrange for you and the vendor to meet and sign on the dotted line and exchange contracts before another ‘buyer’ appears.

  Being gazumped can be very frustrating, and costly, if you’ve already incurred the expenses of carrying out a building inspection report and engaging a conveyance or solicitor, or if you’re very fond of the property.

  Avoid being gazumped by exchanging signed contracts with the vendor as soon as possible after you both agree to a price.

  Looking at Other Selling Methods

  The auction system (refer to Chapter 11) and sale by private treaty sale (see the section ‘Checking Out a Private Treaty Sale’ earlier in this chapter) are the most widely used ways of buying a property. In this section, I discuss two other ways in which properties can be put up for sale — sale by set date and sale by expression of interest. These methods have their own conventions, so if you’re not confident about how to go about putting in your offer, ask the real estate agent for guidance.

  Set sales

  A sale by set date (also known as a set sale) is part auction, part tender. This selling method advertises a property for sale
with a single price or price range, and a time and date by which a purchaser must make an offer. Unlike an auction, each buyer can put in just the one bid and doesn’t know what other potential purchasers are bidding.

  A sale by set date can benefit the vendor because this method concentrates the interest of buyers to a relatively short period — usually around four weeks — and ensures that buyers put in their highest possible bid in order not to miss out on the property. Critics of the system describe it as unfair to purchasers because they have just one chance to make an offer, and that a fear of missing out on the property can mean they pay more than they should.