Buying Property For Dummies Read online

  During the set period, buyers give the agent a formal expression of interest in a sealed envelope. At the end of the sale period the agent gives all the offers to the vendor. The vendor can accept the highest offer or, if none meets his expectations, he can ask one of the prospective buyers to negotiate a higher price. He can also re-list the property for another set period, stage an auction (refer to Chapter 11) or list it for private treaty sale (refer to the earlier section ‘Checking Out a Private Treaty Sale’).

  If you’re a purchaser interested in a property for sale by set date, you can put in your best offer based on the advertised price and wait to see if you’re successful. Don’t go above your maximum limit: You may well end up with the property, though at a higher price than it is worth, and with a long time to regret your rashness.

  Expressions of interest

  A sale by expression of interest is often used by vendors who want to be discreet about the fact that they are selling their home, or who may want to get a sense of the market interest in their property without going through the auction experience. The vendor gives no fixed price. Instead, buyers are asked to name their price based on what the property is worth to them. The sale may occur within a set period, or the process may run until the vendor chooses to accept an offer or take the property off the market. After making your offer, as with a private sale, you may be invited to make a further ‘best offer’ or even to go into a ‘boardroom auction’ to compete with others who have made an offer.

  Proponents of this selling method say it focuses a buyer’s attention on the positive attributes of a property, which encourages the buyer to name a personal-value price, instead of focusing on the property’s negative attributes in order to reduce the advertised price.

  An expression of interest sale comes with few rules, and even though you may have the chance to make a higher offer, knowing how big to make your offer to secure the property can be difficult. In order to maximise your chance of buying well in this situation, it helps to have a very clear and well-researched idea of the likely value of the home.

  Chapter 13

  Sold to the Highest Bidder! Now What?

  In This Chapter

  Signing the contract

  Finalising your loan approval

  Checking the home’s true value

  Making the property yours

  Arranging insurance

  Buying a property is a major legal transaction and is subject to a series of regulations and requirements — and some pretty impressive paperwork. After a vendor accepts your offer, or yours is the winning bid at an auction, you need to carry out a few final steps before you’re ready to break open the champagne.

  In this chapter, I take you through signing and exchanging the contract of sale (the document that covers the actual purchase) and handing over the deposit. And, before you carve your signature in stone on this document, you need to make sure your chosen lender is actually happy to lend on the specific property you finally choose. (Occasionally, a lender may not be as convinced about the value of your choice as you are.)

  I cover the processes pre and post settlement (the day the property becomes yours), handing over the cheque to the vendor, and getting the keys of your new home into your own hands. I also look at why insuring perhaps the biggest asset you may ever own from the day it becomes yours (settlement day) is so important.

  Signing on the Dotted Line

  Whether you purchase your property at an auction (refer to Chapter 11) or through a private treaty sale (refer to Chapter 12), in order to finalise the sale, you need to sign and exchange a contract of sale.

  A contract of sale is a legal document that sets out the terms and conditions of the sale. A contract of sale must include

  A copy of the title documents (which records information about the ownership of the property, its boundaries and any caveat on the property). A caveat is a ‘tag’ on the title of the property that indicates someone other than yourself and your lender has an ownership stake in the property, perhaps because of an unpaid debt.

  A zoning certificate (which explains the uses a property can be put to).

  Any council restrictions on the use of the property.

  Items such as floor coverings, curtains or other fittings that are either included or excluded in the contract.

  The deposit you’re expected to pay.

  The purchase price.

  The settlement period (the nominated time between signing and exchanging your contract and getting those precious keys into your own eager hands).

  Understanding the contract of sale document requires an attention to detail and knowledge of contract and property law that few people acquire outside of law school. Unless you’re prepared to carry the responsibility — legally and financially — your best advice is to get your solicitor or conveyancer to look over the document to make sure every clause and condition is as it should be.

  Knowing what to look for in a contract of sale

  You can request a copy of the contract of sale for any property you’re keen on from the selling agent. But when you’re sure you’ve found the property you definitely want to purchase, the questions you need to ask (and that your solicitor or conveyancer checks) when assessing the information contained in the contract include the following:

  Is the property described in the contract the same as the one you’re planning to buy?

  Are the property boundaries correct — is the building well inside the boundaries?

  Do any restrictions or caveats apply to the property that may prevent you making renovations or improvements in the future?

  Are any items not mentioned in the contract that you believe should be included in the purchase?

  Don’t presume that everything you see within and without the property is to be included in the transfer on settlement (for more information about the settlement process, see the section ‘Settling on Your Property’ later in this chapter). The general rule to be aware of is that any items attached and integral to the building, such as a hot-water system and fixed carpets, are automatically included. Other items such as curtains and blinds, light fittings, washing machines and even a dishwasher need to be specifically mentioned in the contract to ensure inclusion.

  Making special conditions on the contract

  You may have the opportunity to ask to put special conditions into a contract before you sign it. Your solicitor or conveyancer negotiates this process with the vendor’s solicitor or conveyancer.

  You can add special conditions to the contract for the following when buying by private treaty sale (refer to Chapter 12), but not at auction (refer to Chapter 11):

  Building inspection report: You can pull out of the sale if the inspection report uncovers major problems with the property.

  Finance: The sale can only go ahead if your lender approves your loan application.

  Sale of your property: You can pull out of the sale if you fail to sell your property.

  Valuation: You can pull out of the sale if a valuer or your lender decides the property is worth less than you’re paying.

  Other conditions you may want to write into your contract (when buying by either private sale or at an auction) are to do with

  A longer or shorter settlement period.

  A lower deposit amount — say, 5 per cent rather than 10 per cent.

  Repairs to be carried out, such as a dangerous power box to be replaced.

  Specific furniture or fittings to be included in the negotiated price.

  The vendor is under no obligation to accept any special conditions you want written into the contract of sale. Your best approach is to request special conditions when negotiating the sale price or to help seal the deal.

  Exchanging contracts and handing over the deposit

  After you’re happy with the wording of the contract, in some states you exchange contracts to finalise the transaction. Both you and the vendor sign two copies of the contract and then exchange them. You can exchange
the copies of the contract by hand or by post. Your solicitor or conveyancer or real estate agent can arrange the exchange. (In Queensland, South Australia, Tasmania and Western Australia, no exchange of contracts occurs, because only the one contract document is required. The seller signifies her acceptance of a buyer’s offer by counter-signing the contract.)

  As purchaser, you hand over the deposit to the selling agent, not to the vendor. The selling agent puts the money into an account to be held in trust for the vendor. The money is handed over to the vendor along with the full purchase price a few weeks down the track when you finally settle on the property. Any interest earned on the deposit amount is split evenly between you and the vendor of the property. In some states, the interest earned on deposit amounts goes into an indemnity fund, which pays for services such as consumer advice lines. In Western Australia, the interest earned is used to fund First Home Buyer Accounts, which in turn provides money that first home buyers can use to help pay any transaction costs involved in buying their home.

  If you buy through a private treaty sale (refer to Chapter 12), you may have up to seven days to pay the deposit, or may be able to arrange to pay it in instalments. If you buy at an auction, you have to pay the whole of the deposit immediately, so have your chequebook ready. If you’re buying after having sold your previous home, you may be able to use funds from the deposit given to you by the buyer of your home. You need to negotiate previously with your buyers to be allowed to release their deposit to use for the deposit on your new home.

  Argh! We made a mistake: Enter, the cooling-off period

  In all states and territories, except Western Australia, you’re entitled to a cooling-off period when you buy through a private treaty sale. During this specified period of time, you may withdraw your offer for whatever reason. If you do withdraw from the sale, you’re refunded your deposit but, ordinarily, you have to pay a small forfeit amount for doing so. (See Table 13-1 for the cooling-off periods and forfeit amounts in each state and territory.)

  Many buyers use this cooling-off period to carry out a building inspection. If the report reveals major problems with the property, you have the option to pull out of the sale. Alternatively, you can use that information to negotiate a lower price or some other condition with the vendor. The vendor may agree to repair the plumbing system, for instance.

  Use the cooling-off period to contact the lender and get final approval for a loan. Given you only have a few days to withdraw from the sale, you need to encourage the lender to move fast on its decision.

  Waiving your cooling-off period

  In the Australian Capital Territory, New South Wales, Northern Territory, Queensland, and South Australia, buyers can choose to waive their right to a cooling-off period (refer to Table 13-1 for waiver conditions for each state and territory).

  In a hot property market, choosing to waive your cooling-off rights can be a way to get an edge over another buyer who isn’t prepared to waive those rights. Vendors prefer to deal with a buyer who’s prepared to go into a contract with no threat of withdrawing within the cooling-off period.

  Suggesting or encouraging buyers to waive their cooling-off rights is illegal for vendors.

  As a buyer, if you wish to waive your cooling-off rights, you need to be very certain that nothing is standing in your way of buying the property. You must also get legal advice on the consequences of waiving the cooling-off period, before the contracts are signed and exchanged.

  Securing Your Final Loan Approval

  Before you start seriously looking for your new home, you need to have already talked to a lender to get pre-approval for the amount you want to borrow (refer to Chapter 10). This approval gives you a clear picture of how much you can afford to spend on a home.

  Even if you have pre-approval to borrow a certain amount, the lender still needs to give their final approval to lend you money against the particular home you choose to buy. Ideally, you get this final approval before you sign the contract of sale (refer to the section ‘Signing on the Dotted Line’ earlier in this chapter). If for some reason the lender refuses to lend you the money you need against that particular property, you can be in danger of having to pull out of the purchase and of losing your deposit.

  Getting a Valuation Done

  You’re ecstatic about the home you want to purchase and you’re convinced about the great deal you’re about to do on the property. But, stop, step back and take a breath because the lender is the final arbiter of whether the property is actually worth what you’re offering to pay for it.

  Ordinarily, the process of valuing a property is a formality. The lender may send out its valuer to see the property and assess whether it is indeed worth what you’re proposing to pay for it. The valuer may take a ‘drive-by’, look at the property from the street and give a judgement based on the value of similar homes in the area. Now and then a valuer may give a valuation from the comfort of her office. The valuer may use this method if she has recently seen other homes in the area, and is confident that your purchase price is well within the valuation range.

  Occasionally, though, the valuer decides that the property isn’t worth what you’re offering to pay for it. In this case, the lender may offer you a loan with a higher loan-to-value ratio (LVR). For instance, if you’re counting on a loan for 80 per cent of the home’s value, you may instead need to take a loan for 90 per cent of the home’s value.

  Upping the LVR above 80 per cent means you have to pay mortgage insurance (refer to Chapter 10), which can cost several thousand more dollars. If the lender offers to up the LVR, you may want to rethink whether the property is worth buying after all — that is, if you’re in the position to be able to pull out of the sale.

  You can’t withdraw from the purchase made at an auction, even if you’re not able to get final approval for a loan on a property purchase, without a significant penalty. You may be able to negotiate to just lose the 10 per cent deposit, instead of suffering a greater penalty such as being sued. Do your research and don’t let the charged atmosphere of an auction force you to pay more than your upper limit or what a property is worth.

  Settling on Your Property

  Settlement is the day when all the legal and financial threads associated with your home purchase are tied up. By the end of the day, you can finally take possession of your new home.

  The lead-up to settlement looks similar to the following:

  The actual day on which you settle is nominated on the contract of sale when you first exchange contracts with the vendor (refer to the section ‘Signing on the Dotted Line’ earlier in this chapter). By this day, all the legal work must be done on both sides. Also, by this date, you need to organise for the lender to hand over the full purchase price of the home to the vendor.

  You visit the property before settlement day and again after all the furniture has been removed to ensure no nasty surprises await you. If any windows are broken or the plumbing no longer works, for instance, you notify your solicitor or conveyancer, who then aims to negotiate and resolve the issue with the vendor before settlement.

  Around two weeks before settlement day your solicitor or conveyancer arranges for you to sign a document that confirms the transfer of the property into your name. Your solicitor or conveyancer hands this document to your lender at settlement, who registers it at the state or territory Land Titles Office on your behalf. Upon registration, the property is changed over to your name.

  One week before settlement your solicitor or conveyancer notifies you of the exact date and time of settlement and the amount of funds you’re required to provide prior to settlement.

  As important as settlement day is, you don’t actually need to be there yourself. This meeting is a face-off between solicitors and lenders, and you and the vendor are entirely unnecessary to the process at this stage. The following parties attend:

  Your solicitor or conveyancer

  The vendor’s solicitor or conveyancer

  A represen
tative of your lender

  A representative of the vendor’s lender, if they have a mortgage

  Here’s what happens on settlement day: