February 06, 2015
I have drawn together this ‘guide’ from many years of experience in numerous property transactions – please note that no transaction follows an absolute format so, please, take the advice of your solicitor or conveyancer as well as your mortgage broker.
As NSW still has very much ‘let the buyer beware’ laws, there are three key areas that you need to address before you either sign a contract or attend an auction. These are ;
1. FINANCE – Get a pre-approval
2. CONTRACT – know what you are signing
3. ENQUIRIES – do all of your inspections and searches
As you are reading this, I assume that you are already looking into finance – you may like to refer to the accompanying ‘How much do we need’ document at this point. Suffice to say that you should NOT enter in to any contract or bid at an auction without having obtained at least ‘in-principle’ approval for your finance from at least one lender.
Step 1 - Obtain the Contract and have your legal representative review it for you.
When you have seen a property you want to buy, you should ask for a copy of the contract of sale. The selling agent should make this readily available to you whether the sale is private treaty or auction.
Please note that if you have not requested a copy of the contract, the selling agent will be unaware of your interest and will, therefore, probably not keep you in the loop which may include notifying you of other interested parties.
Normally it is an offence for an agent to offer a residential property for sale in any way until they hold a proposed Contract forSale (check your relevant state laws). This Contract, which will normally be prepared by the seller's solicitor, sets out the terms and conditions on which the sale will take place, with sections dealing with the buyer and the purchase price left blank. The Contract should include a copy of the title documents, drainage diagram and the Zoning Certificate issued by the Local Council. It may also include any council restrictions on the use of the property, and any items included or excluded from the sale (i.e. light fittings, curtains, whitegoods, etc).
Do not presume that everything you see in the property will be included in the sale. Normally if an item is attached to the building and is essential (e.g. hotplates and hot water systems) they are automatically included. If the items can be easily removed they are normally excluded unless specifically mentioned in the contract. This information is normally on the front page of the contract. Make sure you read it carefully. The estate agent should know what items are included, excluded or negotiable. If in doubt, ask and get all the inclusions in writing. If an item is not mentioned in the contract, such as the dishwasher, and the seller agrees to include it, make sure this is added to the contract before you sign it.
Your solicitor/conveyancer will help you check the contract to see that you know exactly what you are paying for. You are now ready to make your initial offer to purchase the property.
The parts of the contract that are commonly ‘negotiable’ are the length of settlement, the amount of the exchange deposit and the inclusions.
Diseased Estate contracts are often ‘not negotiable’.
Make sure that you use the correct full version of your name (s) on the contract of sale.
Step 2 – Making an Offer.
Often a vendor has been influenced by their Real Estate Agent when arriving at a figure at which they are prepared to sell. Most Real Estate Agents use a combination of recent sales information (e.g. real figures of nearby houses that have sold recently) together with their local experience of the current supply and demand for the particular type of property to be sold. You can also access recent sales information (SMH and Residex are two such sources). We can provide you with Residex information free of charge.
It is the real estate agent’s job to act as the go between with any offers and/or acceptances. You should make quite clear at this point what your offer is based on – typically, you would say that the offer is based on ‘acceptable pest and building inspections (or strata searches*)’ and you may wish to add ‘subject to satisfactory valuation by your lender’. These conditions mean that you need not spend money on these inspections until your offer is accepted and there is, therefore, a good chance that you will end up purchasing the property. However, you need to be aware that the vendor is under no obligation to sell the property to you unless you have signed a contract. In a quiet market it is less likely that you will be gazzumped but if there appears to be other interest in the property, you may consider signing a contract subject to a five (5) day cooling off period. You will need to pay 0.25% of the purchase price but this will lock in the vendor and give you five days to conduct your inspections. If you discover something that changes your mind about the property you can exit the contract but you will loose the 0.25%. Ensure that the cooling off period is actually in the contract before you sign it. Please note that Mortgage Choice advises that a 5 cooling off period is often not sufficient for a lender to complete all of their processes and strongly recommends a 7/10 day cooling period be negotiated.
If you are bidding at an auction you will need to conduct all of your inspection or searches prior to the auction, as a successful bid at auction is binding.
* A strata search will look at the Body Corporate and how well they run the unit block. It should reveal any structural defects, levies common-area problems and any on-going issues with the other owners or tenants.
Attend the open houses as often as you can you can, this will help you gauge demand.
Knock on the neighbour’s door and chat with them about any concerns you may have.
Have your friends ask the agent the same questions that you have asked and compare the responses.
Don’t be afraid to make offers up to 10% lower than the asking price but be careful with anything ‘too low’ as it may prejudice the agent and the vendor against dealing with you.
Remember that relative ‘bargains’ are not likely to stay on the market long and you need to be prepared to act quickly.
Step 3 – Paying the deposit.
Upon signing a contract (or at the end of any cooling off period) you will need to pay an ‘exchange deposit’. The standard NSW contract says that this is 10% of the purchase price. The deposit is held in a trust account (usually by the real estate agent) until settlement.
If you do not have 10%, you need to have negotiated an alternate amount (e.g. 5% or a fixed dollar amount). If you have no cash, you will need to negotiate to have a ‘deposit bond’ accepted. A deposit bond can be used in these instances instead of cash. Please note that a deposit bond will attract additional costs (usually about 1.5% of the bond amount) and will take at least 24 hours to arrange.
If you are bidding at an auction you will need to have your deposit with you, as a successful bid at auction is binding.
Make sure that you use the correct full version of your name (s) on the contract of sale.
What does your solicitor/conveyancer actually do ?
A solicitor has a number of key roles to play in the process of buying, selling or refinancing a property, and transferring money from a lending institution into the account of the vendor. Collectively these roles are termed 'conveyancing'.
As we have already said, you should contact your solicitor (or conveyancer) early in the process when you've received approval for a home loan from a lending institution, and before you've made an offer on a specific property that's been accepted by the vendor. Your solicitor will make sure any conditions you want or need are included. It's a good idea, no matter what your circumstances, to make your offer on a property conditional on your solicitor doing a number of things, including:
A title search on the land and property. Your solicitor will contact the local land registry office and ask for the certificate of title (the types are Torrens, Old System, Strata and Company) on the property your are buying. This is a document that details any legally registered dealings on the land that may still be binding. For example, there may be restrictions on access, the height of any buildings on the land or the types of fencing that can be constructed. These restrictions will apply to a new owner as well. The certificate of title will also detail ownership changes over the years, and note whether there are any mortgages held against the title. It's your solicitor's job to alert you to anything on the certificate of title that may affect your decision to purchase the property.
Doing a local government search relating to the property you are buying. This will tell you about any special features of the land such as instability, likelihood of flooding, or contamination, any rates due or owing, all consents and certificates issued or outstanding on the property (these relate to workmanship, inclusion of mandatory features, adequate drainage etc.) and outline allowable uses of the land. You will also be given important information such as the location of underground drains, electrical cables and gas pipes.
Once your solicitor is satisfied that none of the searches has turned up anything to dissuade you from proceeding with the purchase and all other conditions of your offer have been met, they will begin the process of carrying out the terms that you and the property vendor have agreed to. This comprises:
Liaison with the bank and the vendor's solicitor to arrange for funds to be transferred from the bank to the solicitor's trust account and then to the vendor's account at the appropriate time on the appropriate day ('settlement day', which you agree with the vendor in your contract with them)
Preparing a memorandum of transfer and notices of change of ownership for the local authorities (this includes notifying the local council who the new rate payer is – i.e. you)
You should also talk to your solicitor about the type of ownership of the house, such whether you and your partner will own it in joint names or as tenants in common.
How the settlement process works.
After a contract has been signed, the settlement period begins. The standard settlement period in a NSW contract is 42 days – therefore, if all goes to plan you should own the property six weeks after the date of the contract.
During this six week period, a number of key events will occur, driven either by your solicitor or your lender. Please refer to the lists below;
1. Your solicitor/conveyancer will prepare and arrange for you to sign a Transfer of Land document. You should ensure that this is done at least two weeks prior to the settlement date. This document will be handed to your lender at settlement. Your lender will register it at the State/Territory Title's Office on your behalf. Upon registration the property will be changed over to your name. The transfer of land document must be stamped – in other words, this is when you pay stamp duty (if applicable)
2. Your solicitor/conveyancer will contact your lender, the seller's solicitor/conveyancer, and any other interested parties to arrange the date, place and time of settlement.
3. Your solicitor/conveyancer should advise you one week prior to the settlement, of the exact date, time of settlement and the amount of funds that you are required to provide prior to settlement (if applicable). This amount is usually required to be paid by bank cheque one day before settlement.
This will include reimbursing the vendor for any rates or body corporate fees that they have paid in advance.
4. After settlement has taken place, the vendor’s solicitor will contact the real estate agent and advise them to hand over the keys to you.
5. Your solicitor should contact you and confirm settlement has taken place. They will also send you a Statement of Adjustment to show you how the funds have been disbursed to the parties involved.
1. Your lender will prepare a loan contract (detailing the terms of the loan) and a mortgage document (the document that gives them first charge over your home) and send them to you. These documents need to be checked with either your broker or solicitor, signed, witnessed and returned to the lender promptly.
2. Once you have returned these documents to the lender, they will liaise with your solicitor for the remainder of the settlement period.
The time line of events will look a little like this;
Documents received from lender
Stamp duty payable
Solicitor advises you of any monies due for the settlement
A note about buildings insurance – if you are buying a house you will need to have buildings insurance in place prior to settlement and a copy of the certificate of currency must be supplied to the lender.