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From the Desk of Sarah Redman Team Leader -- Dreamloans Home Loans Phone: 1300 780 050 Email: sarahr@dreamloans.com.au Current as at: Making a home purchase Making The PurchaseIt can be hard to work out how much to offer. Do you make your best offer upfront, or offer a lower price and be prepared to negotiate? If there are several prospective buyers who want to make offers, the vendor may decide to accept another offer, without giving you the chance to increase yours. If you are not confidant negotiating with the selling agent, you may want to get a solicitor; conveyancer or buyers advocate negotiating for you. You will be changed a fee if you do.
Form 1 Statement One of the things that should help with your decision-making about property is the Form 1 Statement.
A Form 1 Statement is a legal requirement, and is meant to give you important information about the property. It includes the properties title particulars, mortgages on the property, covenants, easements, zoning and outgoing, such as water rates. It does not include any information about encroachments, or the condition of any buildings, whether they comply with building or if measurements on the title are accurate. It is your responsibility to find out about anything that is not covered in the statement. Your solicitor or registered conveyancer can help you here.
The Form 1 (Vendors statement) is usually prepared by the vendor’s agent several weeks prior to the sale or auction. It is usually signed by the vendor and made available to you and other prospective buyers, usually via the agent. The Form 1 must be factually accurate and complete. If it contains incorrect or insufficient information, you may be able to withdraw from the sale or take legal action.
Making An Offer Any offer to buy a property should be made through the vendor’s agent if one has been engaged. The agent must then communicate this offer can be made orally; it is generally in the form of a written contract or a letter of offer signed by you. In most cases a standard contract of sale document is used to make a written offer. If you require anything to happen before settlement (for example obtaining finance or a satisfactory building inspection report) you should make your offer that must be satisfied before you can be required to settle (i.e. pay the full purchase price) You may consult a solicitor or conveyancer concerning the need for and wording of such special conditions.
The Contract Document The contract document outlines the terms and conditions of the sale and contains provision for:
These terms and conditions are discussed in more detail on pages 22-24. A land agent, solicitor or conveyancer can help you to draw up the contract document.
When you make your offer you may wish to insert in the contract document a date by which your offer will lapse. This way you will be notified in a timely manner as to whether or not your offer has been accepted.
If your offer is accepted, the vendor will countersign the contract and it will become legally binding. Once the contract is signed and an accurate Form 1 has been served on you, the cooling – off period will commence.
Contract Terms and Conditions It is important to read and understand any legal document before you sign it. The following information will help you to complete and/or understand the terms and conditions specified in a contract document.
Joint Ownership If you are buying a property with another person you must elect whether to hold the land as ‘joint tenants’ or “Tenants in common”
In a joint tenancy, each owner owns the property jointly and there is one title containing the names of all owners. If one of them dies, the property automatically passes to the others
In a tenants in common situation, each holds a set share of the whole property. Tenants in common can sell their shares or leave them to someone else in their will.
If you are considering these forms of ownership but are not sure about them, seek professional legal advice.
Chattels Chattels are things that do not form part if the real estate that may be included in the sale of the home. The vendor may want to list some of those that are included in the sale. Similarly, those excluded from the sale must be listed on the contract eg. TV aerial or portable dishwasher. As general rule, all movable items such as personal effects, furniture, pot plants, garden ornaments etc. are excluded from the sale unless specified. If unsure of what’s is included always ask the vendors agent. If you want to purchase and chattel and are in any doubt about its status, ask for the chattel to be specifically mentioned in the contract. Where the vendor is to take any chattel that is affixed to the property, also ensure that the contents includes a condition that the vendor repairs any damage caused by the removal and, if appropriate, reinstates the surface using matching paint, wallpaper, or whatever you require.
The Price You should include the price that you are willing to offer in the contract. You may need to consider whether to offer a lower price and negotiate up or offer your best price first, knowing that the vendor may accept another offer without you having a chance to increase your offer. In some cases the vendor may not be prepared to negotiate at all.
Goods and Services Tax (GST) The purchase of an established home does not attract GST, however services rendered by professionals involved in real estate transactions do. Do not sign the contract without checking whether GST applies. If uncertain seek professional legal advice. If GST applies to a sale, the contract must clearly specify whether the price is inclusive or exclusive of GST and how the GST will be calculated.
A DepositThe agent may require you to provide an initial deposit of not more than $100 to validate a privacy treaty offer. This is known as a holding deposit and is generally not required. That deposit will be returned to you if the offer is not accepted. If the offer is accepted but you “cool off “, the deposit is forfeited to the vendor.
A further deposit will be payable once the cooling – off period has expired or on the day of the auction. The amount of this deposit is negotiable but may be as much as ten percent of the agreed sale price, particularly if the sale is by auction. The deposit should be paid to the vendor’s agent, solicitor or conveyancer who will place the money into a trust account until the settlement date. Your cheque should be payable to the appropriate trust account and marked not negotiable. Remember, that you can lose this deposit if you change your mind after the cooling off period unless the vendor has breached the contract in someway. You may also face further compensation for breach if contract.
Settlement DateSettlement is usually set between 30 and 90 days, but this period of time can be negotiated between you and the vendor. The agreed date is recorded in the contract.
Easements An easement is a right over land granted to a third party, usually for underground pipes or wiring. It is common for blocks of land in major land developments to contain an easement for stormwater or sewerage pipes.
Easements should be noted on the contract documents and you should take specific note of where the easements are located on the property. You cannot build a solid structure over an easement without the approval of the person to whom the easement is granted. If you do, and they want access to the easement, you must remove your structure at your own risk.
EncumbrancesAn encumbrance is a restriction over the land. It sets out the rules on what you can and cannot do with the land. For example, you may not be allowed to erect a metal fence or a galvanised shed. Make sure you read and understand any encumbrance before you sign the contract.
TenantsIf there are tenants currently occupying the premises on a fixed term lease, the fixed term agreement details must be recorded in the contract. If the tenants do not have a fixed term agreement then you can seek vacant possession as a condition of sale but you must record the condition in the contract.
Conditions You can negotiate with the vendor to have the sale subject to certain conditions. The most common examples are subject to obtaining finance, the sale of an existing property or the completion of a satisfactory building inspection.
You may wish to include a pre-settlement inspection as a condition of the contract.
An auction contract of sale is generally unconditional. However, it is sometimes possible to negotiate the inclusion of particular terms (i.e. the amount of the deposit or period for settlement) through the agent prior to the auction.
Building And Pest Inspections When making an offer on a property you should add a condition to the contract making the sale subject to a satisfactory building inspection report. You should enlist the services of a building consultant, surveyor or architect to provide a professional building report that complies with the Australian Standard. A building consultant will know exactly what to look for and will see through any cosmetic improvements covering up faults that may be missed by the untrained eye.
He or she will also check items such as electrical wiring, plumping and roof spaces, which are potentially dangerous if they do not meet building standards.
The consultant will provide a written report, pointing out faults in the property, whether they can be repaired and how much these repairs are likely to cost. The report will also highlight any unsafe or unauthorised renovations and extensions that can be ascertained.
You may be able to use this report to negotiate conditions in the contract as well as the price. You can expect to pay approximately $400-$500 for the report but it could save you thousands if you were to buy a property that needed unforseen repairs.
If the house has recently been renovated or extended, you can check with the local council to make sure a building permit was obtained for the work completed. Illegal alterations may become your responsibility if they contravene building regulations.
Also check for proof of ongoing termite inspections. If no proof exists, approach a licensed professional pest controller for a report that complies with the Australian Standard, If buying at auction you will need to arrange this prior to the day of sale.
Negotiating The Deal If the vendor does not accept your offer, the agent may come back to you to see if you are prepared to make another offer. Through a process of negotiation the agent will attempt to achieve mutually acceptable terms for the contract. This negotiation may involve oral offers, but will only be legally binding when in writing. Often there will be others making an offer on a property. Through a process of offer and counteroffer the agent will negotiate between the parties to obtain the highest possible price for the vendor. You may withdraw an offer at any time until it is accepted.
Signing A Contract Once you have made an offer in writing, usually in the form of a contract document, it is up to the vendor whether or not to accept the offer.
You should not sign your offer without carefully reading and understanding this document. A deposit (other than any holding deposit) is payable once the cooling-off period has expired.
Two copies of the contract are drawn up for signature so that both you and the vendor receive identical copies. A binding contract does not exist until the vendor, signified by signing the contract, has formally accepted a written offer.
Insurance For various reasons, the property may not be covered by the vendor’s insurance from the date of signing the contract. It is strongly recommended that you take out building and contents insurance, effective from the date of signing the contract. Your lending institution will generally require you to take out insurance on the property to safeguard the lending institution’s interest as mortgagee.
Cooling – Off If you buy a property (other than at auction) in South Australia you have a cooling-off period in which to reconsider the purchase, conduct further inspections, or change your mind if you feel you have made a hasty decision. The Form 1 details your right to cool off and how you must go about serving a cooling – off notice.
The cooling-off period expires at the end of the second clear business day after
However, you cannot cool off of you have settled.
The cooling-off notice must be in writing and served on the vendor or the vendor’s agent personally, by certified mail or by facsimile. Precise details of how the notice is to be served are set out in Form 1. There is no special wording for the notice and no reason has to be given.
If a property is to be offered for sale by auction but you make a successful offer before the auction, a cooling-off period does apply unless you waive that right after obtaining independent legal advice. You also have no right to cool off if you buy
Recently Built Or Renovated If you purchase a house less than five years from the date the building was completed or any major renovations were done, there may be some warranty entitlements that will transfer to you if you buy the home. Ask for a copy of the certificate of building indemnity insurance that the builder supplied to the owner when the work was done. This will protect you if the builder dies, disappears or becomes bankrupt in the five years after the work was completed
Checking Boundaries The agent (or solicitor or conveyancer) should provide you with a copy of a certificate of title or strata or community plan of the property that will enable you to check that all measurements and boundaries correspond with those on the title. This is also your chance to check that the fences and structures do not encroach onto neighbouring land. If this is the case, this information should be disclosed in the contract.
Conveyancing Prior to settlement, both you and the vendor should retain a conveyancer to prepare for the settlement. You may wish to use a solicitor or even consider doing the conveyancing yourself. However, unless you are very experienced in property documentation, it is highly recommended you seek professional advice and assistance to manage the necessary process.
A conveyancer is a person registered under the Conveyancers Act 1994 who will ensure that the property is transferred from the vendor to you legally and financially.
A Conveyancer Will:
Call me directly on 1300 780 050 Sarah Reman Team leader - Dreamloans Homeloans
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