Pre-Contract Tips for Buyers

Useful Tips For Buyers – Houses and Units

Are you considering buying a house or unit?   Many people spend a lot of time researching where they would like to buy, but the actual process of entering a contract once you have found that perfect property can be confusing.  There can also be a lot of pressure to enter a contract quickly, so we have compiled some useful information and tips for buyers:

1.     Auction Purchases

If you buy a property at an auction it is vital that before you attend the auction you have:

  1. obtained a copy of all the relevant information regarding the property from the Agent;
  2. ideally undertaken any due diligence searches;
  3. undertaken a pest/building inspection on the property; and
  4. have your finance unconditionally approved.

This is because if you are the successful bidder at the auction then:

  • that contract of sale will not be subject to you being satisfied with the outcome of your application for finance approval;
  • the usual cooling off period provisions applicable to residential contracts do not apply; and
  • you will not be able to terminate the Contract if you are unhappy with the condition of the property.

 

2.     House and Unit Purchases for constructed dwellings

If an Agent is involved in the sale then the most common way that a contract is formed is that the Agent completes a contract in accordance with the terms of the offer the Buyer wishes to make and submits this to the Seller.  There may be some negotiations regarding contract terms and if both parties are satisfied then both parties will sign the Contract.

Tip #1:  Decide who will be the purchaser of the property

Before you start seriously looking for a property it is recommended that you obtain advice from your financial planner and/or accountant regarding whether it is best for you to purchase the property in your individual name, in the individual names of yourself and your partner (if you have a partner), in the name of a company or in the name of a trust.

Once a Contract is signed by both parties then it is not possible to change the name of the purchaser or remove a purchaser – agreement would need to be reached with the Seller to terminate the Contract and enter a new Contract, which can have costs and stamp duty implications.

Tip #2 – The deposit amount to be paid by the Buyer should generally always be less than 10% of the total purchase price.

If the deposit amount is 10% or greater of the purchase price then this can change the rights between the parties regarding ownership of the property before settlement and have stamp duty implications for the Buyer.

It is possible to include that a small initial deposit amount be paid upon signing the contract and a balance deposit amount be paid at a later stage such as when the Buyer’s finance condition is satisfied.

Tip #3-  If there are items that are not permanently fixed to the property that are to remain with the property after settlement then these should all be listed in the Contract as “Included Chattels”.

Common examples of items listed as Included Chattels are dishwashers, air conditioners, furniture, curtains, blinds, light fittings and pool equipment.  If a moveable item is not listed as an Included Chattel then the standard terms of the REIQ contract of sale allow the Seller to take all moveable items at settlement.

Tip #4  – Building and Pest Condition

It is always recommended that Buyers require the Contract to be subject to their being satisfied with the outcome of a building and pest inspection on the property;

Tip #5 – Finance Condition

Unless you actually have sufficient cash on hand to pay the full purchase price, stamp duty and other costs of sale at the time they sign the contract then it is always recommended that you require the Contract to be subject to obtaining satisfactory finance approval.

Also be aware that pre-approval of finance from a financier is not the same thing as unconditional finance approval.   Usually the financier has a right to refuse to approve the finance if not satisfied with the valuation of the property, which will only be undertaken after a Contract has been signed;

Tip #6 – Body Corporate Due Diligence Condition

It is always recommended for unit purchases to have a special condition included on the Contract making it subject to the Buyer being satisfied in their discretion with the results of searches conducted on the body corporate records;

Tip #7  – Risk

The standard terms of sale on the REIQ contracts for houses and units provide that the property being purchased is at the risk of the Buyer from 5pm on the Contract Date (which is the date the last party signs the Contract).  It is recommended to Buyers that a special condition be included in the Contract to provide that the property remains at the risk of the Seller until settlement has been effected (i.e. until the Buyers have actually paid for the property).  If no such special condition is included on the Contract then Buyers do need to obtain insurance for the property as soon as possible after the Contract has been signed by both parties.

Tip #8 – Improvements on the Property

If you are aware that a property has had improvements made to it such as extensions, addition of a deck, pergola or car port then unless the Seller can provide a copy of the relevant final approval certificate from the local Council that has jurisdiction then it is recommended that a special condition be included to make the Contract subject to the Seller providing a copy of that certification to you.

Tip #9 – Subject to Prior Sale

If you will be relying on the sale of a property you own to provide funds for the purchase of the new house or unit then it is extremely important that special conditions be included on the Contract so that you are able to terminate the Contract if your sale does not proceed for any reason and that the timing of the settlement of the purchase is such that cleared funds from the sale will be available for use in the purchase.

 

3.     Off The Plan Contracts for Houses and Units

  • These contracts normally are to purchase houses or units that are either not yet constructed or in the process of being constructed.  Very commonly at the time the buyer enters the Contract the plan for the land or unit Lot being purchased has not yet been finally approved by the relevant local Council and so technically the Lot being purchased doesn’t actually exist;
  • These contracts of sale normally contain many special terms and conditions, and the Seller often has up to eighteen months from the Contract Date to arrange for the plan of the Lot to be approved by the relevant local Council and registered with the Titles Office before the Buyer has a right to terminate the Contract;
  • It is extremely important if you are considering entering an off-the-plan contract that you obtain legal advice before executing the Contract so that you are aware of the effect of the terms and conditions.

 

Every purchase is unique, and it is recommended that if possible Buyers obtain some legal advice before committing to a contract of sale.  If potential mistakes on the Contract are avoided and appropriate special conditions included then this can save much time, money and stress for parties at later stages of the matter.

If you would like assistance with a purchase of real property or have further questions then please contact our Alicia Schubert on 3711 2709 or send us an email.