For many of us, purchasing property is a major milestone and an investment in the future.Buying a home will probably be the most expensive thing you ever do, so it’s important to understand the buying process and to be well informed about the property market.
With so much to think about and so much money at stake, every decision is an important one. Decisions like this deserve time, attention and expert legal advice.
Below is a list of topics to consider when looking for, or if you have found a property that you like
It is always a good idea if possible to obtain some idea from your Bank or other finance provider as to how much they are willing to lend you so that you know beforehand what properties you can afford. It is also a good idea, if possible to have a loan pre-approval so that when you do find a home of your dreams it will make things a lot easier to quickly exchange the Contracts so that you are not gazumped and miss out on the property. If you are relying on finance to complete the purchase it is very unwise to exchange Contracts unconditionally without having your finance approval in place.
When a financial institution lends you money to buy your home, it acquires a legal interest in the property. In this case, the property is said to be ‘mortgaged’. A mortgage acts as a form of security in case you fail to make the repayments.
When you mortgage your property, you give the home loan provider the authority to lodge their interest in the property with the NSW Land and Property Information Authority (formerly the Land Titles Office). This means that you don’t have a clear title to the property and cannot sell it without their consent.
As the property owner, you are called the ‘mortgagor’ and the home loan provider is called the ‘mortgagee’. Your mortgagee will retain the title deed to your property until such time as you have repaid or ’discharged’ your loan.
It’s wise to shop around for a mortgage provider as you would for a car or a house. It’s a big commitment and there are many sources of finance in the market. Doing your homework could save you thousands of dollars in the long run.
Check out the website www.canstar.com.au for a comparison of the home loans currently available.
A finance or mortgage broker can be used to find home loans that suit you. A finance broker is an agent between you and your home loan provider. They look at your individual circumstances and may recommend one or more credit products that meet your requirements.
While using a finance broker can save you time and hopefully money, keep in mind that they may be receiving a commission from the home loan provider. In many cases, they will also ask you to pay a commission. It should be noted however, that they must have a signed finance broking agreement with you and they are not entitled to a commission unless they obtain the credit on the exact terms specified in the finance broking agreement.
If you decide to use a finance broker, do your homework first so you know you’re getting a good deal.
Legal protection for borrowers
The Law provides protection for people borrowing money under the National Consumer Credit Protection Act 2009. It requires home loan providers to give you information that is clear and easy to understand, so that you can make a decision on whether you can afford to borrow.
Before you sign a mortgage contract, the home loan provider must give you:
- details about fees and charges in a pre-contractual statement and
- an information statement which outlines your rights and obligations.
Pre-contractual statements should tell you:
- the amount of money you are borrowing
- the annual percentage interest rate
- how the interest is calculated and when it is charged
- the credit fees and charges to be paid or how they will be calculated
- how they will inform you of changes affecting interest rates and fees or charges.
|IMPORTANT – Always read the mortgage contract thoroughly before you sign it. It’s a good idea to take a copy home so you can study it. If you are unsure about any of the terms, have your solicitor review the contract and provide you with legal advice. Remember you are not obliged to sign anything on the spot.|
Getting someone to guarantee your loan
Sometimes when you have trouble borrowing money from a home loan provider, a friend or family member may be willing to guarantee the loan. This will make them a ‘guarantor’. However, this is a big step and a decision that shouldn’t be taken lightly. Essentially, it will mean that if you don’t pay, they will have to!
Before you take out the loan, your guarantor must be given a copy of the mortgage contract and the document explaining a guarantor’s rights and liabilities. If you stop making payments, the home loan provider will first take action against you. They can usually only take action against the guarantor after they have tried all avenues to get the money from you.
Vendor financing arrangements sound and seem simple, but they have potential difficulties. Anyone considering vendor finance as a way of purchasing a home should seek expert and independent legal advice.
Knowing as much as you can about the condition of the property before you buy will help you avoid problems and extra costs. This is because when you buy a property you buy it in its present condition and subject to any defects it may have irrespective of whether they are immediately obvious or difficult to see. Pre-purchase reports will help you decide if the property is worth buying. There may be little point in spending money on conveyancing until you know the condition of the property.
Common pre-purchase inspections include:
Building inspection report
A building report is a written account of the condition of a property. It should include enough information for you to be aware of the property’s condition and identify any significant problems or defects such as rising damp, and movement in the walls (cracking) or any other structural defects.
It is best carried out before you exchange contracts so you can identify any problems with the property which, if left unchecked, could prove costly to repair later on and may affect your decision to purchase the property (for the price asked) had you known.
There are three good reasons why you should get a building inspection report done before you buy a property:
1. You will know in advance what the problems are.
2. You can use the information to try and negotiate a lower price for the property i.e. you may have to pay to repair some of the problems.
3. You can get specialist advice about any major problems and how they will affect the property over time.
You should always use a suitably qualified person, such as a licensed builder, or an architect to provide a professional building inspection report of the property you are thinking of buying. For your convenience, we can provide you with the details of qualified building inspectors who can undertake an inspection for you or we can arrange this on your behalf and provide the inspector’s report to you.
The building inspection report cannot comment on things like the location of fencing in relation to boundaries, as this needs to be done by a registered surveyor.
Pest inspection reports
While the building inspection report should identify any visual damage caused by termite activity, it won’t include the detection of whether termites and other timber destroying pests still exist.
You should consider getting a pest inspection done as well as the building inspection, especially if the property is located in an area where termites are known to be a problem.
We can arrange for a suitably qualified pest inspector to undertake an inspection on your behalf and provide the inspector’s report to you. More often than not the same person can perform both a pest and building inspection report, usually at a lesser cost than if each report was obtained separately.
The most common survey relating to the purchase of a property is a identification (or Ident ) survey.
An Ident survey report will identify the property and confirm that the property you think you are buying is the one stated in the contract. It will also determine whether the building or other structures included in the sale are on the land being purchased.
The Survey diagram shows the location of the buildings and structures on the land as well as their relationship to the boundaries. It also shows whether the fences are on the boundary or if neighbouring structures encroach on the land you are buying or vice versa.
Finally, where applicable a survey will advise whether or not the structures (usually the house and garage) comply with any building covenants that are common in modern day residential subdivisions.
Again for your convenience we can arrange for a qualified surveyor to undertake an inspection of the property on your behalf and provide a survey report to you.
Making an offer on a residential property is a significant step. Before submitting your offer amount to the agent or vendor (seller), it makes good sense to be well prepared for what might follow.
Obtain a copy of the sale contract from the agent and have it examined by your solicitor. Doing this prior to making an offer will save time if you need to move things along quickly.
Paying an expression of interest
Once you have made an offer on a property, it may be a good idea (or you may be asked) to pay an initial deposit as an expression of interest. This won’t mean that the property is yours or that it gets taken off the market. It only shows the seller that your offer is serious. The seller or agent can take as many preliminary deposits as they like for the one property. However, when you pay this deposit, the agent must provide you with a receipt and tell you in writing that:
- they have no obligation to sell the property to you
- you have no obligation to buy the property
- they will refund your deposit if you don’t end up entering into a contract to buy the property.
The agent must also let you know if someone else makes a later offer on the same property.
It is important to remember that the agent selling the property is not working for you, the buyer, but for the seller.
Offer accepted, but it’s not yours yet
If your offer is accepted, be ready to sign the sale contract and proceed through with the exchange process. Do not sign or exchange the contract until you have discussed it with your solicitor.
Prior to the exchange of the contracts, the vendor is free to negotiate with other purchasers for a higher offer. If the vendor accepts another offer and exchanges contracts with that party, any purchaser who misses out on the property despite having a verbal agreement to buy it, is ‘gazumped’.
Gazumping occurs when you have a verbal agreement with an agent or seller to buy a property at an agreed price but the property is not sold to you in the end. This usually happens when the vendor (the person selling the property) has decided to sell the property to someone else, usually for a higher amount.
If you are gazumped, neither the agent nor the vendor is obliged to compensate you for any money you may have spent on legal advice, inspection reports, finance application costs or enquiries. However, your ‘expression of interest’ payment (if you have paid one) must be refunded to you in full.
In NSW, a property sale is generally only binding on the vendor and buyer when contracts are exchanged between the two parties. Exchange occurs when the vendor signs their copy of the sale contract; the purchaser signs their copy, and the two parties ‘exchange’ their signed contracts. It is usual at this time for the purchaser to pay a deposit, usually 10% of the purchase price.
Some ways to protect yourself from being gazumped are:
- Always have your loan finance pre-arranged, and ensure you can pay the 10% deposit, by Bank Cheque or a deposit bond so there is no delay before attempting to exchange contracts on a property.
- Obtain a copy of the sale contract as soon as possible and have it examined by your solicitor.
- Seek to exchange contracts with the vendor as soon as possible.
- Be aware that the vendor is not required to sell to any specific person and can change their mind at any time prior to the exchange of contracts. Vendors may not necessarily sell to the highest offerer, but may accept a lower offer from any prospective purchaser if they know that purchaser will act quickly.
The sale contract
By law, a residential property cannot be put on the market until a sale contract has been drawn up. You have the right to examine the contract at any time once a property is on the market. If a particular property interests you, get a copy of the sale contract from the listing agent as soon as possible and have it reviewed by your solicitor. You should have this done before signing a sale contract.
Negotiating the Contract Terms
The sale contract is nearly always drawn up by the vendors solicitor and is specifically drafted, to not only include standard terms and conditions but those that the Vendor wants. These specific terms and conditions can include such things as the payment of land tax, the completion date and the rate of interest is to be charged in the event you as a purchaser don’t settle on time. It may also contain a term that if agreed authorises the agent to release the deposit to the vendor which may mean that if the purchase does not proceed after exchange due to some reason or another, you then have to go about the task of recovering your deposit from them.
Your solicitor will explain to you all the terms of the contract and their implications as well as obtaining from you your instructions as to any special requirements you require to be included in the contract. Your solicitor will then negotiate these proposed changes with the Vendor’s solicitor. Once all changes have been agreed you will then sign the contract ready for exchange.
Exchanging contracts and paying a deposit
Exchanging sale contracts is the legal part of buying a home. Before exchange, the agreement is just verbal and not binding. Up until you exchange contracts either you or the vendor have the right to change your minds.
After you have discussed the contract with your solicitor and all the proper enquiries about the condition of the property have been made, and after all the financial arrangements are in place, you will be ready to exchange contracts. There will be two copies of the sale contract: one for you and one for the vendor. You each sign one copy before they are swapped or ‘exchanged’. This can be done by hand or post and is usually arranged by your solicitor or the agent. If the agent is handling the exchange, you must expressly authorise them to do so.
At the time of the exchange you will be required to pay a deposit, usually 10% of the purchase price. A reduced deposit can sometimes be agreed or the vendor may accept a Deposit Guarantee Bond (purchased by you) instead of a cash deposit. Following exchange, you have a financial interest in the property so you should to get it insured.
The deposit is usually held by the agent until settlement.
|NOTE A contract has not been made and is not legally binding before the exchange of contracts and the payment of a 10% deposit.|
When you buy a residential property in NSW there is a five business-day cooling-off period after you exchange sale contracts. During this period you have the option to get out of the contract as long as you give written notice. The cooling-off period starts as soon as you exchange and ends at 5pm on the fifth business day.
A cooling-off period does not apply if you buy a property at auction or exchange contracts on the same day as the auction after it is passed in.
You can waive the cooling-off period by giving the seller a ‘66W certificate’. This is a certificate that complies with Section 66W of the Conveyancing Act 1919. The certificate needs to be signed by your solicitor.
If you use your cooling-off rights and withdraw from the contract during the five business-day period, you will have to pay the seller 0.25% of the purchase price. This works out to be $250 for every $100,000.
Sometimes, there are more buyers looking for homes than there are properties on the market. This is called a sellers’ market. In this case, you may want to organise a quick contract exchange. This way you can reduce the possibility of someone beating your offer and get your building and pest inspections done during the cooling-off period. You will still be able to back out if there is a problem. However, it is important to have the contract reviewed by your solicitor before you sign it.
It is possible to waive, reduce or extend the cooling-off period if everyone agrees. If a survey and/or a pest and building inspection has been done and your finance has been approved, then deciding to waive the cooling-off period could make your offer more attractive to the seller.
Once contracts have been exchanged, your solicitor will commence searches and enquiries with various statutory authorities like the Local Council, RTA or the EPA.
These enquiries are to ensure that there are no outstanding notices or interests affecting the land and your rights after you have purchased it. The last thing you want is to later learn that the land is contaminated and you are left with a bill to clean it up or the RTA are assuming part of it for road widening. Often purchasers are unaware if there are any arrears of rates owing to the local council, the council can enforce payment of those arrears against the current owner of the property (you). Accordingly, it is essential that an enquiry be made with the local council to ensure that you are aware of any outstanding notices for work the council may require to be done to the property as well as whether there are any arrears of rates outstanding, so as to ensure that the vendor rectifies these problems prior to the title being transferred to you. If you do not, you become responsible to complete any work and pay any outstanding monies owed to the council and you will then be left trying to recover these amounts from the vendor.
These searches and enquiries are done to protect your interests in the property and shortcuts should not be taken.
As part of these enquiries we recommend that you also obtain a Building Certificate from the local council. A Building Certificate is a certificate from council upon which you can rely stating that they do not require any building works to be done to the property in the event that there are some outstanding matters that have not been completed when the dwelling was constructed or when there have been renovations. A survey is required to accompany an application for a Building Certificate which unfortunately adds to the expense. It is however in our opinion very important and in particular where there have been renovations or such things as retaining walls or pergolas constructed then a Building Certificate should be obtained for your protection.
Some of our competitors try to reduce costs by not making all of the proper enquiries that a normally prudent purchaser would require. We do the job properly. Do not risk your home or financial future for the sake of a small difference in these costs.
The seller is also asked a series of questions about the property, the structures on it and whether the seller is aware of any notices from the local council among other things and their replies are checked off when received.
A Transfer is prepared and stamped when Stamp Duty has been paid by you. Stamp Duty is a State Government tax calculated on the value of the property you are buying. If you are a First Home Buyer there are exemptions and Government Grants that you can receive.
Your Bank is also provided with the information they need to prepare mortgage documents and to satisfy their other requirements.
Settlement Figures are then calculated with Council land and water rates adjusted on a pro rata basis and sent to the seller’s solicitor for approval.
Settlement is then organised with the banks (yours and the sellers) and the seller’s solicitors.
Settlement usually takes place about four to six weeks after contracts are exchanged or as agreed between the parties. This is when you become the legal owner of the property. The balance of the purchase price and other adjustments for Council Rates and Water are paid on this date.
It is also very important that once the day for settlement is known that you arrange with the real estate agent for a final inspection prior to settlement occurring. This ensures that the property is left clean and tidy and that all of the inclusions that are set out in the contract (such as tv antenna, curtains, blinds, garden sheds etc) have been left by the vendors. It is very difficult once the vendors have received their money to get them to replace or return the items.
Following settlement either your bank (if you have borrowed money to purchase the property) or your solicitor will register the transfer of the property into your name with the Land Titles Office (now Land & Property Information), following which the local council will be notified that you are the new owner of the property. This may take a few weeks.
At King Cain we understand the decision to buy real estate can be one of the most significant financial decisions you can make and can be both an exciting and stressful time. There are many things that have to be done and they have to be done correctly.
It is important that you entrust such a significant financial transaction to properly qualified and experienced solicitors. We have a team of experienced Solicitors and staff led by Paul Carver, Bathurst’s only Law Society Accredited Business Law Specialist.
- Keep you informed at every step.
- Return your phone calls by the end of the day at least if we are unable to answer you enquiry when you call.
- Attend to your matter promptly and professionally. We do not cut corners.
- Provide you with the highest standard of service available. If we let you down we want you to tell us and we will fix the problem properly.
- We shall contact you promptly after receiving a sales advice from the agent to ensure that your purchase proceeds as quickly and efficiently as possible. We have developed our own software and procedures to ensure that you are kept informed of the progress of your purchase and that every possible action is taken to achieve an exchange of contracts as quickly as possible to ensure that you do not miss out on the purchase because you were gazumped.
At King Cain we charge a flat fee regardless of the purchase price. Unlike our competitors (including conveyancers who in our experience are no cheaper and sometimes more expensive) we do not charge you for any “add ons” if there is a mortgage, or a GST problem or if there are unexpected or lengthy negotiations. Compare us with our conveyancer or solicitor competitors. You will be pleasantly surprised and will have the security of knowing that your purchase has been handled by a properly qualified and experienced solicitor.
You will have access to your matter through our client portal via our website at www.kingcain.com.au.
Track your matter online in real time with our exclusive Matter Progress Timeline also accessed via our website where you will be notified by sms text message of any updates as and when they occur.