Step 1: Pre purchase due diligence
Before purchasing a property, we highly recommend you do your due diligence on the property.
Although the seller is required to disclose certain matters to you in the Contract for Sale, these mandatory disclosures do not cover the quality of the buildings on the property or its history.
This is why you need to make some inquiries about and carry out inspections of the property before you enter into a contract. You would normally consider obtaining following reports:
- A Pest Report which would disclose any damage or possibility of damage from termites, insects, vermin, or dry rot conditions.
- A Building Inspection Report regarding the general condition of the property and the parts of it that will require repair or replacement.
- For apartments and town houses, a Strata Inspection Report to help look at things like the financial status of the strata scheme, minutes of general meetings, the strata levies buget and any cupast, current or anticipated special levies, any ongoing or pending building works, past works history, outgoings and expenditure history over the past two years, building and other insurance, 10-year budget analysis, general information on insurances, by-laws, the state of harmony and/or disputes, any other areas under investigation and the competence of the strata management and the strata committee.
You may also want to consider having the electrical wiring and plumbing examined, as this is not covered in a building inspection
You should also look at any information readily available from the local Council regarding any current or previous development applications concerning the property or any other properties in proximity to it.
Step 2: Negotiating a purchase
When you find a property you like the look of, you should see if you can get the owner and/or the agent to agree on a price, which you should propose on the basis that it is made subject to satisfactory contract and inquiries (and finance). You should also obtain a copy of the contract for sale used for marketing of the property.
In other words, you should see if you can have the seller agree on a price but leave yourself the opportunity to obtain reports and seek advice on the contract for sale, to confirm your finance pre-approval and to obtain any of the due diligence reports referred to above.
You should avoid throwing away money on due diligence reports and legal advice on the contract if you are not prepared to offer a price that interests the seller.
If you are in the market to buy a property and have an ‘in principal’ agreement on the price, you should consult us about obtaining the relevant reports and about reviewing the contract. You should also discuss your finance requirements with your lender.
If the property is to be sold at auction and you are not able to get the seller to agree to sell it before the auction, then you should obtain due diligence reports and legal advice and as far as possible, confirm your finance before the auction date.
We can advise you about these matters and seek to negotiate any necessary amendments to the contract in advance of the auction in case you are successful. Those amendments can be inserted after the fall of the hammer and before the contract is signed.
If the property is being sold by “private treaty” without an auction, then you should find out if the vendor will agree to sell it to you under a “cooling off” period (see below).
The period can be longer by negotiation if you anticipate, for example, delay in obtaining unconditional finance approval. You can then arrange your finance approval, complete your due diligence and negotiate any changes to the contract during that period.
Offer and Acceptance
Your real estate agent will either arrange with you for an auction sale or a sale by “private treaty”, whereby the agent and you will negotiate with individual buyers to secure a sale.
We will assist you by advising on and responding to any requests to negotiate amendments to the contract. This can happen in the run up to an auction as well as during the bargaining process for private treaty sales. Contract amendments agreed to before an auction are addressed by the agent after the fall of the hammer and before contracts are signed and exchanged.
In a private treaty sale, the agent will contact you with any offers from prospective purchasers. Once you have accepted an offer, the agent will issue a sales advice to all parties with details of the agreed price and any agreed additional terms. The contract is binding when contracts are exchanged and a deposit is paid and is then legally binding.
Cooling off
Unless the property is sold by auction, you might be asked by a purchaser to agree to a cooling off period. Under the law, purchasers in NSW are entitled to at least a five (5) business day cooling off period, unless the purchaser agrees to waive it.
There is no cooling off period for sales made at an auction.
With a cooling off period, you can enter into the contract to purchase a property but you can then rescind (cancel) the contract before the cooling off period expires. The cooling off period is to prevent your purchase offer being “gazumped” by another buyer if you need time to arrange finance or conduct due diligence before committing unconditionally to the purchase.
If the seller agrees to you having a cooling off period, you must pay 0.25% of the agreed price when the contract is entered into. If you proceed with the contract beyond the cooling off period, you must pay the balance of the deposit before the cooling off period expires. If you decide not to proceed and you rescind (cancel) the contract, the 0.25% cooling off deposit is forfeited to the seller.
Once the contract is entered into under a cooling off period, the seller remains bound by it unless, before the period expires, you notify the seller that you are rescinding the contract. The property cannot be sold to anyone else during the cooling off period.
In busy high-demand markets, sellers most often require buyers to waive their cooling off rights if the purchaser wants to buy their property. If that happens, the purchaser must provide a “cooling off certificate” known as a Section 66W certificate, which is signed by their solicitor or conveyancer. If that is the case for you, we can provide the cooling off certificate to the seller on your behalf.
Deposit
Typically, 10% of the purchase price is the deposit paid on exchange of contracts. Often (particularly in Sydney) a 5% deposit is accepted on exchange of contracts. The deposit is usually held in the agent’s trust account and can be invested in an interest bearing account for longer settlements in which case the interest earned is split 50/50 between the purchaser and vendor after settlement.
If there is no agent involved, the deposit is usually held in the trust account of the seller’s solicitor or conveyancer.
It is also possible for the contract to require that some or all of the deposit money must be released to the seller to assist with the payment of a deposit or stamp duty needed to purchase another property. We would normally seek to delete that requirement wherever possible, so as to minimise the difficulty of retrieving the deposit in the unlikely event that the contract were to be rescinded after the cooling off period.
Step 3: Entering into a Contract
Exchange of contracts
To enter into the contract to buy the property, whether at an auction or otherwise, there is an exchange of identical counterparts of the contract for sale, one signed by the seller and the other signed by you as the purchaser. The contract date is the date when this exchange of contracts takes place.
Once the cooling off period has expired, or upon exchange of contracts if the sale is done at an auction or if the cooling off period is waived, the contract becomes unconditional and binding upon both the seller and on you as the purchaser.
Contract period
After the contract has been entered into, there follows a period during which we have to attend to a number of requirements before the seller can hand over the title to the property (see below). The contract period is usually six (6) weeks, although this period is also negotiable.
Stamp Duty
Whilst State governments still charge stamp duty, purchasers of property have to pay stamp duty on the market price of the property before settlement can take place.
We will prepare the necessary Purchaser Declaration which is a Commonwealth Reporting requirement for any acquisition of land to be compelted and returned to our office to enable the Transfer and Contract to be stamped.
Stamp duty is payable on or before settlement or within three (3) months after exchange of contracts, whichever is the earlier. If the required information is not provided to the state revenue authorities, the stamping will not take place and penalties may be imposed.
We will liaise with you to ensure that stamp duty is paid on or before settlement of the purchase.
Statutory Enquiries
We will obtain certificates from various government departments and other bodies to ensure that the property is not adversely affected by any government proposals or charges or other matters that the seller is either not aware of or else is not required by law to disclose.
When all of our enquiries and satisfactory answers to requisitions on title are received, settlement can proceed.
If any of the enquiries or answers are unsatisfactory we will let you know. In rare circumstances, the results disclose something that affects the property adversely enough that you may have the right to rescind the contract or make a claim against the seller. We will advise you about your rights in that regard.
It is important to emphasise that all legal searches and enquiries which we normally make relate only to the property you intend to purchase. They do not relate to neighbouring properties
Amount required for Completion
In addition to payment of the balance contract price, we will allow for an adjustment of council and water rates and charges and strata levies and land tax (if aplicable), which are adjusted from settlement date. We will calculate these adjustments and provide you with the total amount payable.
Liaison with others
As the date for settlement approaches, arrangements are made for settlement with outgoing and incoming mortgagee banks and we will liaise with the seller’s representative and with your finance institution to ensure that arrangements for settlement are made successfully.
Before the seller will also prepare to vacate the property (unless it is already vacant or there is a tenant remaining in the property after settlement).
In the three (3) days before settlement, you will have the right under the contract to arrange with the selling agent to make one pre-settlement inspection of the property.
Step 4: Settlement
Settlement is the final step in the conveyancing transaction. This is when the title is transferred to you as the purchaser, any registered mortgage is discharged and any new mortgage by you is registered and all payments are made to the seller and the seller’s mortgagee bank and others.
PEXA
Settlements generally have to take place using an electronic platform known as PEXA. We must obtain your express authorisation to complete the sale for you on PEXA and we will have to obtain verification of your identity as part of that process.
The electronic conveyancing process involves the use of electronic forms and signatures for property dealings for mortgages, caveats and transfers. It also enables payments to be processed electronically from and to the various participants in the settlement.
Typically settlement takes place in the early afternoon and will take approximately 45 minutes. You do not need to be present at settlement as this is now a secure online process.
Immediately after settlement the Valuer General, local council, water authority (and strata manager if applicable) will be notified of the change of ownership.
We will notify you of completion of settlement and liaise with the agent to release the keys to you once the seller has notified of settlement. The agent will then also be authorised to release the balance of the deposit to the seller less their agent’s commission.
How Craddock Murray Neumann Lawyers can help you
Over the years, the property team at Craddock Murray Neumann has assisted many clients in relation to buying and selling residential, strata, company title, commercial, industrial and rural properties.
If you are looking at buying an apartment in a “company title” property, the above process is slightly different because you are buying shares in the company that own the property rather than buying an interest in land. We have a separate Basic Guide regarding the sale and purchase of Company Title properties.
For more information on how our property lawyers can help you with buying a property, please contact our team at craddock@craddock.com.au