Be prepared! Finances and inspections

So you’ve found your dream home and it seems to be in your price range. But there are a few more steps you must take before you can call it your own.

Finances

By now, you should have pre-approval for your home loan. In order to get formal approval, you need to give your home loan specialist the details of the property (and any other outstanding information your home loan specialist may require). Final approval is likely to take a few days –, as the lender may organise such things as an independent valuation of the property.

Inspections

You should have building and pest inspections carried out. If you’re buying a unit, townhouse or villa, you’ll also want a strata title search. Even if you’re madly in love with the place and determined to buy it no matter what, knowing its flaws could help you knock the price down. The few hundred dollars spent for each of the inspections or searches could save you tens of thousands of dollars down the track.

For property inspection referrals visit Master Builders Australia.

Building Inspection

A building inspector will look at the property inside and out (including the roof space and under-floor space, garages, sheds and fencing) and examine issues of fire-safety upgrading, noise transmission and waterproofing.

Keep in mind the building inspector won’t always be able to identify every problem, particularly if they haven’t been able to gain access to certain areas of the property or if some faults (such as leaks) are not visible. Some faults that might be identified could include cracks in the walls, rising damp, leaking roof, asbestos in the building or drainage problems.

Once you receive the building inspection report, read it carefully. Generally, the report won’t include quotes for fixing any problems, unless you’ve specifically requested quotes and the building inspector is able and agreeable to providing you with this and possibly paid more – but the inspector may be able to give you an idea of whether repairs will be expensive or not.

Survey

Having the property surveyed is also a smart idea. A survey will set out the property boundaries; you don’t want to move in and find your extension plans are thwarted because the neighbour owns half of your backyard for example.

Make an offer - private treaty

Once you’ve sorted your finance and organised the inspections and other necessary inquiries, you’re ready to make an offer.

Note:you can make an offer before you receive formal loan approval and the inspection reports etc, so long as you specify the offer is conditional on finance, the results of the inspection or any other matters to be resolved. The vendor will then decide whether or not to agree to a conditional offer. In addition, there may be some negotiating over the price or, in some instances, another buyer could step in with a higher offer and you could lose out. Even if the vendor is agreeable to your ‘conditional’ offer, it’s not legally binding on either of you until the contracts have been exchanged (which means you could be gazumped – meaning the vendor could accept someone else’s better offer). How much should you offer? For some, the general rule of thumb has traditionally been to make an initial offer of 10 per cent below the asking price. However this isn’t always going to be the best approach. You should do your research so that you know what the property is worth, based on the selling price of similar homes in that area.

Tips for making an offer on a property

• Don’t go with your highest offer first (unless you know the owner is seriously considering other offers).
• Find out from the agent as much as possible about the vendor’s requirements/intentions. If the vendor is in a rush to sell, you might be able to knock more off the price. But don't forget the agent is acting for the vendor, not you.
• Try not to give away how much you love the place because the agent may think they can get a better offer out of you.

There are two types of offer:

Unconditional offer

 If you make an unconditional offer, you have to be absolutely certain that it is the property you want and you have enough money to purchase it. Once the vendor has accepted your offer and contracts are exchanged, you are legally obliged to go through with the sale (subject to your rights to terminate at law and under the contract).

Conditional offer

A conditional offer is also a binding contract, but only if all the conditions you specify are satisfied. Otherwise you can legally back out. Some common conditions include:

• Subject to valuation – the sale will only go ahead if the valuation of the property is acceptable to you and your lender.
• Subject to finance – the sale will only go ahead if your home loan provider approves your finance. 
• Subject to a satisfactory builder or surveyor’s inspection – the sale will only go ahead if you are satisfied that the house or land it is on, are sound.

Depending on your circumstances, there may be other conditions you need to factor into your sale (and thus contract) such as ‘subject to repairs being carried out'. Either way, speak with your solicitor as early as possible about the proposed purchase to ensure you are adequately protected under the contract. Most importantly, don’t sign anything until you’re satisfied with all the terms and conditions of the contract or any other documentation.

Bidding at auction

You may find the property you have your heart set on is up for auction. Just be aware that buying at auction requires thorough preparation beforehand and nerves of steel on the day.The number one rule is to set your budget and stick to it. Be very clear about what you can afford and what the property is really worth - and remain calm on the day so the atmosphere doesn’t carry you away. Bidding usually starts in large increments of $10,000 or so, and may finish up in increments as small as $500. Check out RAMS Buying at Auction checklist.

In some states, you must also register as a bidder with the agent before the auction. Before attending the auction, you need to have your finances sorted. Bids can be made either verbally or with a nod or hand signal, but once a bid has been made, it can’t be withdrawn. If the reserve isn’t reached, the person who made the highest bid will usually have the first right of negotiation with the vendor.

If you’re the successful bidder, you have to sign the contract and pay the deposit immediately – there is no cooling-off period. Because of this, it is very important you obtain the building, pest and strata inspections reports and have your solicitor or conveyancer look over the sale contract, before the auction.

Some tips for bidding at auction:

• Bring someone to help you keep calm and stay within your limits.
• If you’re buying a property with another person, talk to that person beforehand and agree on limits, so you’re not negotiating with each other under pressure.
• Make your bids decisively – iIt may put pressure on those who are unsure or looking for a cheap deal.
• Making your bids early and loudly creates the impression you are prepared to go as high as it takes.
• Some bidders wait until the reserve is reached and the property is declared to be ‘on the market’. Be ready for this.
• Agents will be walking around cajoling another bid from you and others. Stand firm.
• When the bids are in small amounts, it usually means a sale is near. Take your time and try and read what the other party/s are prepared to do. Are they near their limit?

Buying off the plan

Buying a property off the plan may be a good way to get your foot in the door early. You will usually pay about 10 per cent of the purchase price upon exchange of contract and then pay the rest once the building is finished.

In some instances, it may be cheaper buying off the plan than an existing property. The downside is you must pay the deposit well before you can move in – essentially you are purchasing an unseen property. There is also the risk that the builder or developer may strike financial difficulties, placing your investment in doubt.

Most off-the-plan sales go ahead without a problem. However, before you buy off the plan, investigate what you get for your money. Ask about fittings, along with carpets and painting, as they may or may not be included in the price. Research the developer and establish their track record. One way of doing this is looking at other properties they have built.

Pay the deposit

Once your offer has been accepted, you need to pay your deposit (which is usually when contracts are exchanged). The deposit is generally (but not always) 10 per cent of the price of the property. The most common way of paying the deposit is by cheque, preferably a bank cheque.

Deposit bonds are another option. Not all vendors accept deposit bonds, so make sure you check this out beforehand.

In any event, the vendor will advise how he or she requires you pay the deposit.

Organise insurance

You will need to arrange insurance for your new home. Not only is it the sensible thing to do, but most lenders will insist on proof the property is insured before giving you a home loan.

Although the vendor’s insurance should cover the property until settlement, you should seriously consider taking out insurance that covers the property from the date contracts are exchanged. That way, if the vendor hasn’t taken out proper insurance, you’ve got it covered.