Glossary of useful terms and definitions
A right to use a corridor or passage of land which is owned by another.
Electronic Funds Transfer. The electronic transfer of funds from one account to another.
An outstanding liability or charge on a property.
To sign the back of a cheque to confirm or transfer its ownership to someone else.
The difference between the amount you owe on your home loan and the current value of your property.
The lender’s fees which may or may not be charged to set up a loan.
The legal point of time when the vendor and purchaser swap documentation and start enquiries with a view to settlement.
Exchanging contracts is the legal component of buying a property. Two identical copies of the contract of sale (one for the purchaser and one for the seller) are prepared once all inspections are completed and the finance is approved in writing. Each party signs their own copy of the contract of sale then they are swapped or 'exchanged'. The contract then becomes binding on both parties and generally would not be altered. However, in the event of an unforeseen change of circumstances affecting either party between the exchange of contract and settlement, changes to contract terms can be made providing all parties agree. On exchange of contracts a 10% deposit is usually required. This is typically paid via bank cheque, although deposit bonds are becoming increasingly popular. A deposit bond can be purchased to cover the deposit provided that the seller agrees. A deposit bond is a simple, cost-effective way to cover the deposit on a property purchase when you don’t have immediate access to cash but do have the finance approved. The value of the bond is equal to the required deposit.
A 'cooling-off period' may also apply after contracts are exchanged. This refers to the period of time during which the purchaser may cancel the contract, although they will lose a portion of their deposit. The cooling-off period is not available for properties purchased at auction and is not available in all states, so check with your legal adviser.
When you exchange contracts you need to commence the process of transferring legal ownership from the previous owner to you. This process is called conveyancing and, while you can do it yourself, it’s wise to seek professional legal advice to ensure that the contract is fully examined and any issues are identified. A conveyancer or a solicitor can identify whether the property has any caveats, easements, restrictions or conditions that may affect your purchase decision. Your conveyancer will look after all the transaction and contract details for you and guide you through the settlement process, loan documentation and formal searches. Be mindful that regulations and conditions associated with the purchase of property vary from state to state, and between private treaty and auction. You’ll need to check with your conveyancer or solicitor that the contract of sale details all of the home fittings and inclusions that you agreed would be included in the purchase. Inclusions can include ovens, dishwashers, curtains, light fittings, etc.
Your conveyancer or solicitor will also handle the entire settlement process, including liaising with your lender and the agent/vendor. Settlement generally occurs 4 to 8 weeks after exchange of contracts depending on the state you are purchasing the property in. However, the parties can negotiate a longer settlement period. If you’re buying at auction, you’ll need to negotiate any extension prior to the auction.
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