Finances and inspections
So you’ve found your dream home and it seems to be in your price range. That’s’ great. But there are a few more steps needed before it’s yours.
By now, you should have conditional approval for your home loan. In order to get formal approval, you need to provide details of the property and any other documents 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.
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.
A building inspector will look at the property inside and out (including the roof space, under the floor, garages, sheds and fencing where access is available) and examine issues of fire-safety upgrading, noise transmission, infestations 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, or if some faults (such as leaks) are not visible.
Issues that might be identified could include cracks in walls, rising damp, leaking roof, asbestos presence or drainage problems.
Once you receive the building inspection report, read it carefully. Generally, it won’t include quotes for fixing any problems, unless specifically requested. (But the inspector may be able to give you an idea of whether repairs will be expensive or not)
Having the property surveyed is also a smart idea (not required for ‘strata’ properties). A survey will set out official 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.
Making a private treaty offer
Once finances are sorted, inspections carried out and other necessary inquiries made, you’re ready to make an offer.
NOTE: you can make an offer before you receive formal loan approval and the inspection reports, so long as you specify the offer is conditional on finance, the results of an upcoming inspection or any other matters still outstanding.
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 – that is, the vendor could accept someone else’s better offer).
How much should you offer?
- Do your research so that you know what the property is worth, based on the selling price of similar homes in that area.
- The agent is acting for the vendor, not you.
- 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.
What are the two types of offers?
- 1. Unconditional - you have to be absolutely certain that it is the right property, property inspections are satisfactory and your finances are in good order.
- 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 in a limited range of circumstances).
- 2. Conditional offer – once you’ve exchanged, this is also a binding contract, but only if all the conditions specified in the contract are satisfied. Otherwise you can legally back out. Conditions could include:
- Subject to valuation – the sale will only go ahead if the valuation of the property is acceptable to your lender
- Subject to finance – the sale will only proceed if your home loan provider approves the finance
- Subject to a satisfactory building, pest and/or surveyor’s inspection – the sale will only go ahead if you’re 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 the sale (and thus contract) such as ‘subject to repairs being carried out'.
- Either way, speak with your solicitor or conveyancer as early as possible about the proposed purchase to ensure you’re 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.
Tips for bidding at auction
- You may find the property you have your heart set on is up for auction. Just be aware that this requires thorough preparation beforehand and nerves of steel on the day.
- The number 1 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 (PDF).
- In some States and Territories, you must also register as a bidder with the agent before the auction. It’s assumed your finances have been sorted in advance of attending.
- 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.
- 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 – it 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, and thus ‘scare’ off some of the competition.
- Be ready for some bidders waiting until the reserve is reached and the property is declared ‘on the market’.
- Agents may be walking around cajoling further bids from you and others, so stand firm.
- When bids are in small amounts, it could mean a sale is near. Take your time and try to read what the other bidders are prepared to do.
Buying off the plan
- Buying a property off the plan may be a good way to get your foot in the property door early. You’ll usually pay about 10% of the purchase price upon exchange of contract, and then pay the balance once the building is completed.
- 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.
- NOTE: 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’ve 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% of the purchase price. The most common way of paying the deposit is with a bank cheque.
- Deposit bonds are another option. Not all vendors accept deposit bonds however, so make sure to check this out beforehand.
- In any event, the vendor will advise how they require you pay the deposit.
- Unless your new home is a unit, townhouse or villa, you’ll need to arrange insurance . 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. Check in your local state, as it may be a legal requirement to be insured from date of exchange.
- That way, if the vendor hasn’t taken out proper insurance, you’ve got it covered and are not left in the lurch should anything unforeseen eventuate.
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