After your offer has been accepted and before you obtain the keys, a few important items need to be settled such as stamp duty and insurances.
In a sale by private treaty, there is a verbal agreement between you and the vendor or agent to purchase the home. However, don’t start celebrating the deal just yet.
Neither you nor the vendor is legally bound to proceed with the purchase until contracts have been exchanged.
This is a worrying time for both parties. Essentially all you’ve done is offer to purchase the vendor’s property. Until contracts are exchanged you’re in a ‘limbo’ period, which means either party can pull out or you could be gazumped.
Gazumping occurs when you reach a verbal arrangement on price with the vendor but the property is sold to someone else.
This usually occurs because the vendor accepts a higher bid. Being gazumped is not only heartbreaking but can also be expensive if you’ve already spent money on building and pest inspections, searches or solicitor’s fees.
Unfortunately, there is nothing you can do to prevent this from occurring
To avoid becoming a victim, be prepared to move quickly to exchange by:
You and the vendor aren’t locked into the deal until contracts have exchanged. A Contract of Sale is a legal document that sets out the terms and conditions of the sale including the price and settlement date.
It should contain a copy of the property title, any local planning certificates, a sewerage diagram, the general terms and conditions, inclusions (such as selected fixtures and fittings, dishwasher or floor coverings) and any special conditions.
You can do this legal work yourself (there are DIY kits available) but this is not recommended for most buyers, particularly first home buyers. It’s a far better idea to employ the services of a solicitor or professional conveyancer.
Ask for a quote first, and compare prices. Most solicitors charge a fee calculated on the price of the property, the type of title and the mortgage or complexity of the deal. Others may charge an hourly rate on a ‘time spent basis’.
Solicitors are sometimes more expensive than conveyancers but can provide a wider range of legal services, whereas licensed conveyancers can only give legal advice relating to property. They generally charge either a flat fee or a price based on the value of the property.
Both a solicitor or conveyancer will look at the contract, discuss the terms and conditions and ensure the relevant searches and inspections are carried out.
During this period, you (or your solicitor or conveyancer) can negotiate any changes to the contract and ensure amendments reflect agreed changes.
Inspections can be provided by:
It is your legal representative’s job to ensure there are no hidden surprises before you take ownership of the property.
This involves checking all rates and taxes are paid up and that the vendor is legally entitled to sell. They should also check heritage orders and any other peculiarities of the property.
Generally speaking, the vendor will not provide any guarantees as to the structural soundness of the property so it’s essential you get an independent body to do this for you.
Building and pest inspections are strongly recommended and your solicitor or conveyancer may ask you to organise one.
If, for example, the new house you’re interested in is the only property with two storeys in the street, have your legal representative obtain a building certificate from the local council to ensure it complies with requirements.
They should also check planning regulations for the area. Some councils can prove ‘challenging’ when it comes to granting renovation or building approvals, which means your plans for additions or to add an extra storey, could be severely restricted or not allowed at all.
Once you’re happy with the form of the contract, the necessary checks have been made and you’ve organised finance, you should be ready to exchange contracts.
There will be two copies of the sale contract: one for you and one for the vendor. You’ll each sign one copy of the contract (you usually do this at your solicitor’s or conveyancer’s office) and your paperwork is swapped or ‘exchanged’ with the vendor’s.
This can be done by hand or post and is usually arranged by your solicitor or conveyance, or the vendor’s, in consultation with the agent.
At this time, you’re required to pay a deposit of usually 10% of the purchase price. Some vendors will be prepared to accept a 5% deposit, so it pays to ask before you exchange (as the deposit will be listed in the contract). The contract will include a settlement date, which is the date that the property becomes yours. If the property was bought at auction, the exchange of contracts will occur on the day, where/when the auction is conducted.
Depending on the state or territory in which the property is located, and the terms of the Contract for Sale, most buyers of residential property receive a cooling-off period (with some exceptions, such as if you buy at auction or you agree to waive your cooling off rights).
This period normally starts on the day of exchange and ends around five business days later. Within this time, you, the purchaser, can withdraw from the sale. However, you will usually forfeit around 0.25% of the purchase price.
Depending on the terms of the contract, the cooling off period is usually the last chance to organise a building inspection or a pest report. As a side note, you should organise written confirmation that you have loan approval before the end of your cooling off period.
The date of settlement is when you take legal ownership of the property. The balance of the purchase price has to be paid on this day.
Settlement usually takes about 6 weeks (or 30 days in Queensland) from the time contracts are exchanged. However, it is not unusual for the settlement period to be changed so long as the vendor and purchaser agree, and it is reflected in the contract for sale.
On or prior to the settlement date, you’ll need to ensure that you’ve organised (among other things):
Don’t try to insure the house for less than full replacement value (which can be different from the purchase price). If you do, you risk receiving only a percentage of the actual value of the house in the event of a disaster.
Your solicitor or conveyancer will get you to sign a Transfer of Land prior to settlement, which will be handed to your lender at settlement.
It will then be registered at the relevant state or territory Titles office on your behalf to officially document the change of ownership of the property.
When your solicitor or conveyancer is satisfied everything is in order, a settlement time will be booked. They will contact your lender and the vendor’s solicitor to arrange the date and place of settlement.
On the morning of settlement, it’s recommended you take a final look at the property with the agent. This is to make sure the owners or their tenants are really moving out and that they are not removing light fittings or door handles, or other exclusions noted earlier in the sale contract.
Payment of balance of purchase price
The balance of the property price will be handed over to the vendor’s solicitor in return for the title of ownership.
You’ll need to arrange to collect the keys, usually from the agent. A good tip is to change your locks because you don’t know if a tradesperson or cleaner has had prior access to the property.
Now, the property is really yours. Congratulations! You own your new home. It’s time to open that champagne.