Buying a home or residential investment property for the first time can feel overwhelming. It need not be if you take your time to think through the process and enlist the support of professional advisors before making offers and signing contracts.
Whilst we generally act on behalf of people who are selling properties we are always willing to share our time and expertise with people who are purchasing properties.
Before you commence your search for a property it might be a worthwhile exercise to consider the following questions.
Home ownership and investment in residential property can be a very rewarding experience. However, whether you are looking to purchase your first home, or an investment property, you are making a major decision. It is prudent to fully consider your motivations to purchase, and all of the other options open to you.
These other options might include renting other premises if you just want a change of scenery; renovating your current home if you need more space for a growing family; or staying put for a bit longer in your current abode until you save an appropriate deposit.
It is a good idea at this point to talk with family and friends to brainstorm all of the options open to you. Once you have determined that it seems like a good idea for you to make a purchase it is then time to speak to objective professional advisors.
The purchase of a property is a major investment for most people so it is important to invest some time, effort and money in obtaining professional advice.
At a minimum you should retain the services of a solicitor or a conveyancer to act for you in respect of your purchase. However, solicitors/conveyancers will only guide you in respect of the legal aspects of your purchase.
Your first call should be to your accountant or financial advisor to determine whether your decision to purchase is in your best interests from a financial perspective.
When you come to inspect properties and are seriously considering making an offer it is prudent to obtain a building and pest inspection report from a licensed builder.
It is important to distinguish those features you need, from those features you want in a property.
For example, you might want to purchase a property that has an ocean view, but if all you can afford is a bed-sitter with such a view, and you have several children, things are going to get a little crowded.
It is a good idea at this point to write down a list of your needs and prioritise them. You need to work out the order of importance of things such as location and proximity to transport, shops, schools and your place of work; the number of bedrooms; the size of both indoor and outdoor living areas; parking etc.
Chances are that once you come to the point of assessing the affordability and availability of accommodation you will be forced to make compromises and decisions.
The economic problem is stated as “How do we satisfy unlimited wants with limited resources?” In the case of residential property many people try and solve this problem by taking on large mortgages, placing them under considerable financial pressure.
Whilst we have to make choices and compromises it is fun to dream and set some goals. With some careful planning and hard work many of the things you cannot afford today will one day become affordable. So make a wish list. Visualise what you want and then prioritise those things. You might be able to secure the first few wants on your list with your next purchase.
Most people wanting to purchase a property are not in a position to pay cash for the total amount, but rather have a deposit saved.
Therefore, for most it will be necessary to borrow money to pay for the balance of the purchase price and other purchase costs.
Therefore, before you start making offers on properties it is a good idea to obtain an indication from a finance broker or financial institution as to how much you will be able to borrow. Only then will you know the extent of your budget.
At the time of making your loan application, lending institutions such as banks will ask you to provide them with details regarding your financial situation to determine what capacity you have to make loan repayments. They need to satisfy themselves that you have the financial capability to service the loan. They will tell you how much you will be able to borrow.
When you add the amount of the loan approval to the amount of your deposit you will then know how much you have to spend, remembering of course that apart from the actual purchase price there are other significant costs associated with the purchase such as loan establishment fees, stamp duty, a building and inspection report, legal costs on the conveyance, moving costs, home insurance, and so forth.
Before you exchange contracts on your proposed purchase the bank will generally arrange for a valuer to inspect the property and provide them with a valuation before providing you with a final loan approval in respect of your purchase.
There are a multitude of finance brokers and financial institutions operating in the market, so it is worth shopping around for competitive rates and a loan that will best suit your needs.
The ways properties are marketed differ from area to area but basically you should:
- read real estate guides in the relevant local and metropolitan newspapers
- search the major Internet sites such as realestate.com.au and domain.com.au
- drive around your target area and take note of “For Sale” signs
- contact local real estate agents directly
Once you have decided on an area you should inspect as many properties as you can to get a feel for local property values.
Today it is possible to view properties over the Internet with detailed property descriptions, full colour photographs, and floor plans on offer. This technology makes it much easier to refine your property search, which saves you a lot of legwork.
However, it is prudent that you conduct a physical inspection of the property before making any offers, and imperative before signing any contracts.
Consider taking a second person with you, certainly to a second inspection, as a second set of eyes might notice things that you missed the first time around.
A building and pest inspection will reveal much more about a property than a simple walk through inspection. Builders and pest inspectors are the experts in these areas. They know what to look for, they have the tools, and they are dressed for the occasion (when you consider that a proper inspection may require you to climb under the house and/or up into the roof cavity).
If the property receives a favourable report then you can proceed with your negotiations on the basis of what you had inspected. If however there are serious defects then you have the option of walking away, requesting the vendors to carry out the rectification works at their expense, or seeking to renegotiate a reduction in price to fund the necessary repairs.
Before you make offers or sign contracts of sale it is prudent to obtain legal advice from your solicitor or conveyancer. Contracts of sale are complex legal documents and it takes an experienced legal expert to properly advise you in respect of your purchase.
The contract of sale does much more than just deal with the price, deposit and settlement of your purchase.
It performs many complex functions such as clearly defining the exact identity and location of the land; the nature of the legal title you are purchasing (e.g. Is it Torrens title, strata title, company title etc); the zoning of the property (e.g. it tells you what uses are permissible, such as residential, commercial, industrial etc); the improvements on the land (such as houses, garages etc); any encumbrances affecting the land, and so forth.
The art of negotiation like most things takes practice. As most people only buy a home every 5 to 7 years on average the opportunity to practice is somewhat limited.
Therefore, some people elect to employ the services of a buyer’s agent to locate prospective properties and negotiate the purchase. This service obviously comes at a cost, so any saving that a buyers agent negotiates on your behalf ideally exceeds the amount of their fee.
Generally speaking you are able to make offers to the vendor via the selling agent. It is then a matter for you to assess what the property is worth and how much you are willing and able to pay.
The negotiating tactics you will employ in respect of your purchase will depend upon all of the circumstances of your specific situation.
For example, if the property you are considering purchasing is in your opinion priced well, and there exists strong competition (i.e. other prospective purchasers), and you like the property, you might choose to offer the asking price.
Alternatively, if the property in your opinion, after having researched the market, is overpriced, then you might offer less than the asking price and continue searching for other suitable properties whilst you await a possible counter-offer from the selling agent on behalf of the vendor.
If you are bidding at an auction the same basic principles apply but the negotiation process is compressed in time.
It is essential that you have carried out all of your inspections and enquiries prior to attending the auction because should you purchase under the fall of the hammer no cooling-off period applies and you are obliged to pay the deposit and proceed with the purchase.
The same thing applies if the property is passed in at the auction and you exchange contracts following the auction on that same day.
We recommend you read the Office of Fair Trading’s “Bidder’s Guide” before you attend the auction. A copy of the Bidder’s Guide can be found at: www.fairtrading.nsw.gov.au/pdfs/secondarymenus/publications/ftr31.pdf
Once negotiations have been finalised your solicitor/conveyancer will meet with you and have you sign a copy of the contract of sale. The solicitor for the vendor will in similar fashion have the vendor sign a counterpart copy of the contract of sale.
The lawyers and/or the selling agent will then, upon the explicit instructions of both the vendor and purchaser, affect an exchange of contracts. At this point you are legally obliged to proceed with the purchase of the property if you and your solicitor/conveyancer have provided the vendor with what is known as a section 66W certificate (under the Conveyancing Act) that waives your right to a cooling-off period.
Should you refuse to complete the purchase in the ordinary course you will forfeit the deposit to the vendor and expose yourself to a possible action being brought by the vendor for damages.
If there has been no such waiver given in respect of the cooling-off period the purchaser has a period of five (5) working days following the date of exchange of contracts in which to pull out of the purchase. Your legal advisor will be able to explain the mechanics and full effect of these provisions to you.
Whether such a waiver occurs or not is a matter to be negotiated between the parties. Vendors invariably prefer to have the cooling-off period waived because they want a binding contract, and purchasers often prefer to retain the protection of the cooling-off provisions to allow them a final opportunity to change their mind about the purchase.
Your legal advisor will also ask you to draw a cheque in favour of the vendor’s solicitor or their selling agent, as the purchaser is generally required to pay a deposit equivalent to 10% of the purchase price.
Your deposit will be held in a trust account by the selling agent or the vendor’s solicitor until settlement.
Interest earnt on the deposit is normally divided equally between the purchaser and the vendor, although this is a matter to be negotiated between the parties.
The contract of sale will specify the timing for the settlement of the purchase. The date upon which the transaction is completed is known as the settlement date. The period between the date of exchange and the settlement date is known as the settlement period.
The average settlement period is forty-two (42) days, but this is open to negotiation. It might suit both parties to agree a delayed settlement, for example, to allow the purchaser time in which to sell their current property. Generally speaking once vendors have made a decision to sell it is their intention to sell the property and be paid without undue delay.
At settlement the legal representatives for the vendor, the vendor’s outgoing mortgagee, the purchaser, and the purchaser’s incoming mortgagee all meet to finalise the deal. The balance of the monies owing on your purchase are paid to the vendor and/or the vendor’s outgoing mortgagee, by you and/or your incoming mortgagee (i.e. your financier).
Once you have settled you are the legal owner of the property.
Once you have exchanged and you know the settlement date you are able to organise things in respect of your move, such as removalists. You will be legally entitled to take occupation of your new property once your purchase has settled.
As proposed settlement dates sometimes change it is advisable not to lock in your move for the very next day. Quite often purchasers will want to spend some time carrying out renovations on the property prior to moving in, so a buffer of a week or two is often desirable. Having said that every situation has its own demands.
On the day of settlement it is advisable that you have a pre-settlement inspection to ensure that the property is in the same condition as when you last inspected it, and that all the inclusions listed in the contract of sale are still present.
If there are inclusions missing, or if the property has been damaged since you last inspected it you should contact your solicitor or conveyancer immediately and discuss the matter. If the problem is a minor one you might decide to just proceed regardless. If it is a serious issue you might decide to delay settlement and require the vendor to rectify the problem to make good on what had been agreed between the parties.