What you should know before signing a Contract of Sale to purchase a property
Buying a property will probably be one of the most important financial decisions you will make in your lifetime. It is therefore important that you obtain the correct information before you sign the Contract of Sale. Firstly it is important to ascertain how you are going to fund your purchase and organize the necessary loan pre-approvals if you intend borrowing from a bank to fund the purchase.
You have the option of going directly to a bank or dealing with a mortgage broker. After assessing your financial situation they will give you a few options to enable you to set your budget. When you sign the Contract of Sale you will need to pay a deposit of 10% of the purchase price of the property. This can be in the form of cash a bank guarantee or a deposit bond. You must discuss all these options with your lender at the time of organizing the finance and decide on what form of deposit you will make.
The bank will give you a pre-approval of a loan but you must remember that the bank will always need to conduct a valuation of the property prior to confirming that they can go ahead and finance your purchase. It is important to remember that when you buy a property at auction, it is an unconditional sale and you are locked into the contract that you have signed. You have no right to “cool of” or exit the Contract if you do decide to change your mind. Therefore if the valuation comes in at less than what was anticipated, you may end up having to bridge any gap in funding with your own funds.
Once you have got your funding organised you must then decide whether you are going to buy at auction or a private sale. You maybe considering both options at the initial stages. It is advisable to meet with a lawyer who does conveyancing at this time and get an overview of the conveyancing process and also obtain his/her advice of what you should look out for prior to making an offer to purchase.
Depending on the area you are considering buying in, you will now do your searches on sites such as www.domain.com.au and realestate.com.au to find a suitable property. Once you have identified a property that you are interested in purchasing, you must do a through inspection of the property when it is open for inspection. You must check that all appliances, heating cooling etc are in working order. If the property has a remote garage door it is advisable to ensure that all the remotes etc will be made available at settlement. There have been innumerable occasions where clients have come to me a few days prior to settlement and told me that when they conducted their final inspection the remote garage door was broken, the remotes were missing, various door keys were missing and appliances were not in working order and there is not much that can be done at this point in time. When the purchaser signs the contract of sale he accepts the property in the condition it was in when the contract was signed “fair wear and tear excepted.” The vendor often relies on this condition and will notify me that the property was in that condition at the time the purchaser signed up so they have infact accepted the property in that condition.
Therefore to avoid situations of this nature, it is best that you ensure that everything at the property is to your satisfaction and in working order before signing up. If you are unsure about doing this yourself you may decide to get a building inspector to carry out a building and pest inspection at the property and give you a detailed report. A building and pest inspection can cost between $400 and $600 but it well worth spending this money to ensure peace of mind. Another important thing to do is to measure the land prior to making an offer to ensure that the fences are in the correct place. If you discover that the fences are not in the correct place after you have signed the contract of sale, there is nothing you can do about it.
When you make an offer to buy at auction you are making an unconditional offer and you cannot get out of the contract if you decide to change your mind. Therefore it is imperative that you do all the necessary checks before you go to auction. However if you are buying at a private sale you maybe able to negotiate with the agent and insert special conditions in the Contract to allow you to conduct a building a pest inspection within 7 days of making your offer. However depending on the manner in which the clause has been drafted you may only be released from the Contract if there is a major structural defect. So if there are other minor building issues with the property it is unlikely that you will be able to get out and will have you will have to proceed with the purchase.
You however have a three-day cooling off period when you make an offer to buy a property at private sale. You can exercise your right to cool off within three business days of signing the Contract of Sale. So if the building inspection is not satisfactory and it has been done within this three-dayperiod you can exit and not proceed with the purchase. The right to cool off is not available if you buy at auction or if you make an offer to purchase a property three business days prior to auction or three business days after the auction date. So you must be very careful when making an offer on a property that has been passed in as you may be making an unconditional offer.
It is also advisable to insert a special condition into the Contract of Sale when you purchase a property that the “offer is subject to finance.” You will be required to stipulate the number of days you require to get the finance approved by your lender and you may need to apply for an extension on this time period if there is a delay in getting the necessary approvals.
Finally you must get your lawyer who is handling the conveyancing for you to check the Contract of Sale and Section 32 Vendor Statement before you make the offer. You lawyer will be able to advise you as to whether there are any other matters that require consideration. You must discuss with your lawyer at this time the name of the purchasing entity for the property as you will need to put the correct name of the purchaser in the Contract of Sale. If you are buying it in your personal name you must always write your full name as it is in your passport or drivers licence. If you don’t do this, the name on the contract will have to be amended later and this may incur additional costs. If you are buying the property in the name of a company, then you must put the name of the company in the Contract and two directors must sign the Contract. The directors will also be required to execute a guarantee wherein they guarantee performance of the contract on behalf of the Company.