BUYING A HOME OR A UNIT

Published 25 Nov 2015
Louis Andreatta

Buying at auction

If you are the highest bidder at an auction and the agent accepts your offer by informing you the property is sold to you, you are required to immediately sign the contract for the bidded price and you will not have the benefit of a cooling off period which means that the contract is immediately binding on you.

This means that you have entered into a binding contract to purchase the property. At the time of signing the contract, you are required to pay the agreed deposit which is normally 10% of the purchase price. The balance of the purchase price will be paid by you on completion which is normally 42 days after the date of the auction.

Prior to making a bid for a property at an auction, we strongly advise that:

• You consult Maclarens Lawyers and provide them with a copy of the contract. We will then be able to advise you of any terms in the contract which might not be in your favour and prior to the auction, on your behalf we will negotiate with the vendors solicitor to change those unfavourable terms.

• We also strongly advise that if you are buying a residential dwelling that you obtain a building inspection report and pest inspection report prior to attending the auction. Normally it is too late to do this after purchasing at auction.

• If you rely on borrowed funds to complete the purchase, make sure that you obtain written confirmation that your loan application is approved from your lender, (normally a bank) before attending the auction. If you cannot complete the purchase because the bank will not lend you the balance of the purchase monies, you will forfeit the deposit you have paid to the agent and in addition you may be liable to the vendor in damages.

• If you are buying a residential unit in a strata plan, you should obtain a strata report. This should identify any existing problems with the building.

Buying by private treaty or negotiation (not at an auction)

This is where the seller advertises the property for sale and the amount they would like to achieve for their property and then negotiate with prospective buyers. The property is sold when there is an exchange of contracts. When your offer is accepted, generally, the agent will require you to sign a contract and when you have signed the contract, the agent will exchange contracts. An exchange of contracts occurs when you have signed a contract and the vendor has signed an identical contract. The contracts signed by you and the vendor are dated by the agent. At that moment, you have entered into a contract to purchase the property and the vendor has entered into a binding contract to sell the property to you. You or your nominated solicitor receives the contract signed by the vendor and the vendor or his nominated solicitor receives the contract signed by you as purchaser.

At the moment, of exchange of contracts, although you have entered into a contract to purchase the property, the vendor is still the owner until completion occurs. Completion normally takes place 42 days after the date of exchange. The period between exchange of contracts and completion can be varied by agreement with the vendor.

If the exchange of contracts is undertaken by the vendor's agent, normally the purchaser will have the benefit of a 5 working day cooling off period. This means that at the time of signing the contract you are required to pay 0.25% of the purchase price to the agent and the balance of the agreed deposit (which is normally 10% of the purchase price) is paid to the agent on or before 5:00pm on the last day of the cooling off period.

The purchaser who has the benefit of a cooling off period may change his or her mind and rescind the contract by providing the vendor with a written notice of rescission, providing this is done before the cooling off period expires. In the event the purchaser exercises her or right of rescission during a cooling off period, the purchaser will forgo 0.25% of the purchase price paid at the time of signing the contract.

A vendor may ask you to forgo the cooling off period. This can only occur if you provide the vendor with a certificate obtained from a solicitor stating that the solicitor has explained the contract to you at the time you signed the contract (this is called a section 66W certificate). In that event, you will be required to pay the full agreed deposit and the contract will be binding on you and you will not have the benefit of a cooling off period.

It is most important that you contact Maclarens Lawyers immediately after signing a contract which is exchanged by a real estate agent.

It is most important that during the cooling off period you:

• Obtain written confirmation from your lender that your loan application is approved.

• If you are buying a residential dwelling, that you obtain both a building report and pest report. If you are unhappy with the condition of the building after obtaining those reports, you may elect to rescind the contract if you have a benefit of a cooling off period in which case you will forgo 0.25% of the purchase price paid when signing the contract.

• If you are buying a residential unit in a strata plan, you should obtain a strata report.

Stamp Duty

In New South Wales, the sale of property is taxed. The tax is called stamp duty and this is payable by the purchaser. Prior to exchanging a contract, you should ask Maclarens Lawyers to advise you on the amount of stamp duty you will be required to pay if you purchase the property. The stamp duty is paid to the Office of State Revenue.

Is the contract always binding on a purchaser?

The vendor is required to attach certain "vendor disclosure documents" to the contract by law. Further, by law the vendor is required to make certain warranties. In the event the vendor has failed to include all vendor disclosure documents in the contract or in the event that the vendor has breached a statutory warranty, you may be entitled to get out of the contract for sale and get your deposit back even when you have signed the contract and there has been an exchange of contracts.

First Home Owners Grant and stamp duty concession or exemption

If you are buying your first home you may be entitled to a grant from the government, you may be entitled to either an exemption or reduction in the amount of stamp duty you would otherwise be required to pay. This information can be obtained from the Office of State Revenue website (www.osr.nsw.gov.au).

Buying a strata title unit

Generally, when you purchase an apartment, unit or townhouse, you are purchasing the airspace inside the lot that you are buying. Each unit is a lot in the strata plan. The physical building is owned by the Owners Corporation which is comprised of the collected of all lot owners. Your share in the strata plan is the proportion that your unit entitlement is of the aggregate unit entitlement.

Because the physical building is owned by the Owners Corporation and not you, you will be required to pay strata levies. Levies are accumulated by the Owners Corporation from all lot owners. The Owners Corporation applies the levies that you pay to its administration fund and the sinking fund and uses those funds to maintain the building on your behalf.

You are required to comply with the By-laws. By-laws are the rules which make sure the Strata Scheme runs smoothly and that your building generally a harmonious place to live in. By-laws cover issues such as parking, the keeping of pets and the use of common property.

If you are buying a residential unit in a strata plan, you should obtain a strata report. This should identify any existing problems with the building.

Mortgage documents

To buy a property you may need a mortgage. A mortgage gives a lender rights over the property that you are buying including the option of selling it if you default in making mortgage repayments.

Maclarens Lawyers can help you make sense of the mortgage documents when it comes time to sign the mortgage documents. You should ensure that you have signed the mortgage documents at least two weeks prior to settlement.

After exchange and before settlement

After exchange in contracts and before settlement your solicitor from Maclarens Lawyers will make numerous enquiries of various government departments regarding the property that you are buying to make sure that the property it is not adversely affected by.

Settlement

Normally settlement occurs 6 weeks after the date of exchange. However, this can be varied by agreement with the vendor. At settlement you will pay the vendor everything you owe the vendor to settle the purchase of the property.

At settlement you pay the balance of the purchase monies as well as any adjustments for rates and taxes such as council rates and water rates.

If you cannot settle by the date set out in the contract for sale, you are likely to be charged interest by the vendor. In some circumstances, the vendor may even be able to cancel the sale and keep the deposit that you have paid.

Make sure that you advise your solicitor as soon as possible if it looks like you cannot complete the purchase on the settlement date so that attempts can be made by your solicitor to come to an arrangement with the vendor's solicitor.

Usually you do not attend settlement in person. Instead, your solicitor and the vendor's solicitor will meet to make sure they have everything required to complete the sale. If you are taking out a mortgage to pay for the property, a representative of your bank will also attend settlement.

Once settlement occurs, your solicitor will call you to let you know that you are the owner of a new home.

Maclarens Lawyers will be happy to assist you when it comes time for you to purchase a property. We are experts in this area.