How to buy?
Property Purchase Process
Below are the usual procedures when purchasing a house or unit in NSW. Most of these steps can be applied to other jurisdictions but it must be noted that each state and territory enforce different rules when it comes to real estate transactions. For example some states do not enforce a cooling off period. When it comes to the point where you have found a house or unit you are interested in and you have attained a copy of the contract of sale you should always seek legal advice before signing the contract.
Step One-Find out how much you can borrow & obtain a conditional loan approval
It is important that you find out what your borrowing capacity is before you go searching for a property. This will help you decide which properties you should inspect. You should also complete a budget to ascertain how much you can afford in repayments. The amount that the bank says it will lend you may involve repayments that are greater than the amount you can afford. You should never overextend your financial capabilities.
Step Two-Inspect properties in your price range
Once you know your borrowing capacity you can then search for and inspect properties in your price range. Obviously, when inspecting properties, it is important that you look for any obvious problems. Also to maximise capital growth you should research the surrounding area. Schools, shops and public transport nearby will make the property more attractive to future buyers and should therefore ensure that you experience good capital growth.
Step Three-Obtain the contract of sale for property you are interested in purchasing
Once you have found a house or unit that you are interested in purchasing you should ask the real estate agent for a copy of the contract of sale. If you haven’t already found a solicitor or conveyancer you should, at this point find one. You should then take the contract of sale to the conveyancer so it can be checked for any irregularities.
Step Four-Make an offer if property is for sale by private treaty
If you are purchasing at auction please go to step 5. Once the contract has been given the thumbs up by your legal representative you can then make an offer. In most cases you would obviously make an offer that is less than the listed price. The offer can be made verbally or in writing and is conveyed to the real estate agent. The real estate agent is compelled by law to pass the offer on to the vendor. Once negotiations are complete, and yourself and the vendor have come to an agreement on the price, in NSW you have available two courses of action you may take.
1. You can leave a holding deposit of about 0.25% of the purchase price (or whatever amount is agreed upon with the agent) and not sign the contract. This is a verbal agreement and you run the risk of being gazumped (real estate agents are within their rights to sell the property to a higher bidder if you haven’t signed a legally binding contract of sale). The upside to this course of action is that you can pull out of the sale and get your holding deposit back if you find something adverse during your inspections of if for some reason your finance falls through. After verbally agreeing to the purchase you should then carry out step five. If everything is okay with step five you can then safely sign the contract of sale and leave a 10% deposit.
2. Sign and exchange contracts immediately with a 5 working days cooling off period. Under this method you will still need to leave a deposit of 0.25% of the purchase price but this amount is non-refundable if you decide to not go ahead with the transaction. The upside is that the property is secured and cannot be sold to any other purchasers. During the 5 day cooling off period you will need to complete everything outlined in step five, including pest and building inspections and attaining formal loan approval. Achieving all of this in five days is usually difficult. The reason for this is that the bank valuer and the building and pest inspectors need to organise access to the property. Delays in getting this access are sometimes experienced, especially when the house or unit is rented out (as opposed to being owner occupied). For this reason it is recommended that you negotiate an extension of the cooling off period before signing the contract.
The course of action you should take should be decided after discussions with your legal representative.
Step Five-Organise formal finance approval, inspections of property and searches
After the purchase price has been agreed upon (in the case of sale by private treaty) you should then attain formal finance approval, carry out inspections and have your legal representative conduct searches.
1. Formal loan approval – To arrange formal loan approval you should immediately fax or email the front page of the contract to the person or organisation that arranged your conditional approval. They will then organise a valuation if applicable. If the valuation is satisfactory to the lender and the mortgage insurer (if applicable) formal approval should usually be achieved.
2. Pest & building inspections – You should immediately get into contact an organisation(s) who can conduct these searches. Some organisations can arrange both types of inspections. Your conveyancer can usually help you arrange these inspections. Although a pest & building inspection may cost you up to $600 it is worth it when you consider you are purchasing real estate that could possibly be costing you hundreds of thousands of dollars. It will give you peace of mind about your purchase.
3. Searches – your conveyancer conducts these. They include title searches and strata searches (if you are purchasing in a strata titled unit complex).
If you are purchasing by way of auction, pest & building inspections and the searches should be carried out before bidding. The formal loan approval is usually attained after you have bid successfully, as the purchase price is not yet known.
In the case of purchasing by way of private treaty once everything in step five has been completed you can then safely proceed with purchasing the property. But before signing any contracts you should seek advice from your legal representative.
If purchasing by way of auction please proceed to step six. If purchasing by way of private treaty please proceed to step seven.
Step Six-Bid at auction
If purchasing at auction the obvious next step is to attend and make a bid. It is important that you don’t let emotions take over at an auction and end up spending more than you intended. This is why many potential buyers use a buyer’s agent or an independent person to make the bids on their behalf. This way emotions don’t get in the way. Prior to attending an auction you should set a maximum spending limit (which should not exceed the lender pre-approved limit) and walk away if bidding exceeds that figure.
If you are successful you will need to supply a 10% deposit and sign the contract of sale. There is no cooling off period available for a house or unit purchased at auction. You will then need to arrange formal finance approval using the method described in step five.
Step Seven-Sign the loan letter of offer and mortgage documents
Usually within a week of formal finance approval you will receive from your lender a loan contract and mortgage documents. You should read this documentation very carefully before signing and returning to the lender. The main things to look out for are the loan amount, interest rate, fees and repayments. If you find any errors in the documentation you should immediately contact the person or organisation that arranged the finance. It is also recommended that you seek legal advice from your conveyancer or solicitor before signing and returning this documentation. To avoid any delays with settlement you should carry out this step ASAP.
The date of the settlement is the date that you take legal ownership of the house or unit. In NSW this usually takes place 6 weeks after the date of contract (although this can be altered with agreement by the vendor and purchaser). About 3 weeks prior to the settlement date your conveyancer or solicitor will organise a Transfer of Land document for you to sign. This document will be handed to your chosen lender at settlement. It will then be registered at the State/Territory Titles office on your behalf in order to change the ownership of the property.
Once your conveyancer is satisfied that everything is okay to proceed settlement will be booked. Your solicitor will contact the bank, the vendor’s solicitor and any other interested parties to arrange the date, time and place of settlement. It is at this time when your solicitor and the bank will pass on the cheques to the vendor’s solicitor. (i.e. the bank will provide a cheque for the loaned amount to the vendors legal representative and your legal representative will provide a cheque drawn by you for any shortfall). Your solicitor or conveyancer will usually inform you a week or two prior to settlement of any cheques required to be supplied by you (for the shortfall and costs such as stamp duty). You are generally not required to attend settlement.
Once all of this is complete you will receive the keys from the real estate agent and then you can move in or rent it out!