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Buying a property

When buying a property, you want the purchase to go as smoothly as possible whilst understanding the process. Our team have experience in making the most complex parts of the purchasing process simple to ensure your purchase goes smoothly.

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When buying a property there are a number of stages and important aspects which your lawyer will need to deal with to ensure the process is smooth.

Our team have extensive experience in all aspects of buying a property including apartments, strata, houses, company title and long-term leases and advising clients throughout the process.

We have set out a summary of some stages of the buying process below.

If you are considering buying a property, you should contact our team today for a no-obligation consultation.

Contract Review

Before signing a contract or attending an auction when buying a property, you should have the contract reviewed by your solicitor. In NSW, there is a standard form contract but there will always be additional clauses (special conditions) inserted in the contract that need to be reviewed. The contract includes several other documents and certificates that set out your rights and any restrictions with the property, along with any defects. 

Our team will review the contract and any additional documents to ensure no unexpected or unfair terms. Through the review process, we will advise you on the specific terms of the contract to ensure nothing unexpected occurs.

Building & pest inspections

It is generally advisable to obtain a building and pest inspection report before you exchange contracts when buying a property. The standard purchase contract usually states that the buyer has inspected and made inquiries regarding the property and is satisfied with its quality and status. Therefore, if you exchange contracts and subsequently find out that there are building defects, pest infestation, or damage, you will still have to purchase the property without any allowance or discount.

We can organise a building and pest inspection report for you as part of our pre-exchange review and advice. We cannot provide advice on the building and pest report but can advise of any legal issues that may arise from the report.

Strata reports

If you buy a strata apartment or townhouse, it is generally advisable to get a strata report. A strata report is undertaken by specialists who review all the records of the Owners Corporation.

The report will summarise levies including capital fund, administrative & special levies, insurance, by-laws, management of the scheme, proposed capital work and funding, and on occasions, disputes within the scheme’s management.

We can obtain a strata report from our preferred suppliers and advise you on the report’s contents. The report is important as it can reveal potential mismanagement of the strata body, including necessary capital or repair work that may require a significant future financial contribution from owners via a special levy.

Finance

Once you have signed and exchanged contracts, you have agreed to buy the property at the price in the contract. You must organise your finance before exchanging contracts as if you can’t pay the full price, you will be in breach of the contract and may be sued by the seller.

If you are obtaining finance from a bank, you should have unconditional finance approval in writing before exchanging contracts. If you exchange with a cooling-off period (see below), you may be able to terminate the contract with a limited financial penalty of 0.25% of the purchase price.

Though you can negotiate that the contract is subject to obtaining finance, it is uncommon for sellers to agree to this condition. They will usually require that the buyer obtain their finance before exchange. 

Exchange

The exchange of contracts occurs when the contract you signed and the seller’s copy are given to the other party. Generally, there are two identical copies of the contract. One copy is signed by the buyer or buyers and the other by the seller or sellers. On exchange, a deposit is paid, the contract is dated, and the buyer or their representative receives the original signed by the seller and vice versa. It is from this point that the contract binds the parties.

The deposit is usually 10%, but negotiation can reduce it to 5% of the purchase price.

The actual transfer of the property and payment of the full purchase price occurs on settlement, usually 42 days after the exchange (the contract date). During this period (the settlement period), we will undertake more searches and enquiries on the property and calculate any adjustment that needs to be made to account for council rates, water rates and any strata levies.

Deposit

A seller will nearly always require a deposit when contracts are exchanged for the purchase of a property. The standard deposit is usually 10% of the purchase price and must be paid in full by the buyer once the contract is exchanged.

As previously noted, the buyer can negotiate a smaller deposit on exchange, often 5% of the purchase price as part of the pre-exchange contractual negotiations.

If the deposit is not paid, the buyer will be in breach of the contract and the seller may be able to terminate the contract and cancel the sale.

If a buyer breaches the terms of the contract or cannot settle the property within the stipulated time, the seller may be entitled to keep the buyer’s deposit and terminate the contract.

Joint tenancy/tenants in common

If there is more than 1 buyer for the property, you will need to decide the tenancy or how you will own the property together.

Joint tenancy is where the owners own the whole property together. The practical consequence of this is that there cannot be unequal ownership and that if any of the owner’s die, their share will automatically pass to the surviving owners. An owner cannot gift their share of the property in their Will as it automatically transfers via survivorship to the other owner.

Tenants in common ownership allow owners to own unequal shares and deal with their personal interests under their Will. This means that they can gift their ownership in their Will.

If the joint owners need to have unequal shares for asset protection, taxation, or other needs, they will need to own the property as tenants in common.

We can provide advice on your joint ownership as part of our services, including in your succession planning but recommend you obtain accounting and financial advice on your joint ownership as well.

Cooling-off period

A buyer generally has a 5 business days cooling-off period after the exchange of contracts to purchase residential property unless the property is purchased at auction or the cooling-off period is waived.

The buyer can waive the cooling off period if a lawyer or conveyancer gives them advice about the consequences of waiving the cooling off period.

For more information on the cooling on period, see our page Cooling off period.

Searches & due diligence

The seller does not need to tell the buyer about any problems or defects with the property except for some limited warranties and disclosures set out in the contract and by statute. Therefore, the buyer must conduct some searches and due diligence on the property before exchanging contracts and after exchange.

We will assist you in conducting searches and due diligence on the property before you exchange and then conduct further searches and enquiries after exchange to ensure that the seller has disclosed all the matters they are required to. After the exchange, the buyer may terminate the contract without penalty if any of the seller’s warranties are incorrect or they have not disclosed something they are required to under the contract or by statute.

Pre-settlement inspections

Under the contract, the buyer is entitled to inspect the property before settlement. The inspection provides the buyer with the opportunity to ensure that nothing is wrong with the property, including any damage since the exchange of contracts or any rubbish left at the property.

The pre-settlement inspection should occur as close to settlement as possible to ensure nothing happens between the inspection and settlement. The inspection is generally on the morning of settlement as most settlements occur in the afternoon. The inspection is usually organised through the real estate agent.

Settlement funds

On settlement, the buyer will need to pay the seller the outstanding balance of the purchase price along with any adjustments (for example, water rates, council rates and strata levies, if applicable). For most buyers, your financier or bank will be providing most if not all of the funds.

If your financier is not providing all the funds required for the purchase, you will need to provide the shortfall in funds. As most settlements now occur online through PEXA, these shortfall funds can be provided by:

  • Making available your own funds in a bank account held with the bank providing your finance and signing a shortfall authority to the bank. The shortfall authority allows your financier to draw money from your bank account and make the funds available for settlement; or
  • Transferring the shortfall funds into our trust account, which will be made available through PEXA.

Any shortfall funds must be available on the settlement date so there is no delay in settlement, thereby attracting interest. To ensure this, it is usually required that the funds are transferred several business days before settlement.

Interest for delay

If a buyer is delayed in settling (paying the full purchase price) on the settlement date in the contract, the seller is generally entitled to charge interest on the outstanding amount owing. The contract generally states the applicable interest rate. It is important that this rate is negotiated before exchanging the contract.

Our team will negotiate amendments to the interest rate for delays in the settlement as part of our standard review of your contract before exchange.

Insurance

It is important that you insure the property from the date on which the ‘risk’ in the property transfers to you. The date on which the ‘risk’ transfers is different in each state.

In New South Wales and Victoria, the ‘risk’ in the property generally transfers to you on settlement which means from that time, if anything happens to the property, you will be liable for any loss or damage, e.g., repairing any damage to the property.

In the ACT, Queensland, South Australia and Tasmania, the ‘risk’ transfers to you on the exchange or 5 pm the next business day after the contract date (exchange). Though you won’t have purchased the property or moved in yet, you have the ‘risk’ in the property, and if anything happens to the property, you will have to pay for the repair or damage.

In Northern Territory and Western Australia, the ‘risk’ transfers once the whole of the purchase price is paid (settlement) or once you are entitled to or take possession of the property.

If you have finance, you will generally be required to have the property insured so it is important that you organise insurance from the date of which the ‘risk’ transfers to you as the buyer.

DISCLAIMER

No part of these notes can be regarded as legal advice. Although all care has been taken in preparing all notes, readers must not alter their position or refrain from doing so in reliance on any of these notes. Stephen Wawn & Associates do not accept or undertake any duty of care to readers relating to any of these notes. All inquiries should be directed to Stephen Wawn & Associates.

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