So you are in the market to buy a new property? It can be both an exciting and yet daunting prospect, particularly given the many things you will need to consider throughout the process.
What is conveyancing and what is involved?
Put simply, conveyancing is the transfer of ownership of property from one person to another. That is, when you buy a property, the process involved results in the transfer of ownership of that property to you.
It is easy to become overwhelmed with the conveyancing process; dealing with your bank, obtaining loan approval, dealing with agents, searching for and inspecting properties, speaking with lawyers and then investigating the suitability of that property.
We have developed a multi-part article series that aims to take you through the journey of what to consider and what is involved throughout this process, to help guide you and streamline the process.
The hope is to ease some of that anxiety and uncertainty and provide you with some important considerations and guidance every step of the way to keep you always one step ahead of the game.
So let us start ….
1. Have You Considered How Much You Can Spend / Borrow?
The first thing to do when purchasing a property is to carefully consider and make enquiries about how much you can afford to spend and borrow.
You can do this by talking to a mortgage broker or bank. They will be able to help you set your budget and give you a guide as to how much you can borrow and spend.
It is important to be clear and certain about this from the outset, for a few reasons:
- Knowing your budget will help narrow in on your property search, rather than wasting your time with properties outside your limitations;
- It will assist you with any negotiations you might have;
- It will enable you to obtain the most tailored and suitable advice and recommendations from agents and the like in searching for the most suitable property; and
- Will provide you with the information you need to manage your expectations and the timing of your decisions.
2. Talking to Agents and Viewing Properties
Once you have determined what amount you can afford to borrow and spend, the next step is to start talking to agents and taking a look at properties that you are interested in and that are within your budget.
You will search online for properties for sale, you may speak with real estate agents and / or buyers agents and make appointments to view properties that fit your criteria.
In doing this, you need to be mindful of a few things to ensure your decision making process remains clear:
- Don’t try and fit a square peg in a round hole. Just because your budget may be limited, don’t settle if you don’t have to. Stay realistic and honest about your needs, lifestyle and commitments in determining whether a property is right for you and / or your family.
- Don’t be swayed by too many opinions. Realise that most people may be providing you advice and highlighting benefits for some other reason and not necessarily your best interest.
- Consider the condition of the property and whether further work and renovation is likely to be required. Would this additional expense take you outside your budget.
- Perhaps research the local area of a property you are interested in, is it family and pet friendly, are their convenient amenities, is transport close by, is there ample parking, is it safe, are any major infrastructure works planned for the area?
3. So You Have Found Your Ideal Property…
Once you have decided to purchase a particular property, there are two ways in which you can proceed – exchanging contracts under a cooling off period, or undertaking further investigations before exchange. This discussion can be technical, we will not assume any knowledge on your part and will break it down for you as simply as possible just to be sure that we are clear.
Firstly, a bit of background. Properties bought and sold in NSW are done so under a written contract. That contract is usually prepared by the solicitor for the person selling the property. That contract will contain a great deal of important information relating to the property and the sale.
While we discuss the contents of the contract in some detail in our next article, in brief, it will outline things such as:
- The address of the property;
- The type of property;
- What items are included in and excluded from the sale;
- Whether it is affected by heritage restrictions, bush fire or flood activities;
- The restrictions associated with its use;
- The things a seller (otherwise known as the vendor) may require from the buyer;
- Relevant information concerning recent renovations; and
- A range of other relevant details you need to consider about the property.
It is important to bear in mind that the terms contained in any contract can be changed. That is where your lawyer comes in. Ultimately, you will engage a lawyer to review this contract, who will provide advice and recommendations as to the suitability of its terms and who will negotiate on your behalf to modify any areas of concern. Again, this is discussed in our next article.
So there is a written contract governing the purchase of the property.
When two parties agree on a price and the terms of the contract and each party signs and dates that contract, the contract is said to be “exchanged”.
An exchanged contract is a binding contract on the parties who entered into it.
The term cooling off essentially means, you have some time to think. You can think about whether you definitely want the property and proceed, or whether, for whatever reason, you have changed your mind and want to back out.
So… back to the two options you have when you have found a property and have decided to purchase it….
Exchange Under Cooling Off
When you exchange a contract under a Cooling Off Period, you are usually given a period of five days (unless you negotiate a longer period) to think about it. What that means practically is that for the period agreed as the cooling off period, the property cannot and will not be sold to anybody else. You have secured it, with the confidence of knowing that it will still be there should you decide to proceed.
This cooling off period will give you the opportunity to:
– have pest and building inspections carried out (and if it is a strata unit, to conduct an inspection of the strata records);
– have a survey report carried out;
– make enquires as to whether any building works have been carried to the property and when they were carried out,
– if works have been carried out, by whom they were done and whether they were done by an owner/builder;
– have your finance formally approved;
– have your solicitor review the contract, provide you with an advice and request any amendments to the contract that are required.
The Cost of Cooling Off
However, if you exchange under a cooling off period you will be required to pay a deposit of 0.25% of the purchase price at the time of exchange.
While the property is off the market from the time of exchange of the contract, you may choose not to proceed with the purchase during the cooling off period.
Once the cooling off period has expired, you will be required to pay the balance of the deposit. The contract will become unconditional and both parties will be bound by the contract at this time.
If you do not wish to proceed, you may rescind (ie, cancel) the contract prior to the expiry of the cooling off period and you will forfeit the 0.25% deposit that you have paid.
Carry Out Investigations Prior to Exchange
Alternatively, you may elect to carry out the following prior to proceeding to exchange:
– have pest and building inspections carried out (and if it is a strata unit, to obtain conduct an inspection of the strata records);
– have your finance formally approved;
– have your solicitor review the contract, provide you with an advice and request any required amendments to the contract.
Once this has been done and you wish to proceed with the purchase, the contract may be exchanged.
Typically, in situations where the vendor has provided you with the time to carry out the above investigations, the vendor may require you to waive your cooling off rights which means that the contract will become legally binding on both parties at the time of exchange and you will not be entitled to change your mind.
You should note that the property is not off the market until the contract has been exchanged and so it is open to the vendor to sell the property to another buyer while you are conducting your due diligence enquiries.
On the one hand you secure a property, but face the risk of losing the 0.25% deposit if you decide to not go ahead, on the other hand, the property is not secured and still able to be sold, but you undertake all of your due diligence prior to deciding on the purchase.
We have provided some preliminary things to consider and some of the technical stuff that is worthwhile knowing.
Ultimately and ideally, you would have notified your lawyer at the start of your search and they will guide and inform you every step in any event.
We will cover this and many other items in our next post.