In our last article in this series, we explored some of the preliminary and relevant steps and considerations you needed to take in selling your property.
We continue with our second instalment of this series with a more in depth look at some of the technical aspects involved.
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 is you. That contract will contain a great deal of important information relating to the property and the sale.
In summary, the contract 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 you may require from the buyer;
- Relevant information concerning recent renovations; and
- A range of other relevant details relevant in connection with the property.
So you now begin to understand why so much information is required in preparing a contract of this nature.
It can be a tricky exercise, mainly because a buyer is entitled to know certain things and therefore, proper investigations need to be made, so that adequate disclosures can be made where required to ensure the sale goes ahead and no dispute is raised by a buyer later on.
It is important to bear in mind also, that the terms contained in any contract can be changed and often, a buyer or more commonly, their solicitor, will correspond with your solicitor, either querying various facts, or requesting certain changes. When this occurs, your solicitor should notify you immediately and clearly explain any such requests and what they mean in practical terms.
Let us now explore some of the terminology and concepts common in this process of conveyancing.
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.
Under the standard terms of the sale contract, the Purchaser is entitled to a 5 day cooling off period commencing on the next business day after the date of the contract.
If you wish, you can request that the Purchaser waives his/her cooling off rights which means that the contract is binding on both you and the Purchaser once it is exchanged.
If the Purchaser does not give up their cooling off rights, they will need to pay a deposit of 0.25% of the purchase price upon exchange.
If the purchaser chooses not to proceed with the contract during the cooling off period, they will lose the 0.25% deposit.
If the purchaser chooses to proceed with the contract during the cooling off period, they will be required to pay the balance of the deposit due under the Contract.
The property is off the market from the time of exchange of the contract, even though during the cooling off period the purchaser may choose not to proceed with the purchase.
A purchaser will usually use this time to obtain finance approval, pest and building inspections and/or a survey report.
If there is a problem with the property they can choose not to proceed with the contract.
Once contracts are exchanged, you as the vendor are bound by the terms and conditions of the contract as drafted. You do not have a cooling off period
Inclusions / Exclusions
The contract will identify what is included with the sale and also, what is specifically excluded from the sale.
Will your sale of the property include any car spaces or lock-up storage spaces? Will the blinds currently fixed in the property and the light fittings installed be included in the sale? Will the sale include the TV antenna, any pool equipment (where relevant) or any other furnishings observed when inspecting the property? You will need to ensure that what you understood was being included is confirmed in the contract and equally, if there are items definitely not included and do not form part of the sale, they should also be identified.
Release of Deposit
This is the subject of a separate blog post, which you can find here, but for ease of reference, we have reiterated the relevant discussion below.
Usually, when a deposit is paid under a Contract for Sale of Land, the deposit is held by either the seller’s agent or solicitor in their trust account. Where the deposit is held by the agent, the deposit is usually invested in an interest bearing account, with any interest earned shared equally between the parties.
It is not uncommon for somebody selling a property to require that the deposit paid by the purchaser be paid to them prior to settlement. In most cases the purpose of the release is to assist in paying a deposit or stamp duty on a purchase that has been made in anticipation of the sale.
From a seller’s perspective, this is a practical and necessary request. Purchaser’s may however, be reluctant to release their deposit as there is further assurance in their money being held in trust in the event the matter does not proceed to settlement for any reason.
The Contract for Sale of Land does contain provisions which provide that should the Purchaser release all or part of a deposit paid prior to completion, then the seller grants a charge to the Purchase over the land, effectively securing the monies released. Such a charge may give rise to a right to lodge a caveat over the land as further security for the deposit monies released. Such a charge and caveat however, would be subject to existing charges (including any mortgages registered on title).
So, while a Purchaser may have some comfort in knowing that some security has been granted for the monies released, their rights of recovery may be limited by the rights of those who have previously registered any charge (including mortgages) on the title. Practically, this means that there may simply be no money remaining for the Purchaser after all other debts are satisfied including to any mortgagees.
The other inherent difficulty is that while a caveat may be lodge against the property, this does not in and of itself compel the seller to repay the deposit to the Purchaser. In fact, the Purchaser will in most cased need to commence proceedings against the seller to seek to recover the deposit monies. It goes without saying that this can be an expensive and protracted exercise.
So be sure you understand whether you do require the deposit for another purchase and whether you are willing to forgo it, as it is a very common area of discussion.
It is important to confirm, if any renovations have been undertaken at the property you are selling and when they occurred. Usually, there may be some applicable insurances that need to be attached to a contract, or else, certain warnings need to be displayed advising a buyer that the property was built under an owner builder permit. This is just one of many disclosures that need to be made by you.
A dealing is something that is on the title of your property, like a mortgage, an easement or covenant or even caveat. These things are registered on the title of your property and affect the land you are selling. Careful assessment of any such dealings should be made to determine how they affect your property and what that may mean in relation to your sale and any concerns potential buyers may have.
These are just some examples of things to look out for and consider in the process of preparing the contract and listing your property for sale. Ideally, your solicitor will assess and consider all relevant aspects of the contract and provide you with meaningful and clear advice, but just in case, at least ensure the above are considered and dealt with.
Have You Contacted Your Mortgagee?
It is best practice to inform your bank that you will be discharging your mortgage ahead of time.
Once a contract for the sale of the property has been exchanged and becomes unconditional, then a Discharge of Mortgage Authority form will need to be signed.
Your solicitor can send this form to your bank for you so that they may commence arrangements to discharge the mortgage on settlement.
Usually, banks will need approximately 28 days to prepare the relevant documentation but you should never leave this to the last minute.
What If You Don’t Have A Mortgage?
If your property is not mortgaged you should ensure that you locate the Certificate or Title for the property prior to settlement. If you cannot locate the Certificate Title, advise your solicitor immediately. They will need to follow this up urgently so that settlement is not delayed.
Stay tuned for our next and final article in this series and ensure you are comfortable with the process involved with the sale of your property and the many things that need to be considered.