The 13 steps to buying your dream home…
Step 1: Looking for property
Real estate agents advertise through journals, such as Homes Pictorial and The Realtor which are published regularly. They are available from real estate agents and contain photographs and illustrations of properties available. Landcom and other developers also publish brochures about their estates and land and housing packages.
Many newspapers carry advertisements for properties for sale. If you have decided on a specific area or suburb, local newspapers will be helpful as they usually contain illustrated real estate sections for the area. If you have access to the Internet, there are websites available which carry details of properties for sale.
If you give details of your requirements and price range to real estate agents, they will be able to help you by showing you a number of suitable properties in the area you are looking. An ‘Open House’ is a good opportunity to visit a property at the advertised time.
Make sure you are very specific about the type, location and price of home you are looking for as some agents may show you properties which they are finding difficult to sell. You should view a large number of properties to compare value for money. This will also help you to realise your own requirements and what your money can buy. There are many points to consider when inspecting properties. Remember to ask yourself:
1. Does it suit my needs?
2. What are its faults?
3. What are its features?
4. How does the price compare with other properties seen?
Step 2: Checking the contract of sale
A seller must have the Contract of Sale ready before offering a property for sale. The seller must also provide with the contract:
• a Section 149 certificate from the local council, detailing zoning and other information • a sewerage diagram
• a copy of the title folio from the Land and Property Information NSW • copies of all documents creating easements or restrictive covenants • a cooling-off statement
• a notice directing parties to the Conveyancing Act 1919 (Section 52A) and the
Conveyancing (Sale of Land) Regulation 2000
• if it is a strata unit, copies of the folio of the Register for the lot and common property and a copy of the strata plan. If the information is not attached, you may be entitled to cancel the contract within 14 days of exchanging the contract. You may also reserve the right to cancel if the seller breaches certain warranties required by the Vendor Disclosure and Warranty Regulation.
Step 3: Expressing an interest in a property
Once you have found the property you intend to buy, give a copy of the Contract of Sale to your solicitor or conveyancer to check. Once you make an offer, most real estate agents will ask you to pay an initial or part deposit as a sign of good faith. If you haven’t signed and exchanged contracts this payment does not ‘hold’ the property. It is refundable if you change your mind. You can still miss out if another buyer exchanges contracts before you.You can make arrangements through your solicitor or conveyancer with the agent to exchange contracts with a five day cooling-off period in order to secure the property. It is unwise to enter into any contract without first obtaining legal advice.
Beware of gazumping
Gazumping can take two forms.
1. The intending buyer believes that the property has been secured by payment of an initial or part deposit, then proceeds to arrange finance, legal and other matters. When ready to exchange contracts, the intending buyer finds that another buyer has exchanged contracts on the property. Or
2. The seller or the real estate agent accepts two or more initial deposits and then tells the intending buyers that the price has gone up. The intending purchasers are then left to outbid each other as if it were an auction. This is unfortunate for the buyer, but the seller is entitled to get the best price for the property.
Step 4: Applying for a loan
You should submit a formal application to your lending body for a loan on the property as soon as possible. You should not exchange contracts for the property (with or without the cooling-off period) before finance has been approved in writing. With your formal application you will usually have to pay fees to the lending body, such as establishment and valuation fees. The lending body will value the property to determine whether the property is adequate security for the amount of the loan.
The lending body lends a percentage of the valuation of a property, not a percentage of the purchase price.
Step 5: Arranging inspections
Building inspection A building inspection checks structural soundness, including:
• the condition of all structural timber (ie. floor joists, rafters)
• all load bearing walls and members • the outer skin of the building (may be brick, stone, timber, fibro)
• plumbing and electrical wiring
• kitchen and bathrooms (to update can be expensive).
Before engaging a consultant, confirm exactly what the inspection entails and what further inspections, if any, may be required. A consultant should have sufficient knowledge to enable her/him to identify any areas of concern. Building inspections are conducted by companies listed in the Yellow Pages under ‘Building Inspection Services’.
Pest inspection You should also have the property inspected for pests before buying it. The lending authority may require this. Check that the company carrying out the inspection carries professional indemnity insurance. This will cover the company and therefore your costs, should the company make a mistake.
Strata inspection The seller’s solicitor will supply a certificate under Section 109 which should show some relevant information about the management committee, insurances, cost of levies, deeds, and books. The prospective purchaser can also arrange for a pre-purchase strata inspection, covering other written records. This inspection, although optional, is recommended as there can be problems that might otherwise go undetected. It would need to be carried out before the exchange of contracts. Strata inspections are conducted by some of the companies listed in the Yellow Pages under ‘Title Searchers’.
As strata inspections cover written records only, a separate building inspection is recommended.
Step 6: Deciding on type of ownership
If you are buying the property with someone else, you will need to decide the type of ownership you will have. There are two types of shared ownership:
• Joint Tenants, where the property is held by two or more people in equal shares. If one dies, his/ her share goes to the survivors and
• Tenants in Common, where the property is held by two or more people in equal or unequal shares. If one dies, his/her share goes to a person named in his/her will.
Step 7: Exchanging contracts
When all the reports are in order and the loan is formally approved, your solicitor or conveyancer will organise the exchange of contracts. The contract is a legal agreement between the seller and the purchaser. It sets out the terms and conditions of the sale. Any fittings you are purchasing with the property, such as curtains, blinds, light fittings, awnings, air conditioner or TV antenna, should be listed in the contract to avoid disputes at or after settlement.
The contract is prepared in duplicate by the seller’s solicitor or conveyancer. The original is forwarded to the seller for signature. The copy is forwarded to the purchaser’s solicitor or conveyancer for approval and then signed by the purchaser. The exchange of contracts is then carried out.
Step 8: Paying the deposit
On the date that the contracts are exchanged, the agent will request that you pay the agreed deposit stated in the contract. While the amount is usually 10%, it can vary by agreement. Your solicitor or conveyancer will normally pay this deposit to the real estate agent, and it will be held in the agent’s trust account. Alternatively, the parties may agree to invest the deposit and receive interest. It is very unwise for the purchaser to hand the deposit over directly to the seller on exchange or to release the deposit to the seller to use as a deposit in a separate purchase of their own.
Step 9: Paying the stamp duty
You will need to pay stamp duty which is calculated on the purchase price of the property. It must be paid within three months of signing the contract, unless you are eligible for the First Home Plus Scheme.
First Home Plus provides full or partial exemptions on duty to first home buyers who are buying property or land up to certain values. First Home Plus is not means tested. For information about First Home Plus, contact the Office of State Revenue on 1300 130 624.
Step 10: After exchanging contracts
It takes four to eight weeks from exchange of contracts until settlement. During this time, enquiries and searches are made and documents prepared by your solicitor or conveyancer.
• The Transfer document is prepared and taken to the Office of State Revenue for stamping together with the original Contract of Sale. The transfer is then sent to the seller or his representative. Once signed by the seller, it will be returned to you at settlement.
• If the seller does not have a recent survey attached to the contract, your solicitor or conveyancer may obtain a survey report, which shows buildings and fences, the correct boundaries and any encroachments onto the land or on the neighbouring property.
• All relevant enquiries relating to your land are made, including electricity, water and local government authorities. This will show council and water rates, arrears and if the land is subject to a land tax charge in the hands of the seller.
Your lender will prepare the mortgage document which sets out the terms and conditions of the loan. Make sure you fully understand your mortgage document before signing it. Know exactly what you are contracted to pay: how, when and for how long. Requisitions on title are sent to the seller or the seller’s representative for completion. Requisitions obtain information from the seller which may not have been previously disclosed or discovered during inspection of the property. An example is whether there are any disputes with neighbours relating to fences.
Close to settlement, a settlement statement is sent to the seller for completion. This details the final amount owing, including the adjustments for rates and taxes as at the date of settlement. The seller will inform your solicitor or conveyancer how the cheques are to be drawn.
Step 11: Organising insurance
From settlement, when the property becomes yours, you are responsible for damage. However, you may wish to insure the property before settlement if you are not aware that the seller has a current insurance policy. If you are buying a home unit, a Certificate of Currency should be obtained from the insurer of the owners’ corporation to make sure the property is adequately insured. Your lender will require details and proof of this on or before settlement.
If you move into the property before settlement, the seller would probably want to make a special arrangement whereby you are responsible for insurance from the time you take possession.
Step 12: Making a final check
On the day of settlement, it is important that a final search of the title is obtained from the Land and Property Information NSW. This is to ensure that the property is clear from any interests or restrictions which may have been recorded between the date of exchange and settlement. You should carry out a final inspection of the property to ensure that it has not been damaged and all fixtures and fittings listed in the contract are intact.
Step 13: Day of settlement
Settlement is the completion of the transaction. A date is arranged by both parties and your lender for settlement. This is usually at the seller’s lending body. Representatives of the seller and the purchaser attend, together with a representative from the lending bodies of the seller and purchaser.
• The lending body pays the loan moneys and the purchaser pays the balance.
• Your solicitor or conveyancer authorises the seller’s representative to collect the deposit from the real estate agent.
• Your solicitor or conveyancer will receive a signed transfer and the title deed, and the lender will arrange for the transfer and the mortgage on title. The title documents and mortgage will be held by the lending body until the term of the mortgage is completed.
• You pay the duty on the contract.
• You are responsible for insuring the property from settlement. You should have arranged this before settlement whether or not it was a requirement of your lender.
• Remember to budget for your moving costs and ongoing costs such as council rates, water rates and insurance. Your solicitor or conveyancer will advise you to pay all rates at settlement.
• The key to the property is handed over at settlement or you can pick it up from the estate agent immediately after settlement.