Buying And Selling - Residential Property
Making an offer
Making an offer on a residential property is a significant step. Before submitting your offer amount to the agent or vendor (seller), it makes good sense to be well prepared for what might follow.
Obtain a copy of the sale contract as soon as possible and have it examined by either your licensed conveyancer or solicitor. Doing this prior to making an offer will save time if you need to move things along quickly.
Paying an expression of interest
Once you have made an offer on a property, you may be asked to pay an initial deposit as an expression of interest. This won’t mean that the property is yours or that it gets taken off the market. It only proves to the seller that your offer is serious. The seller or agent can take as many preliminary deposits as they like for the one property. However, when you pay this deposit, the agent must provide you with a receipt and tell you in writing that:
- they have no obligation to sell the property to you
- you have no obligation to buy the property
- they will refund your deposit if you don't end up entering into a contract to buy the property.
The agent must also let you know if someone else makes a later offer on the same property.
It is important to remember that the agent selling the property is not working for you, the buyer, but for the seller.
Offer accepted, but it's not yours yet
If your offer is accepted, be ready to sign the sale contract and proceed through with the exchange process. Do not sign or exchange the sale of contract until you have discussed it with your solicitor or licensed conveyancer.
Prior to the exchange of the contracts, the vendor is free to negotiate with other purchasers for a higher offer. If the vendor accepts another offer and exchanges contracts with that party, any purchaser who misses out on the property despite having a verbal agreement to buy it, is gazumped.
The Sale Process
A residential property cannot be advertised for sale until a Contract of Sale has been prepared.
The contract must contain a copy of the title documents, drainage diagram and the Zoning Certificate (s 149) issued by the local council. Property exclusions must also be included and a statement of the buyer’s cooling off rights must be attached. The draft contract must be available for inspection at the agent’s office. It is important that you consult your solicitor or conveyancer about preparing the contract to make sure that everything is in order.
There are two main ways of selling a residential property, by private treaty and by auction.
When you sell your home by private treaty, you set a price and the property is listed for sale at that price. In general, the price is negotiable with the seller often asking a higher amount than they expect to sell the property for, and the buyer making an initial offer much lower than the asking price.
- greater control over the sale
- time to consider offers by potential purchasers
- the ability to extend the time for which your home is for sale indefinitely
- potential purchasers must make offers for your property 'blind', without knowing what other buyers think it is worth.
Selling privately is often just as tense as a public auction, and you will be faced with important decisions when you are presented with offers which are lower than your asking price.
There are risks with selling by private treaty which also should be considered:
- if the price you set is too high, your property may not sell
- if the price you set is too low, you may miss out on maximising the selling price.
The process of a sale by private treaty offers the following benefits:
There are risks with selling by private treaty which also should be considered:
You should also be aware that when a property is sold by private treaty, the buyer has a five day cooling-off period during which they may withdraw from the sale.
To sell through an auction process, the amount you want for the property is generally not revealed to potential buyers who are encouraged to attend the auction and bid for the property against other potential buyers.
Auctions have become an increasingly popular way to sell or buy residential property, but before you decide to go down that path, do your homework and familiarise yourself with the process and what it involves.
Setting a reserve price
The reserve price is the lowest amount you are willing to accept for your property. Before bidding begins, advise your agent what you nominate as the reserve price. This is usually not told to the prospective buyers.
If the highest bid is below the reserve price, the property will be 'passed in'. You will then either try and negotiate a price with interested bidders or put the property back on the market.
If the bidding continues beyond the reserve price, the property is sold at the fall of the auctioneer's hammer.
The successful bidder must sign the sale contract and pay you a deposit on the spot (usually 10%). There is no cooling-off period for anyone who buys a property at auction. If the property is passed in at auction but contracts are exchanged on that same day, the cooling-off period still does not apply.
Exchanging sale contracts is the legal part of selling a home and happens regardless of whether you sell your property by private treaty or auction.
There will be two copies of the sale contract: one for you and one for the buyer. You each sign one copy before they are swapped or 'exchanged'. This can be done by hand or post and is usually arranged by your solicitor, conveyancer or the agent. At the time of the exchange, the buyer will be required to pay a deposit, usually 10% of the purchase price.
The contract exchange is a critical point in the sale process:
- The buyer or seller is not legally bound until signed copies of the contract are exchanged.
- Buyers of residential property usually have a cooling off period of five working days following the exchange of contracts during which they can withdraw from the sale.
- If the agent arranges exchange of contacts, the agent must give copies of the signed contract to each party or their solicitor or conveyancer within 2 business days.
- The cooling off period can be waived, reduced or extended by negotiation.
- There is no cooling off period for sellers. Once contracts have been exchanged, sellers are generally bound to complete the agreement.
- There is no cooling off period when purchasing at auction.
Settlement is the conclusion of the sale transaction and usually takes place about six weeks after contracts are exchanged.
Contracts and deposits
If you want to buy a home, land or investment property you'll have to sign a sale contract. The legal work involved in preparing the sale contract, mortgage and other related documents, is called conveyancing. It's possible to do your own conveyancing, however, most people get a licensed conveyancer or solicitor to do the work for them.
The sale contract
By law, a residential property can not be put on the market until a sale contract has been drawn up. You have the right to examine the contract at any time once a property is on the market. If a particular property interests you, get a copy of the sale contract as soon as possible so you can ask your solicitor or conveyancer to review it. You should have this done before signing a sale contract.
Who can do conveyancing work?
Three options for doing your conveyancing are:
- using a licensed conveyancer
- using a solicitor
- doing it yourself.
Before you start organising your conveyancing, it's important to do your homework first.
Using a conveyancer
In NSW, conveyancers must be licensed with NSW Fair Trading. Most conveyancers hold an unrestricted licence that allows them to perform the full scope of conveyancing work for residential, commercial and rural property. Conveyancers are licensed to do legal work such as preparing documents, giving legal advice on contracts and explaining the implications. Before you decide to use a particular conveyancer, check if they are licensed with us first.
To find a conveyancer, look them up in the Yellow Pages under 'Conveyancing Services' or call one of the professional associations listed on this fact sheet.
Licensed conveyancers must have professional indemnity insurance to protect you in case they make a mistake or are negligent in their work. If they are dishonest with the money you have entrusted to them, you may have access to the Compensation Fund administered by Fair Trading. For more information about the fund, go to the Property Services Compensation Fund page on the Fair Trading website.
Using a solicitor
While conveyancers and solicitors are equally qualified to do conveyancing work, solicitors can also give you legal advice about other matters.
Solicitors, like licensed conveyancers, must also have professional indemnity insurance for your protection.
To find a solicitor who does conveyancing:
- look up the Yellow Pages (under 'Conveyancing Services')
- call the Law Society of NSW on 9926 0333
- do a search for specialists in 'property law' in your local area using the 'Find a Lawyer' page on the Law Society's website www.lawsociety.com.au
Doing your own conveyancing
Doing your own conveyancing can be risky because you can't get the same insurance available to a licensed conveyancer or solicitor. This means that if you make a mistake you are responsible and there's nowhere you can go for financial compensation. For example, your solicitor or conveyancer may fail to make sure the vendor has disclosed everything they are legally required to, such as an order to demolish the place. If you suffer loss as a result of this negligence you may be able to take action against them - that's the difference!
Do-it-yourself conveyancing kits are available from:
- Law Consumers' Association Tel: 9564 6933
- Australian Property Law Kits Tel: 1800 252 808.
The conveyancing process
The conveyancing process can involve the following steps:
- arranging building and pest inspections
- examining a strata inspection report if the property is part of a strata scheme
- arranging finance if necessary
- examining and exchanging the contract of sale
- paying the deposit
- arranging payment of stamp duties
- preparing and examining the mortgage agreement
- checking if there are outstanding arrears or land tax obligations
- finding out if any government authority has a vested interest in the land or if any planned development could effect the property (eg. local council, Sydney Water, Roads and Traffic Authority)
- finding out any information that may not have been previously disclosed such as a fence dispute or illegal building work
- calculating adjustments for council and water rates for the property settlement
- overseeing the change of title with the Land and Property Information NSW
- completing any final checks prior to settlement
- attending settlement.
Fees will vary between solicitors and conveyancers as there is no official charge for conveyancing. In addition to a legal service fee you will usually be charged for 'disbursements'.
These can include:
- a title search
- certificate fees charged by authorities with responsibility for water, electricity, roads, schools etc.
- registering the mortgage.
- Costs other than legal fees and disbursements will usually include:
- building and pest inspections
- survey report
- establishment of mortgage
- home building insurance
- valuation fees
- mortgage insurance
- stamp duty and mortgage duty
- council and water rates.
Legal practitioners and conveyancers are required to disclose their costs to clients, including the clients' right to negotiate a costs agreement, receive bills and be advised of changes, among other things.
Exchanging contracts and paying a deposit
Exchanging sale contracts is the legal part of buying a home. Before exchange, the agreement is usually just verbal and not binding. Up until you exchange contracts either you or the vendor have the right to change your minds.
After you have discussed the contract with your solicitor or licensed conveyancer and all the proper inquiries have been made, and after all the financial arrangements are in place, you will be ready to exchange contracts. There will be two copies of the sale contract: one for you and one for the vendor. You each sign one copy before they are swapped or 'exchanged'. This can be done by hand or post and is usually arranged by your solicitor, conveyancer or the agent. If the agent is handling the exchange, you must expressly authorise them to do so.
At the time of the exchange you will be required to pay a deposit, usually 10% of the purchase price. Following exchange, you have a financial interest in the property so it's wise to get it insured.
When you buy a residential property in NSW there is a five business-day cooling-off period after you exchange sale contracts. During this period you have the option to get out of the contract as long as you give written notice. The cooling-off period starts as soon as you exchange and ends at 5pm on the fifth business day.
A cooling-off period does not apply if you buy a property at auction or exchange contracts on the same day as the auction after it is passed in.
You can waive the cooling-off period by giving the seller a '66W certificate'. This is a certificate that complies with Section 66W of the Conveyancing Act 1919. The certificate needs to be signed by your solicitor or conveyancer.
If you use your cooling-off rights and withdraw from the contract during the five business-day period, you will have to pay the seller 0.25% of the purchase price. This works out to be $250 for every $100,000.
Sometimes, there are more buyers looking for homes than there are properties on the market. This is called a sellers' market. In this case, you may want to organise a quick contract exchange. This way you can reduce the possibility of someone beating your offer and get your building and pest inspections done during the cooling-off period. You will still be able to back out if there is a problem. However, it is important to have the contract checked by your solicitor or conveyancer before you sign it.
It is possible to waive, reduce or extend the cooling-off period with the consent of the seller. If your solicitor or conveyancer has examined certificates from the appropriate authorities, a pest and building inspection has been done and your finance has been approved, then deciding to waive the cooling-off period could make your offer more attractive to the seller.
Settlement usually takes place about six weeks after contracts are exchanged. This is when you become the legal owner of the property. The balance of the purchase price and other adjustments are paid on this date.