The purchase process
Purchasing property will more than likely be the most expensive decision you will ever make. With so much to think about, and so much money at stake, it is important to us that you are fully informed and confident with your decision to purchase.
Buying by private treaty
The most common way to purchase property in New South Wales is by private treaty. This is where the Vendor advertises their property for sale and the amount that they would like to achieve for selling their property and then negotiates their sale with prospective Purchasers.
Making an offer is a significant step in the purchase process. Before submitting an offer to the listing agent or vendor it is important that you understand the purchase process.
Prior to making an offer, we suggest that you obtain a copy of the sale contract and arrange for it to be reviewed by Penny Browne Conveyancing. Arranging for the sale contract to be reviewed prior to making an offer, will assist you in determining whether or not you wish to purchase the property.
We also suggest that you discuss the amount of your proposed offer with your Banker / Mortgage Broker. It is always wise to ensure that your finance is in order, and that you have unconditional loan approval from your Bank. This may involve your lending institution obtaining a valuation of the property you propose to purchase which can take up to 5 business days. It is always best to discuss with your Banker / Broker prior to making an offer to ensure that your Bank’s outstanding requirements have been satisfied.
Once you make an offer, if the vendor accepts your purchase price, you are one step closer to owning the property, however it is does not mean that you have finalised the sale.
Before an exchange of contracts, the vendor may negotiate with other prospective purchasers for a higher offer, even if you have paid a “holding deposit” (or an expression of interest payment) to the vendor or the listing agent.
If the vendor accepts another offer from another prospective purchaser and exchanges contracts with that party, any prospective purchaser who misses out on the property (despite a verbal agreement) is gazumped.
Contracts do not become unconditional and binding between the vendor and purchaser until contracts have been formally exchanged.
Offers can be made verbally or in writing. Putting an offer forward in writing (ie via email) may assist you with keeping track of negotiations and confirm whether or not an offer has been accepted.
Buying at Auction
Auctions differ from private treaty sales as there is no “cooling off period” once contracts have been exchanged at Auction, or if Contracts are exchanged on the same day as the Auction after the property has been passed in.
If you propose to bid at an Auction, the Purchaser must be ready to exchange contracts and complete their purchase.
Once your bid is accepted at Auction, and contracts have been formally exchanged at Auction, the contract becomes unconditional and binding upon both the vendor and purchaser to complete (there is no cooling off period).
Failure to complete your purchase under the Contract, may result in you losing your deposit and you may also be liable for any damages suffered by the vendor.
Prior to bidding at an Auction it is important that you arrange with our office for the Contract to be reviewed.
If it is determined that the contract contains terms unfavourable to you or what has not been marketed to be included in the sale, subject to your instructions, we will negotiate on your behalf with the vendor’s conveyancer / solicitor to amend the contract. Prior to bidding at Auction, it is important to ensure that the contract reflects exactly what you propose to purchase.
We also suggest that you discuss the amount of your proposed offer with your Banker / Mortgage Broker and ensure your finance has been approved before making an offer. When bidding at an Auction it is important to stick to your budget, and not get too caught up in the moment.
To participate or bid at an Auction
Prospective purchasers must register with the Vendor’s listing agent. Before participating or bidding at Auction, please ensure that you have first read the “Bidder’s Guide” a copy of which is available from the Department of Fair Trading’s website:
http://www.fairtrading.nsw.gov.au/ftw/Tenants_and_home_owners/Buying_property/Bidders_guide.page
Before auctioning a property for sale, the vendor will nominate a reserve price, which is usually not advertised.
If the property is sold at the fall of the hammer and you are the successful bidder, all prior agreed amendments between the purchaser and vendor are made to the Contract, the contract is signed between the vendor and purchaser and the purchaser must pay the deposit at the time of exchange of contracts (usually 10 per cent of the purchase price unless the vendor has agreed to accept a 5 per cent deposit (by obtaining the vendor’s agreement prior to the Auction).
Pre-auction offers
The vendor may agree to consider a pre-auction offer, which the purchaser will need to discuss with the listing agent prior to the auction.
The negotiation process is similar to purchasing by private treaty, however it is important to note that should the vendor agree to accept a purchaser’s offer pre auction, the vendor will more than likely expect contracts to be exchanged unconditionally (ie no cooling off period) prior to the scheduled date of the Auction.
It is more than likely the vendor will not wish to lose the momentum of the Auction campaign, and should the vendor agree to accept a pre auction offer, the vendor will expect the same outcome from selling at Auction, ie an unconditional exchange of contracts (no cooling off period).
The Contract for sale
When purchasing property in New South Wales a large part of the purchaser’s rights depend on what is in the contract for sale.
No two sale contracts are the same, therefore no two properties are the same and it is imperative that prior to proceeding to an exchange of Contracts, arrangements are made by the purchaser for the contract to be reviewed by Penny Browne Conveyancing.
As part of the review of the sale contract, Penny Browne Conveyancing will identify whether or not the sale contract clearly identifies the property to be sold, and the terms and conditions upon which the property is being sold.
Set out in the sale contract will be the vendor’s terms and conditions relating to the sale, and it is important that the purchaser arrange for the sale contract to be reviewed prior to exchanging contracts, to ensure that not only the contract is legal, but also does not contain any unjust or unfavourable terms and conditions to the purchaser.
If a condition is unfavourable to the purchaser, subject to instructions from the purchaser, Penny Browne Conveyancing will negotiate on the purchaser’s behalf with the vendor’s solicitor / conveyancer to seek the vendor’s agreement to alter the unfavourable condition contained in the sale contract.
Pre-exchange property inspections
As the purchaser is expected to purchase the property on an “as is basis”, which includes, but is not limited to, any structural problems, pest infestations or any other defects which might not be visible to the naked eye, before proceeding to an exchange of contracts, a prudent purchaser will arrange and incur the expense of an Independent Inspector to conduct an inspection and prepare an inspection report on the property.
We suggest that for a freestanding house:
- a pest inspection, which will advise on any past or current pest activity affecting the property; and
- a building report, which will advise on any structural problems.
We also suggest that you consider arranging for the electrical wiring and plumbing (including if applicable, the septic tank) to be examined, as these are not covered in a building inspection report.
If you are buying a unit, townhouse or villa we suggest that the purchaser arrange a strata report, and a building inspection report.
The inspection of the Books for the Owner’s Corporation is conducted by an Independent Strata Inspector, and the Strata Report prepared by the Strata Inspector summarises the results of their inspection of the strata records. The report also identifies what strata insurances are in place for the building and common property, the quarterly levies that the purchaser will be liable to pay for their Lot, if a special levy has been struck, the financial position of the scheme, Changes in By-Laws registered, any ongoing maintenance problems or any issues noted in the minutes of Owners Corporation meetings.
A special levy is raised by the Owner’s Corporation of the Strata, when there is insufficient funds in either the Administrative Fund or the Sinking Fund for the Strata, and a special levy is raised to pay for the expense. If a special levy has been raised, or is proposed to be raised in the future for works which have either commenced or are proposed to be commenced in the future, it is important for the Purchaser to be aware, to ensure that the Contract reflects who is liable to pay for the special levy.
What is included or not included in the sale?
Unless otherwise specified in the sale contract, the property is sold in its current state of repair and condition (ie if broken now it will be broken on completion), which also includes “fixtures”.
Simply put, a fixture is anything that cannot be easily be removed by the vendor without causing damage to the property. For instance, stoves are usually fixtures as they are wired in, whereas a fridge is not because it usually only requires to be unplugged to be removed.
A vendor will sometimes specify a fixture as an “exclusion” in the contract. On other occasions, what constitutes as a fixture is unclear. In our experience, if in doubt the item should be noted as either an “inclusion” or an “exclusion” in the sale contract.
If the purchaser is in doubt whether or not a special light fitting, potted plants, fixed shelving, mounted television, clothes dryer, dishwasher, air conditioner etc etc is an inclusion or is to be noted as an “exclusion” and not forming part of the sale, the purchaser should first clarify with the selling agent and ensure that the contract reflects whether or not the item is to be noted as an “inclusion” or an “exclusion”.
It is always prudent for a purchaser to clarify and ensure that the contract reflects what has been agreed between the parties, prior to exchanging contracts.
Exclusions
If there is a fixture which is to be noted in the contract as an “exclusion” and removed by the vendor prior to completion, it is also wise for the Purchaser to confirm that any damage caused by the removal of the “exclusion” will be repaired (including but not limited to repainting and plastering, the removal of any brackets, bolts, loose wiring, screws etc) at the vendor’s cost in a proper and workmanlike manner prior to completion.
At the same time if there is a large amount of potted plants, building materials, old paint products or rubbish located on the property, we would also suggest that arrangements be made for the contract to reflect the removal of these items from the property (and not left on the side of the kerb awaiting Council clean up) by the vendor at the vendor’s cost prior to completion.
Condition of the inclusions and location, connection and availability of services
The “improvements” and “inclusions” forming part of the sale, are sold in their current state of repair and condition. It is important that the purchaser satisfies themselves regarding the condition of the property, the inclusions forming part of the sale (including, if any, mechanical defects) and the services located, connected and available to the property (ie hot water service, electricity, gas, telephone, drainage, sewerage, etc etc) prior to exchanging contracts. What you see is what you get, otherwise known as “Caveat Emptor” or “Buyer Beware”.
Prior to exchanging contracts, it is important to ensure that the contract reflects what has been agreed to be sold between the vendor and purchaser including anything that has been stated verbally by either the vendor or the vendor’s selling agent, marketing materials (pamphlets, website) etc etc.
Finance
It is an implied warranty, that when a purchaser proceeds to an exchange of contracts, that the purchaser has sufficient funds to complete their purchase.
Prior to making an offer to purchase, please discuss your proposed offer with your Banker / Mortgage Broker. It is always wise to ensure that your finance is in order, and that you have unconditional loan approval from your Bank. This may involve your lending institution obtaining a valuation of the property you propose to purchase which can take up to 5 business days. It is always best to discuss with your Banker / Broker prior to exchanging contracts to ensure that your Bank’s outstanding requirements have been satisfied.
Penny Browne Conveyancing will also be required to contact your Banker / Broker to provide them with the relevant documentation required by your Bank to enable loan documents to be issued. We would ask that you provide us with your Banker / Broker’s contact details.
What is an exchange of contracts?
A contract to sell property becomes legally binding upon both the vendor and purchaser to complete, when the purchaser and vendor both sign a copy of the contract and the contracts are exchanged and the purchaser has paid the deposit.
To facilitate an exchange of contracts, there must be two identical copies of the contract for sale, one executed by the Purchaser and one executed by the Vendor.
At the time of exchange of contracts, both the vendor and purchaser executed contracts are compared to ensure that they are identical, the purchaser’s deposit is paid to the depositholder indicated in the sale contract, and a section 66W Certificate (the certificate which waives the purchaser’s cooling off rights) is provided by the purchaser’s Conveyancer (if applicable).
Once it is confirmed that everything is in order, the executed contracts are dated, and then swapped or “exchanged”. Once exchanged, the contract is binding upon both the Purchaser and the Vendor to complete.
Cooling-off period – when purchasing residential property in New South Wales the purchaser is entitled to a “5 business day cooling off period”, which commences from the date after the exchange of contracts and ends at 5 pm on the fifth business day after the date of exchange. Once the cooling off period expires, contracts become unconditional and binding on both the vendor and purchaser to complete.
The purpose of the cooling off period is to enable the purchaser to arrange pre purchase inspections, finalise their inquiries regarding the property and if required obtain unconditional loan approval etc. During the cooling off period the vendor is not allowed to sell the property to another purchaser.
Should the purchaser decide not to proceed with their purchase, the purchaser has a right to cancel the Contract during the cooling off period and forfeit the sum of 0.25% of the purchase price to the vendor. This amount is normally taken out of the deposit paid upon exchange of Contracts. The vendor does not have a reciprocal right.
Upon receiving instructions from the purchaser, the purchaser’s conveyancer must serve on the vendor’s conveyancer or solicitor, a notice of the purchaser’s intention to withdraw from their purchase, and the sum equal to 0.25% of the sale price is forfeited by the purchaser to the vendor.
Note – prior to proceeding to an exchange of contracts, it is always important to arrange for the sale contract to be reviewed by Penny Browne Conveyancing, prior to signing.
Note – a cooling off period does not apply if Residential Property is purchased at auction or contracts are exchanged on the same day as the auction after it is passed in.
A cooling off period applies to the purchase of Residential Property. The Conveyancing Act 1919 (NSW) explains the scope of Residential property under Section 66Q. A Residential property is:
- The land where not more than two places of residence or any other improvements are situated;
- Vacant land where construction of a single place of residence is not restricted under the law; and
- Strata lot or lots comprising not more than one place of residence only.
Cooling off period is applicable to purchasers who enter into a contract for the sale of Residential property. In cases where land is used completely for non-residential purposes (ie commercial property), the cooling off provisions do not apply.
The deposit
It is an essential term of a sale contract that the deposit is paid on or before the date of the contract (exchange of contracts). The deposit paid to facilitate an exchange of contracts is usually 10% of the sale price, unless it has been agreed by the vendor for the purchaser to pay a 5% deposit.
The deposit, is usually paid to the selling agent as stakeholder, who will retain the deposit in trust pending completion of the matter. We suggest that when paying the deposit to the selling agent, the purchaser liaise with the selling agent to confirm whether or not the vendor has instructed the selling agent to invest the deposit into an interest bearing account. If the selling agent proposes to invest the deposit into an interest bearing account, please provide the selling agent with your Tax File Number.
Subject to the special conditions contained in the sale contract, usually when a 10% deposit is paid to facilitate an exchange of contracts, and both vendor and purchaser have instructed the selling agent to invest the deposit and provided their respective tax file numbers, any interest earned on the investment of the deposit (less government charges etc) is shared equally between the vendor and purchaser post completion of the sale.
Stamp duty and land tax
In New South Wales the purchaser is liable for the payment of stamp duty.
The purchaser’s liability for duty arises from the date of the sale contract (ie the date of exchange of contracts), and stamp duty must be paid within three months from the date of liability, or completion (settlement) of their purchase.
Penalties apply for late payment of stamp duty.
As at 31 October 2016, the current rates and thresholds are outlined in the table below:
| Value of the property subject to the transaction | Rate of duty |
| $0 – $14,000 | $1.25 for every $100 or part of the value |
| $14,001 – $30,000 | $175 plus $1.50 for every $100, that the value exceeds $14,000 |
| $30,001 – $80,000 | $415 plus $1.75 for every $100, that the value exceeds $30,000 |
| $80,001 – $300,000 | $1,290 plus $3.50 for every $100, that the value exceeds $80,000 |
| $300,001 – $1m | $8,990 plus $4.50 for every $100, that the value exceeds $300,000 |
| over $1m | $40,490 plus $5.50 for every $100, that the value exceeds $1,000,000 |
| Premium Property Duty: over $3m | $150,490 plus $7.00 for every $100, that the value exceeds $3,000,000. |
OSR Purchaser Declaration and Verification of Identity:
To enable stamp duty to be paid on the Contract and Transfer, the Office of State Revenue requires:
- Evidence of the purchaser’s identity in the form of an “original” or an “original certified copy” of the purchaser’s identification (current driver’s licence and/or current Australian Passport noting the purchaser’s date of birth) and for companies ABN/ACN/ARBN number.
- A completed OSR Purchaser Declaration form signed in the presence of a Justice of the Peace or Solicitor.
Failure to provide these documents at the time of attending to payment of stamp duty will result in the OSR rejecting the assessment of documents which may cause settlement of your purchase being delayed as these documents are mandatory for OSR assessment purposes.
Land Tax
If the purchaser owns, or jointly owns, any property within New South Wales which is not their principal place of residence (ie their home), and the total taxable value of the purchaser’s land is greater than the land tax threshold, the purchaser may be subject to a land tax liability.
Prior to proceeding to an exchange of contracts, please discuss your land tax obligations (if any) with your Accountant and/or the Office of State Revenue.
Settlement (completion) of your purchase
As the name suggests, ‘settlement’ is the final step in the conveyancing process to complete your purchase transaction.
When contracts are exchanged and dated, there is an agreed timeframe within which both the vendor and purchaser agree to settle (complete) the sale transaction. The standard settlement timeframe is usually six weeks (42 days) after the date of exchange of contracts.
On settlement, the purchaser is required to pay to the vendor (as the vendor’s conveyancer / solicitor directs), the balance of purchase monies together with any necessary adjustment for council rates, water rates, strata levies, land tax etc etc.
Prior to settlement, Penny Browne Conveyancing will contact the purchaser to advise how the settlement monies have been calculated.
If the purchaser is unable to complete their purchase by the scheduled completion date, through no fault of the vendor, it is common for a purchase contract to include a condition, that the purchaser will be liable to pay to the vendor late completion interest from the date of settlement, calculated daily on the balance of purchase monies.
Failure to complete your purchase under the Contract, may result in you losing your deposit and you may also be liable for any damages suffered by the vendor.
The purchaser is not required to attend settlement. Arrangements regarding settlement are made by Penny Browne Conveyancing directly with the vendor’s solicitor or conveyancer, and if the purchaser is taking out a mortgage, arrangements will also be made with the purchaser’s bank.
Upon completion of settlement, Penny Browne Conveyancing will contact you to notify you of settlement, and we will contact the selling agent to request that they make arrangements with you to release the keys.
NB The information contained in this article (and its contents) is general information only and not to be considered as legal advice. Please contact Penny Browne Conveyancing should you have any queries or require legal advice regarding this matter.
Penny Browne Conveyancing