Buying a Property

Are You Ready to Buy? When starting out the process of buying property in NSW, you should seek advice from a lawyer or a licensed conveyancer.

Metro Conveyancing can guide you through the sometimes complicated process of buying real estate. You will need to know what you can and cannot do when dealing with an Estate Agent and you should be aware of your cooling off rights before you enter into a contract to buy property. Some contracts will require you to waive your cooling off rights before signing and it is critical to understand what this means and how it affects your position.  We aim to make the rights and responsibilities of buyers (purchasers) and sellers (vendors) clear so you can purchase with confidence.

It is also important to understand all the possible costs involved in a purchase and Metro Conveyancing can give you advice on this.  Knowing the costs involved will enable you to negotiate with the seller (vendor), through a real estate agent, for a price you can afford.

We at Metro Conveyancing can clarify any matters that you may not be aware of and help you to understand the process and the various stages and legal requirements involved.

Contract for Sale of Land

NSW Law provides that a Real Estate Agent must have available at all times a full contract for the sale of residential property. A copy of the contract must be made available for any prospective purchaser to look at and to get legal advice on.  Ask for a copy of the contract for any property you are considering purchasing and Metro Conveyancing will be happy to give advice on it.

Contracts must contain all the details of the property, including a zoning certificate showing whether the property is zoned as residential or for some other purpose. Also attached will be a full title search showing any easements or restrictions that affect the use of the property and any mortgages or other matters affecting the title. A sewer diagram must also be attached so that you can see if the sewer main crosses the property you are interested in.

Some details that affect the sale will not be included in the contract. There are several matters contained in legislation that affect the contract for sale of land that are not necessarily spelt out in the written contract and it is best that you have your lawyer or conveyancer explain the effect of the contract before you sign and commit yourself to it.  It may sound unusual that people will commit themselves to contracts involving up to a million dollars before properly understanding the implications but they do.  We at Metro Conveyancing advise that it is extremely important to have any contract you’re thinking of signing carefully read and explained to you before you sign it.

The date of the contract is the date both the seller (vendor) and the buyer (purchaser) exchange a signed copy of an identical contract. The contract will usually specify how many days after that date that the sale must be completed by (settlement). This time period is normally 42 days (or 6 weeks) but can be otherwise. The time for settlement can be negotiated and if there are any particular reasons why it needs to be changed, we can negotiate on your behalf.  Typical reasons for seeking a change to the standard 42 days are selling a property to provide funds for the purchase, or waiting for finance from a bank, or a vendor who wishes to stay in possession of the property until a certain date.  It is important to discuss this in detail with us.

Contracts for sale of land also contain a list of all inclusions that are to be sold with the property. You might inspect a property and particularly like certain light fittings or floor coverings and assume they will be included in the purchase.  We can negotiate with the vendor’s solicitor or conveyancer to ensure there is no confusion as to what is included and what the vendor will take when they leave the property.  Many disappointed buyers find a property ???missing” certain items through failure to ensure inclusions are agreed to and included in the contract.  Part of our job is to ensure there is no such disappointment.

Inspections

Before signing a contract to purchase a property you need to decide whether to get any inspections done. The contract does not cover the quality of the buildings on the property; it goes mainly to ownership (title) matters.  The buyer must always “beware”.

Houses

When considering buying a house you will want to know that the building is structurally sound and that it is not infested with any pests that affect the structural soundness.  Metro Conveyancing can organise inspections for you but it is important to note that the inspectors who carry them out charge separately to our professional fees.

We recommended that you obtain both a Pest and Building Inspection because they will give you some peace of mind and are, compared to the price of your proposed purchase, low in cost.

We recommend using inspectors who carry Professional Indemnity Insurance so that if they miss something that causes you loss, you may be able to be compensated.

Strata Units

Strata title (ownership) is a system first introduced in 1961 in Australia for handling the legal ownership of a part of a building or structure.  These parts are known as ‘lots’ and are the portion of the building you, as purchaser, actually own in your own right.  The remainder of the building (apart from each other lot) is common property and is owned by all owners, collectively known as the owners corporation.  If you buy a unit, townhouse or villa you are buying into a strata scheme. Whether you obtain a pest and building inspection is your choice – it can be reassuring to know that the lot you are buying is clear of any structural or pest problems – but these reports will not advise on the other lots in the scheme or the common property that falls outside of your lot, so that you do not know of any problems with other parts of the scheme.

The best solution here is to obtain a strata report, based on the books and records of the owners corporation. There are firms who specialise in these inspections and are experienced in this field. They do not inspect the building, only the written records kept by the owners corporation. Usually a managing agent is appointed by the owners corporation to keep these records so that the inspection is done at the office of the managing agent.

The inspection will tell you of things such as:

• what the quarterly levies are;
• the insurances that have been taken out;
• the financial position of the scheme;
• if there are any ongoing maintenance or defects problems;
• if there are any special levies struck for the cost of any works to be done (a special levy is a one-off levy over and above the regular quarterly levies); and
• any other matters that may be reported in the records, minutes of meetings or correspondence.

An owners corporation is only required to maintain records for five years so information over five years old may not be disclosed in any report.

If a lot owner has any problems with their lot, other lot owners or the common property areas, they are usually reported to the managing agent and therefore should be discovered by a strata inspector.

Finance

Before applying for a loan you should do a detailed budget to assist you to know how much you can afford to pay each week in loan repayments.

It is wise to shop around the various available lenders and do your homework before you apply so that you have an idea of what is being explained to you. There are many different types of loans and it can be difficult to understand all the complexities of the different types.

If you have decided on which type of loan you require you can apply directly to the lender you have chosen. If you are unsure then it may be a good idea to consult a finance broker. Finance brokers have access to many banks, credit unions and mortgage lenders and can find the loan that best suits your needs.

You should not pay a fee to a finance broker if a loan is not arranged for you. Different institutions pay different commissions to brokers so it is always a possibility that the loan you are referred to may not be the best for you but in fact be the best commission paid to the broker who recommends it. For this reason you should always do some research to get an idea of what current interest rates etc are available at the time you apply.

Some lenders will offer loans of up to 100% of the purchase price. Loans for high portions such as these attract mortgage insurance, (which insures the lender, not you). The premium depends on the loan to valuation ratio. This insurance is an additional expense that you may not have allowed for and needs to be considered when budgeting for a loan.

First Home Owners

If you are buying (or building) your first home, you may be eligible for government benefits under the First Home Owner Grant Scheme, NSW First Home Buyers Supplement, Australian Government First Home Owner Boost or the First Home Plus Scheme.

This may mean you are entitled to a grant of money which can be used towards your purchase price and an exemption or concession on stamp duty payable on the contract.  The rules in relation to these benefits have changed frequently so it is important to see exactly what is available when you are considering purchasing.  Metro Conveyancing can advise on and guide you through the process of applying for these benefits.

More information can be obtained at:

http://www.osr.nsw.gov.au/benefits/first_home/

Exchanging Contracts

Identical contracts are signed by both parties involved in the transaction when the vendor and purchaser have agreed on a price and the conditions of the sale (the inclusions, the date for completion etc). The deposit is paid and contracts are dated and exchanged between the parties.

The effect of an exchange of contracts is that each party ends up holding the copy signed by the other party and, subject to any cooling off period (see following) each side is bound – the vendor has promised to sell for a set price and the purchaser has promised to buy for that same price.  The legal obligations that arise from an exchange of contracts are serious and we can ensure you understand them before signing.

The contract can be exchanged by real estate agents but we prefer to do it ourselves – this way, we can ensure the contracts are identical, reflect the agreed terms and conditions and thus protect your legal rights.

We will always explain the details to you so you are fully aware of the transaction you are entering into.

Until such time as the contracts are exchanged either party can withdraw from the transaction.  It is only once contracts are exchanged that the parties are bound to proceed (the exception being cooling off periods – see following).

Cooling Off Period

NSW law provides for a cooling off period in contracts for the sale of residential property (fewer than 2.5 hectares) of five working days.  The cooling off period ends at 5.00pm on the fifth working day. This means that after entering into the contract the purchaser has five working days in which to “cool off” (rescind). The seller is locked into the contract and cannot withdraw from the sale.  If you rescind under your cooling of rights, it will cost you an amount prescribed by law – you forfeit to the seller 0.25% of the sale price. This means you lose $250.00 for each $100,000.00 in the purchase price (or part thereof).  The contract is then at an end and neither party has any further claim against the other.  Metro Conveyancing can explain the operation of and consequences of the use of the cooling of period.

Many vendors require buyers to waive the cooling off rights i.e. the purchaser agrees to sign without the right to rescind and is this immediately bound by the contract.  This is done by having the waiving explained and by signing a s66W certificate declaring you have had the certificate explained and waiving the right to cool off.  A cooling off period can be shortened or extended by negotiation with the seller’s solicitor or conveyancer and we can do that for you on instruction.  A vendor, however, does not have to agree to extend a cooling off period.

It is important to note that there is no cooling off period if the property is sold at public auction or on the same day as the property was listed for auction sale.

Payment of Deposit

Contracts for sale of land include an essential term that the deposit be paid on or before the date of the contract (exchange of contract) or in strict accordance with any other negotiated special conditions included in the contract. The deposit paid can vary but it is usually 10% of the agreed purchase price. Normally, it is paid to the estate agent who holds it as “stakeholder” pending completion, at which point it is handed over to the seller.

Holding deposits are sometimes paid to the seller before contracts are exchanged. It is important to note that these are not enforceable and do not necessarily secure the property for you.  If you do pay a holding deposit and subsequently exchange contracts, the holding deposit amount forms part of the agreed deposit.

The agent holds the deposit in trust for both the vendor and the purchaser and cannot release it without consent from both parties. Some vendors request consent to use the deposit money as a deposit on another property.  We can advise you on how to handle this and negotiate on your behalf to protect your interests.  Where the deposit is not agreed to be released, it is normally handed over at completion (on instruction from your lawyer or conveyancer) so that the agent can account to the vendor. The agent will deduct their commission from the deposit.

If the purchaser does not pay the deposit on exchange or if the deposit cheque is not honoured by the bank the seller can rescind the contract at any time up until the purchaser makes good the deposit.

Deposit Bonds

Deposit Bonds are guarantees that, while the deposit is not paid at the exchange of contracts, it will be paid on completion and if the buyer is in default the party issuing the bond guarantees payment. In effect, this means you pay the full purchase price at completion and the party issuing the bond guarantees the deposit portion of the payment. This has the advantage of not having to come up with a 10% cash deposit. It does not change, however, the total amount you have to pay.  Metro Conveyancing can organise for a deposit bond to be issued to you and explain the implications when using them in place of cash.

Insurance

Sometimes, damage occurs to a property between exchange of contracts and completion.  The risk of damage to the property is the vendor???s up until the completion date or until the purchaser takes possession of the property if that happens prior to completion. (It is possible to occupy a property you’re buying by agreement before the purchase is complete.)

The vendor is liable to take care of the property up until completion and the property should be handed over at completion in the same condition, subject to fair wear and tear, as it was at the date of exchange.  It is important to note the condition of the property and all inclusions so as to be able to compare it immediately before completion.

If the property is substantially damaged before completion the purchaser has a right to rescind and have the deposit refunded, provided they do so with 28 days of becoming aware of the damage. If the damage is not substantial then the purchaser may chose to proceed with the purchase subject to a reduction in the sale price to reflect the cost of repairing the damage done (and returning the property to the condition it was in at exchange of contracts).

Stamp Duty

Stamp duty is payable on the contract. Stamp duty is not payable on mortgages securing a loan for owner-occupied residential property.

The duty payable on the contract is calculated on the sale price. It is the purchaser’s responsibility to pay the stamp duty and this must be done before completion if you are borrowing money and in any event within three months of the date of the contract or a fine is payable for late payment.

The amount of duty payable on the contract can be calculated using the Office of State Revenue’s online calculator:

http://www.apps05.osr.nsw.gov.au/erevenue/calculators/landsalesimple.php .  We can assist with any question about stamp duty and exemptions.

Council Rates

The Contract provides that council rates be adjusted between the vendor and purchaser as at the settlement date.  This means that the vendor pays the rates up to and including the day of settlement and the purchase pays from then on.  The rates may be paid in advance or be in arrears – either way, we calculate the necessary adjustments to ensure you take the property free from any debt owed by the vendor

Council rates can be paid by instalments but are an annual levy and it is therefore normal practice to adjust the rates for the full rating year, not according to what instalment may be due next.

As indicated, any outstanding rates become the liability of the purchaser, so it is essential that they are paid in full up to date at settlement. One of the inquiry certificates Metro Conveyancing obtains is from council setting out the amount of the annual rates, what payments have been made and how much is outstanding.

Water Rates

Some rural councils raise water rates along with council rates. In other areas a separate water authority (such as Sydney Water) supplies the water and / or sewer services.  Either way, an adjustment of these rates must be made at settlement.

Water rates are usually levied on a quarterly basis and the adjustment made will only be for the current quarter.

A water usage charge may have to be paid by the vendor. If this is the case, Metro Conveyancing will ensure the necessary adjustment is made.

It is usual to use an estimate system (based on previous usage) to calculate the usage charge. The vendor will make an allowance to the purchaser for the usage charge so that when the actual bill for water usage is received the whole bill becomes the purchaser’s responsibility and the purchaser only pats for usage after completion.

Strata Levies

If you purchase a lot in a strata scheme, the quarterly strata levy will need to be adjusted at settlement. This levy is adjusted in the same manner as council rates except that they are adjusted on the quarterly, not annual rate. The quarter for strata levies may begin at any time, they are not necessarily the quarters of the calendar year. Because the levies commenced on a date determined at the first annual general meeting held by the Owners Corporation the quarterly levies can commence at any date but for convenience it is usually from the beginning of a month.

In some strata schemes, there are also special levies to consider. A special levy is struck when and if there are not enough funds held by the owners corporation to cover either the normal running expenses or special maintenance or repairs that have to be carried out.  It is important to remember that owners corporations must maintain and repair common property and if you buy into a strata scheme, you will be liable for a share of the cost of this for as long as you own a lot(s).  Metro Conveyancing can explain this and other strata ownership issues.

If a special levy has been struck before the date of the contract, it has to be paid in full by the vendor. Sometimes the special levy may be paid by instalments, if this is the case all instalments must be paid by the vendor. A strata inspection should show if it is intended to raise a special levy that may be struck after the date of the contract (one for which you, as purchaser would be liable) but this cannot be relied upon.

Final Inspection

Purchasers are entitled to, and should take advantage of, a final inspection of the property before settlement.  When doing so it is important to know which inclusions are in the contract and what the overall condition of the property is, as compared to when contracts were exchanged.

It can be extremely difficult to have repairs done or inclusions returned after the vendor has left the property and the purchase is completed.

We suggest conducting a final inspection the day before settlement. This way if there is a problem there is some time to sort it out before settlement. If there is some particular concern that something may go missing or damage may be done between the final inspection and settlement then you should re-inspect just before settlement takes place.

Before Settlement

Prior to the settlement date you should make a list of all those places you need to advise your change of address and see that this is done immediately settlement takes place. Retain this list and only act on it once settlement has been confirmed  (in case there is a delay).

Settlement will normally take place at a venue chosen by the vendor.  If there is a shortfall in funds needed to complete your purchase, we request that cheques be made available to us the day before.  We will advise you who to make this payment in favour of a couple of days before it is due (if possible). However, you should be aware that because of the procedures followed by some financial institutions, the final cheque details may not be known until the day before settlement. This unfortunately means that you should be prepared to receive the details and provide us with any final cheques on short notice – we know this is not very convenient but it is beyond our control.

Settlement

When the date of settlement arrives, we will have confirmed all details with the vendor’s solicitor or conveyancer and your lender (if you have one). It is always possible for settlement to take place on an earlier or a later date if both parties agree.

In NSW, contracts for the sale of land normally have a condition that if settlement is delayed through no fault of the vendor then the purchaser will pay interest to the vendor to compensate for the delay.  Accordingly, we aim to have everything ready and in place ahead of time to avoid the possibility of penalty interest.  If a delay is due to the vendor (or the vendor’s lender) then no interest should arise.

Given the undesirable possibility of penalty interest, you should discuss with us any particular requirements during the pre-exchange period.  Metro Conveyancing can negotiate any requested changes to the contract during this time but unless the vendor agrees to any change in the settlement date, there cannot be any.  We strongly advise you to carefully consider the settlement date in the contract before exchanging

The time for settlement, is determined by the availability of all parties to the transaction (vendor’s solicitor or conveyancer, Metro Conveyancing and each side’s lender.)

Metro Conveyancing (or our agent) will attend the settlement on your behalf. There is no need nor is it normal practice for you to attend yourself. As there will normally be four parties attending a simple purchase settlement and more if one or more of the parties are simultaneously selling and buying the time of settlement is made according to when all parties are able to attend a certain venue at the same time. This means that while you may prefer a morning settlement it may not be possible.

The venue is determined by the person or institution that holds the deeds to the property, normally a discharging lender for the vendor.

The deeds to the property are handed over at settlement, in exchange for payment of the agreed purchase price.  These documents will be held by your lender until any loan is fully repaid.  (If you are purchasing without any funds from a lender, you can choose where to store title documents.?? These are very important documents and we strongly advise they are stored somewhere secure.)

Your lender will attend to registration of your ownership of the property at the Land and Property Management Authority and this should be done shortly after settlement.

Occupying Your New Home

Normally, occupation of the property is not granted until after settlement has been completed.  However, under some circumstances, an arrangement to move in before settlement can be reached.  This is referred to as moving in under licence.  Metro Conveyancing can negotiate on your behalf if you wish to move in under licence but it is important to remember that the vendor does not have to agree to this.

Dealing With an Existing Tenant

If the property you purchase has an existing tenant with a current lease then you take over the vendor’s role as landlord immediately settlement has occurred.  The current lease continues to operate with you as the new landlord

If you want the tenant to vacate the property, you will need to serve a notice of termination which must allow the required period of time depending on when it is issued.

(1)   If a fixed term is due to run out and you are the landlord:
In the last 14 days of a fixed term tenancy, either the tenant or the landlord can give 14 days’ notice to end the tenancy and it can be served at any time up to the last day of the fixed term.

(2)??  If the fixed term has expired and you are the landlord:
If the tenant wishes to give notice to terminate, then at least 21 days notice must be given. If you, as the new landlord, wish to serve a termination notice, you must give at least 60 days notice.

(3)   If fixed term has expired and you are not yet the landlord:
If the vendor is promising what’s called “vacant possession” (handing over the property free of any tenancy) he or she must give at least 30 days notice of termination, after the date of the contract.

If an existing tenant stays on in the property, the rent needs to be adjusted in much the same way as other adjustments are made. We can advise on how this works in practice.  If the rent is in arrears then no adjustment is made as the purchaser cannot be expected to take over a debt owed to the previous owner.

Immediately Following Settlement

We will advise the estate agent that the matter has settled so that he / she has authority to release any keys being held to your new home.  We give to vendor’s solicitor or conveyancer a direction called “Order on Agent” instructing the release of the keys and the deposit being held.  We then advise you that this has been done so you can collect the keys.

Metro Conveyancing then sends to you, usually during the week after settlement, a final letter of confirmation of your purchase, together with a settlement statement and any other documents we still hold.

If you have borrowed money for your purchase, you will not receive the Certificate of Title (Title Deed) because all title documents are retained by your lender for safekeeping for as long as the loan remains unpaid. It is the lender who will register the transfer into your name.

When your lender attends the Land and Property Management Authority  (LPMA)they will also lodge with the title documents a “Notice of Sale”. This document is used by the LPMA to notify Council, the water authority and Valuer General of the change in ownership so that all future rate notices are issued in your name.

You should now notify all those places that you have determined need to know of your change of address.  The sooner this is done, the fewer problems you will have.

Land Tax

If you are buying an investment property or a holiday home you may be liable for land tax. Land Tax is only payable where the value of the land is above the land tax threshold, which is determined on an annual basis. Where more than one taxable property is owned, the cumulative value of all land must be above the threshold for you to be liable for the tax. Your principal place of residence is exempt from land tax so if you are going to live in the property you have just purchased, you are exempt.

If you think you may be liable for land tax you need to register with the Office of State Revenue (OSR). More information on land tax is available at:

www.osr.nsw.gov.au/taxes/land .

All property owners who may be liable for land tax must register by 31 March each year

“Off the Plan” Purchases

Strata titled units are often advertised for sale before the building is completed. Buying a strata unit under these circumstances is known as “buying off the plan”. See Office of Fair Trading’s brochure on ‘Buying off the Plan’ at the following link.

http://www.fairtrading.nsw.gov.au/Tenants_and_home_owners/Buying_property/Buying_off_the_plan.html

There are particular considerations when buying off the plan and you need to give it careful thought.  Metro Conveyancing can advise as to the potential pitfalls and advantages of this type of purchase.

We trust the above information will assist you to understand the process of purchasing property. We are happy to discuss any questions you may have and look forward to assisting you.