So you have found your dream home and you’re ready to sign. You don’t want to wait another minute to make it yours. But hang on – you’re about to spend an obscene amount of money. You need to take a step back and make sure you’ve covered these three essential things before you sign a property contract. You’d be a bit mad to sign if you haven’t!
- Get a Loan Pre approval before you sign a property contract.
I’ve heard a few stories about people turning up at auctions to bid without having done any of their due diligence or getting a loan pre-approval. They just stumble into a property the morning of the auction and decide to throw their hat in the ring, sign a property contract and then call the lender or broker of choice. Most of us don’t have ready cash for a purchase of this size so I’ve got to admit to being dumbfounded at this kind of behaviour.
If you’re the highest bidder at an auction, you’re legally obliged to sign the contract and there’s no cooling off period. If you can’t afford the property, you’ll lose the deposit amount usually five or ten per cent – specified in the contract.
The same applies if you want to withdraw from a private treaty deal after the cooling off period expires. (Even if you withdraw during the cooling off period you’ll be up for 0.25 per cent of the purchase price, which amounts to $2500 on a $1 million property. Ouch!)
So before you bid at an auction or sign a private treaty contract, get your broker to confirm with your lender the maximum amount you can borrow and have the required approvals ready to go.
And don’t forget to allow for all the other costs associated with buying a property – the list includes LMI, stamp duty, bank fees, moving costs and insurance.
2. Get legal advice before you sign a property contract.
I know the fine print in sales contracts is tedious and the language used can be confusing. That’s why it pays to get help from a solicitor or licensed conveyancer. They’re trained to pick up details you or I would miss. Perhaps the terms of the vendor’s contract include a long settlement of six months. Or maybe the current tenants have another 12 months on their rental agreement. Are you in a position to wait six or 12 months before you move in?
Sometimes there’s a list of exclusions that will see the vendor remove all those designer light fittings that you fell in love with. It happens more often than you probably think.
Your solicitor will also do a thorough check of the section 32 vendor statement. This is a combination of legal documents detailing all the things that could affect the property and it must be provided by the seller. It will include the property title, liabilities over the property, any restrictions on the land, the zoning certificate, any known government planning proposals, and any building permits.
3. Pest and building inspection/strata inspections completed before you sign a property contract.
Yes, these inspections will cost you money. And yes, you may need to pay for more than one inspection as you progress your property hunt. But instead of viewing this as money wasted, consider it as a kind of insurance against what is likely to be your biggest ever financial transaction. Make sure you do this before you sign the property contract.
Because if you buy a house and you skip the pest and building inspection, or you buy an apartment and you skip the strata inspection, you may find yourself up for some very expensive repair and maintenance work. Termite damage is an obvious example, but new homeowners have also discovered rotting windows, faulty electrical wiring, rising damp, structural cracking, roof leaks and fire code violations. The cost to rectify these issues can be crippling.
Besides, knowledge is power. If your building inspection reveals a major problem and you’re still keen to buy the property, you can use your knowledge to negotiate a lower price.