BUYING REAL ESTATE

Once your offer to buy a property has been accepted by the vendor (owner/seller), the next step is to make your purchase “binding”. For this purpose, contracts for sale are prepared in duplicate. The vendor signs one copy and the purchaser signs the other copy. Contracts are then “exchanged” between the parties.

At the time of exchange, the balance to make up a 10 per cent deposit is usually paid. Contracts are usually exchanged in one of two ways:

• by the solicitors acting for each party
• by the agent.

If contracts for a residential property are exchanged through the agent, it is usual for “cooling-off” provisions to apply. Unless a purchaser has received legal advice beforehand, and a solicitor signs an appropriate certificate under Section 66W of the Conveyancing Act, then the agent must give a five-day “cooling-off” period.

There are a lot of technicalities involved in the “cooling-off” procedure which are too numerous to mention here. Generally, a purchaser can withdraw from any contract that is subject to a “cooling-off” period by giving notice in writing within five business days prior to the date of exchange of contracts. If the purchaser withdraws from the sale within the “cooling-off period, a penalty of 0.25 per cent of the purchase price is payable, eg 0.25 per cent of a purchase price of $200,000 is $500.

If contracts are exchanged through solicitors, the “cooling-off” period usually does not apply. The solicitor for the purchaser usually hands over a Section 66W Certificate on exchange of contracts. The Section 66W Certificate effectively waives the “cooling-off” period.

Inspections and reports
Mortgage documents
Stamp duty
Settlement

Inspections and reports
Before exchange of contracts (or if contracts have already been exchanged through an agent, before the expiration of the “cooling-off” period), a purchaser should consider whether to obtain pre-purchase reports. These reports include the following:

• pest report is almost mandatory. It is usually carried out by a licensed pest inspector. The report should state the extent of any pest damage and whether there are any active pests. It should also state whether a pest treatment should be carried out.
  
• structural/building report is prepared by a licensed building inspector. It reveals the state and condition of the dwelling and other improvements on property. The report should detail any structural problems. It should also detail any repairs of a major nature that might be required.
  
• identification survey report shows where the house is in relation to the boundaries of the land. It should also show if there are any structures that encroach onto the land.
  
• council building certificate effectively states that a council cannot take any action requiring the demolition, repair, etc of any structure erected on the property by virtue of deterioration as a result of the fair wear and tear. This certificate is only “good” for a period of seven years from the date of its issue.
  
• strata inspection report – if the property is governed by Strata Title, we can organise for a strata inspection report. A typical strata inspection report provides information relating to the strata roll, records of any notices served on the owner’s corporation or body corporate, details of the managing agent, whether the books of account are properly maintained, details of balances held in the administrative fund and sinking fund, etc.

The above list should not be considered exhaustive. For example, in some areas, purchasers will need to make inquiries concerning whether a property is subject to land slip or flooding.

Mortgage documents
Purchasers who need to borrow money to complete the purchase take out a loan which is secured by a mortgage. Initial finance arrangements are usually made by the purchaser direct with the lender. Generally speaking, it is advisable to have written loan approval before exchange of contracts (or if the agent has exchanged contracts, prior to the expiration of the “cooling-off” period). Once the lender has approved the loan, the solicitor for the lender generally prepares the mortgage documents. It is advisable for the purchaser's solicitor to give a legal explanation of the mortgage documents prior to a purchaser signing them.

Stamp duty
Stamp duty is payable on the contract calculated on the purchase price of the property. Stamp duty is also payable on the mortgage, calculated on the loan amount.

Settlement
Generally takes place within 4-5 weeks of the date of exchange of contracts. Legal title is transferred at settlement, subject to registration of a transfer at the Land Titles Office. Once settlement has taken place, the purchaser is the owner of the property. The vendor must have vacated the property, by the time of settlement.

A purchaser’s solicitor will attend to a number of matters prior to settlement. These include:

• calculating the stamp duty payable and attend to payment at the Office of State Revenue
• requiring the vendor’s solicitors to answer certain questions of a legal nature, called “requisitions”. For example, the vendor is required to disclose whether there are any disputes with neighbours over fences.
• drafting the transfer document
• attending to the legal requirements associated with the loan
• arranging for the purchaser to sign the mortgage and other documents associated with the loan
• making enquiries of council, Sydney Water, Land Tax Office and other relevant authorities as to whether there are any outstanding rates and taxes
• enquiring of the Department of Education, RTA, Transgrid, EPA, SRA, MSB and other relevant authorities as to whether there are any proposals that might adversely affect the property
• arranging, in consultation with the vendor’s solicitor, for the discharge of any existing mortgages or other encumbrances on the Certificate of Title
• calculating the balance payable on settlement, after taking into account adjustments for pre-payment of rates and any other matters
• arranging drawings of cheques from both the lender and the purchaser
• drafting all necessary settlement documents, including the notice of sale, which is an authority addressed to the Land & Property Information Office for them to notify the Council, Sydney Water and the Valuer General of the particulars of sale
• conducting a final search
• authorising the agent to release the deposit to the vendor, on settlement.

It may be necessary for the solicitor to attend to other matters, depending upon the nature of the property. For example, with a rural property, enquiries of the Lands Department, Local Rural Lands Protection Board, and other authorities might be appropriate.

Meanwhile, a purchaser should:

• arrange appropriate insurance
• finalise loan requirements (if required) with the lender
• arrange a final inspection of the property, preferably the day before settlement
• attend to all other matters incidental to buying a house such as transfer of the telephone service, connection of electricity and/or gas, redirecting mail with the post office, etc.

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If you are thinking of buying real estate please do not hesitate to contact us for a competitive quote. Kerrisons The Law Firm would be happy to help you with your purchase: Phone 02 4655 7066 or email us today.