General Knowledge

Finance

When you bid on property at an auction, unless you have enough cash to cover the purchase (not super likely), you really should have obtained pre-approval from your financier (i.e. the bank). This is because, if you are the successful bidder, you cannot make the contract conditional on finance.

Generally, the bank will only lend part of the purchase price. It can change according to individual circumstances, but it’s a fair example to say that the bank will lend up to 80% of the purchase price. You will need to contribute the balance of the purchase price (the 20% that you might call your deposit), plus stamp duty, land title registration fees and your legal fees.

Even if you don’t have finance pre-approval, you can still make an offer to buy through private sale subject to finance or a loan. You should complete the relevant details in the contract to reflect this condition.

When you make an offer subject to finance, you can set out in the contract the time period within which you will need to obtain finance approval. It might be seven days, fourteen or another period. It’s up for negotiation with the vendor, or the selling agent on their behalf. But in any case, there will be a date set in the contract before which you will need to advise the vendor of your finance approval.

This is really important: once you’ve signed the contract that you’ve made subject to finance approval, you must immediately apply for your loan (finance) and you must also do everything reasonably required to obtain approval of that loan. This requirement is set out in the general conditions of the Law Institute of Victoria approved contract of sale.

If you do these things, but don’t manage to get your loan approved, you can end the contract and get your deposit back by following the process set out in the contract.

To do this, you must send written notice to the vendor stating that you terminate the contract and you must do this within two clear business days after your finance approval was due. Also, importantly, you can’t be in default of any other conditions of the contract. So, for example, if you haven’t paid the deposit in full by the date required for that, you will be in default and unable to end the contract.

If you don’t get finance approval and you don’t end the contract within the required time, the contract will become unconditional. This is where things can get hairy, because it means you are now bound to fulfil your end of the bargain and buy the property, regardless of your situation with the bank (or other lender).

So, the big things to take away from here:

  1. Be sure that you have at the very least a pretty good idea of your ability to obtain finance and for how much.
  2. Fill out the parts of the contract that make it subject to finance for the amount you need and with a date that allows you enough time to obtain finance.
  3. If it looks like you’re not going to have enough time to obtain approval, talk to us so that we can negotiate a time extension for you, or, if the vendor does not agree to an extension, so that the termination of the contract is done correctly.

Pre-Approval

So, you’re ready to buy? Good for you. If you need finance to complete your purchase (like pretty much everyone does), then you should either arrange pre-approval of finance before signing a contract of sale, or, make the contract conditional on you obtaining finance for a certain amount within a certain period (i.e. make your offer ‘subject to finance’). Read more about it in the Subject  to a Loan section above.

Pre-approval is given by the bank once they’ve assessed your ability to service (re-pay) a loan. You don’t need to have a specific property yet. Pre-approval can be organised either directly with a financier (ordinarily a bank) or through a broker. They’ll tell you how much you can borrow, so you’ll know what properties you can afford and you’ll be in a good position to make a successful offer.

There are a few things to note, however. Pre-approval isn’t a dead-set lock; it’s conditional on valuation of the property that you want to buy. This is so that your lender can ensure that the value meets the sale price.

If you buy at auction or by a private sale, valuations will generally meet the sale price. But, if you buy through another arrangement, like a family situation in which you purchase for over-value, or if information comes to light after you sign a contract that you should have known beforehand, then the valuation could possibly fall below the sale price.

In this scenario, the bank may not lend you as much as you had hoped or planned for, and you’ll find yourself in a potentially sticky situation: needing additional funds from another source in order to complete your purchase.

If you’re unable to obtain finance within the required period or for the required amount, then, hopefully you made your contract subject to finance. If so, you may be able to terminate your contract, however, it’s essential that you follow the applicable termination procedure, which is set out in your contract. If you do it right, you should be able to get your deposit back.

If you have any concerns about finance, making an offer, or correctly terminating a contract of sale, let us know when you upload your contract and Vendor Statement through the Advice Centre.

Other

Citizenship

The general position in Australia is that foreign persons need to apply for approval from the Foreign Investment Review Board (FIRB) before purchasing residential real estate in Australia.

This means that if you are a foreign person seeking to buy residential real estate, then you should make any contract you wish to enter into conditional on FIRB approval. In most cases you will need to specifically include a special condition in the contract to this effect so that you can terminate the contract if you are unable to obtain FIRB approval.

As a foreign purchaser, even if you do obtain FIRB approval, when the property is transferred to you, then in addition to the stamp duty which is payable, the State Revenue Office in Victoria imposes a foreign purchaser additional duty which you will have to pay. Presently, this is at a rate of 7% additional duty.

If you think you may need FIRB approval or need further information, just let us know in the Specific Questions or Additional Notes section when you upload your contract through the Advice Centre and we’ll help to make sure that you get the special conditions you need to include in your contract.

GST

When buying any type of property, you do need to think about GST. In many cases, it won’t apply, like when you’re buying residential premises that aren’t new. It may be applicable, though, when you buy vacant land, brand-new residences or commercial premises.

Say, for example, you’ve finally found your dream new home. The builder has just completed the build, your negotiating skills have paid off and you’ve agreed on the final price. Make sure that you’ve clearly stated that GST is included, otherwise you’ll have to find an extra 10% on top. To set it in stone, the Particulars of Sale (found in your contract) will need to show that the purchase price includes GST, or that the vendor will apply the Margin Scheme.

Something else to be aware of is that if GST is payable on top of your purchase price, your stamp duty will also increase, because stamp duty is calculated on the purchase price plus any GST.

If you’re not sure about how GST applies to your particular purchase, head to our Advice Centre, where we can look at your contract and clarify it.

Adjustments

With the ownership of property comes responsibility for certain costs and expenses after the actual purchase.

The vendor pays for all property outgoings until the day of settlement. These can include council and water rates, possibly land tax and owners corporation fees. You will pay your portion of these outgoings from the settlement date onward.

For example, council rates are payable for the period of 1 July to 30 June each year. If your settlement takes place right in the middle on January 1st, then the statement of adjustments will show that the vendor pays for half the year and you pay for the other half.

Another example is if the Vendor has a mortgage registered on the certificate of title. Their mortgage must be discharged when you are registered on the certificate of title, and there is a fee payable to the land titles office to do so. The vendor pays this fee and it will be noted on the statement of adjustments.

So, who’s responsible for working out adjustments? We are - it’s part of the transfer (a.k.a. conveyancing) process. If you’ve already signed up with Clarity, you might be familiar with our Transfer Portal. This is where we upload your Statement of Adjustments for you to view before settlement.

If you haven’t signed up yet, it’s free to do so, and you can save and share the relevant information that you find in our Knowledge Centre and in our Articles.

Services

The Vendor’s Statement will identify which services are connected (or not) to the property, such as gas, water, electricity, telephone.

If services are not connected (or available but not connected) it will be your responsibility to organise and pay for these connections after settlement.

If you sign a contract to buy a property,  you have three business days to end the contract (except under certain circumstances mentioned below). The reason why you want to end the contract doesn’t matter, but it is important that you understand how to exercise your right to “cool off” and in what circumstances you can and can’t.

If none of the exceptions listed below apply to you, then you:

  • must give the vendor or their agent written notice that you are ending the contract in accordance with Section 31 of the Sale of Land Act 1962 (which is where the “cooling off” period is set out), and
  • are entitled to a refund of the deposit you paid except for either $100 or 0.2% of the purchase price, whichever is more.

Some fun maths:

If you sign a contract to buy an apartment for $500,000, then you decide not to go through with it and properly end the contract within the cooling off period, then you will be required to pay $1,000. Any deposit you paid on signing will be returned to you minus the $1000.

Exceptions

The 3-day cooling-off period does not apply if:

  • you bought the property at auction, or within three business days before or after a publicly advertised auction
  • the property is used primarily for industrial or commercial purposes
  • the property is more than 20 hectares in size and is used primarily for farming
  • you and the vendor have previously signed a contract for the sale of the same land in substantially the same terms
  • you are an estate agent or a corporate body.

The contract of sale sets out the agreement between the parties (the vendor and the purchaser). So, any verbal representation made by the agent or the vendor, or any specific requests made by the purchaser that were agreed to in conversation, email or any other type of communication, will not be enforceable unless they are set out in writing in the contract.

Many contracts will also include a ‘no representations’, or ‘entire agreement’ clause, which states that the contract itself is the entire agreement between the parties and no other representations matter.

In other words: if you want something from the vendor, make sure it’s in the contract. If you only want to buy the property based on certain conditions, make sure you negotiate to ensure they’re included in the contract.

Some example of representations that could be made during negotiations include:

  • that you’ll have ocean views in your off-the-plan (yet to be built) apartment
  • that you can develop your land in a particular way, or for particular uses
  • that certain goods are included in the sale, e.g. barbecues, wall-mounted TVs, installed sound systems etc.
  • the actual size of the house or apartment