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I HAVE FOUND A PROPERTY - WHAT HAPPENS NOW?

ALSO: SEE OUR FAQ PAGE FOR A DISCUSSION OF MANY OF THE ISSUES WHICH ARISE WHEN BUYING A PROPERTY.

Your agent probably wants you to sign a contract he has in his office already prepared by the vendor's solicitor. If you do, you have a 5 day (business days- weekends and holidays don't count) cooling off period but at a cost of 0.25% of the price of the property if you decide not to go ahead (On a $400,000 property, this is $1,000 - it is a lot!!). This is called a COOLING OFF EXCHANGE, vis. you enter into contracts subject to the buyer (not the seller) having a cooling off right if he changes his mind.

DO YOU SIGN NOW?  The advantage is you lock the vendor in (after the vendor signs also). He cannot change his mind. The disadvantage is it costs a lot to rescind the contract if you end up changing your mind. The most common reasons for rescinding are a bad pest or building report, a finance approval refusal, or you simply change your mind. Nothing annoys a buyer more than losing the cooling off fee when the cause of rescinding is a bad pest or building report.

The alternative is not to sign the contract. Reach a verbal agreement, pay a holding deposit of, say, $500 (you can get this back), don't sign anything, and ask for a copy of the contract to bring to us (or even someone else if you must!). Most vendors these days in a tough market do not change their mind. They are usually more worried that you will change your mind. We can order your pest and building reports if you want them (they take about 3 days to produce) and you can progress with your finance application.

Another advantage of this method is we have a better chance to tidy up the contract. Often there are annoying little provisions in a contract where standard provisions are changed to the buyers disadvantage; usually involving some sort of fee or cost being passed onto the buyer or potentially passed on to the buyer. You have a better chance of us tidying such provisions up if you do not have about $1,000 to lose by backing out. It is a common feature that the standard contract is changed, often in quite bizarre ways, to the detriment of the buyer.

If you are inclined to sign on the spot to lock the vendor in ( there are many cases where this is exactly what you want to do); ask the following questions:

  • Is there a clause in the contract passing on the vendor's land tax as a settllement adjustment (ie you pay part of the vendor's land tax for the year current at the time of the sale if he is not exempt from land tax)? If so, get rid of it and don't tolerate any argument. It is not on. If the vendor is liable for it, it is a commercial tax of the vendor's. You do not want to know about it; let alone pay it.
  • Can a clause be put in the contract to extend the cooling off period to 7 to 10 days (5 days is usually not enough to obtain a written finance approval - 10 is best, 7 at least takes you into the second week)?
  • Is the price GST inclusive? Usually, it is but you do not want a clause that says you pay it in case there are circumstances the vendor is liable for GST. That is his problem; not yours. residential houses should always be sold on a GST inclusive basis.
  • Can I pay a deposit of .25% of the price now and the balance of the deposit at the expiration of the cooling off period. Use the words "at the expiration of the cooling off period" to cover the circumstance where the cooling off period might be extended.
  • Can I use a Deposit Bond for the deposit (a deposit bond is NOT money. It is a guarantee by an insurance company that the vendor will be paid the deposit if you default under the contract and the vendor is entitled to the deposit as damages).
  • If we have agreed on a 5% deposit (often this is the case), can I pay the deposit with a Deposit Bond for 5% of the price (if you want to use a deposit bond). Vendors (or their lawyers, more to the point) have this strange fixation that any bond must be for 10%. If you agree on a 5% deposit, it should not matter that it is satisfied with a 5% bond.
  • I want a default interest rate of no more than 8% (Trust us on this one - we will explain later)
  • I want a 42 day settlement period at least (or more if you specifically agree on a longer time). This time begins from the date of the contract exchage, NOT the date of the expiry of the cooling off period. Many contracts are drafted with short settlement times.

Don't take the answer; "Don't worry about that. Your solicitor will fix up all of that later". The whole point is to get the contract in order from the beginning on important matters.

If you do sign a cooling off contract, make sure it is sent to your lawyers straight away. There is nothing worse than receiving a contract with a 5 day cooling off period 3 days into it.

Get on with your finance application straight away.

Remember, if you want to rescind the contract by exercising your cooling off right, a written notice must be served. It can be by post, fax or delivery to the agent, the vendor or the solicitor for the vendor. If your lawyer has disappeared at the crucial moment, do it yourself. Just write and say, "We exercise our cooling off rights under the contract and rescind the contract". That will do the job. Ringing up the agent to say you do not want to go ahead will NOT be effective.

The above is not comprehensive advice. It reflects our experience of a lot of buyers who want to know what to do at that first point of deciding on a house and having an agent ask them to sign a contract. This often occurs on a weekend when lawyers are not around to ring up, in the norm. As soon as you get over the first hurdle, come Monday morning further discussions can take place.

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