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STEPS TO PURCHASING A PROPERTY – CONTRACTS



Buying by Private Treaty

When buying by private treaty, the seller (vendor) advertises the monetary amount they would like to sell their property and then negotiates with interested buyers until a mutually acceptable price is confirmed.

The vendor in most cases employs a real estate agent to act on their behalf.

property-settlement
  • Once a sale price is agreed upon

    You (buyer) then sign a contract for sale with the real estate agent or your solicitor. With the agent, you (buyer) will sign the contract and leave a deposit of 0.25% of the sale price and have a 5 business day cooling off period.

  • Cooling off period

    You could negotiate this cooling off period to 5-10 days, but this must be approved by the vendor and the vendor’s solicitor. The agent will obtain the vendor’s signature on another identical contract and exchange contracts, meaning that the agent sends (by mail) your signed contract to the vendor’s solicitor and simultaneously sends the vendor’s signed contract to your solicitor. During this cooling off period, you (buyer) arrange the final details of your loan and obtain a pest and building report.

  • Closing the sale

    At the end of the cooling off period, if you (buyer) are satisfied with the results of the pest and building report, and your solicitor is content with the terms and conditions of the contract, you leave with the agent the balance of the 10% or 5% negotiated deposit less the 0.25% deposit you have already paid to the agent in the form of a cheque or electronically transfer the funds (eft) to the agent’s trust account. The sale is now unconditional and you wait for the standard 42 days (6 week) settlement period whereby the banks and solicitors organise a settlement date. Once settlement date occurs, the keys to your new property are yours.

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With this type of exchange where there is a 5 day cooling off period, the property is technically taken off  the market, meaning that the vendor is bound not to sell the property to anybody else until the 5 day cooling off period has expired. Hence you must pay the balance of the deposit by at least the last day at 5pm of the cooling off period or risk losing the property. If you walk away from the purchase at any time, (and the reason doesn’t matter at all) you (buyer) forfeit the 0.25% deposit you left with the agent and this money then goes to the vendor. This is considered as some form of compensation to the vendor for taking the property off the market during the cooling off period.

Alternative Method

The alternate method of private treaty is to enforce what is known as a “66W”certificate on the contract for sale (no cooling off period). In this instance the contract exchange is handled completely by your solicitor and the vendor’s solicitor. Once both solicitors are satisfied with the terms and conditions of the contract, you (buyer) will deposit a cheque or eft the 5% or 10% deposit to your solicitors trust account. The solicitors will then exchange the contracts. Wait 42 days (6 weeks) for settlement to occur.

Buying at Auction

Buying at auction is a quick process. Register to bid by showing I.D, and bid with that registered number. If you are the highest bidder, you are bound to buy the property and leave the 10% deposit (or 5% if it is a negotiated reduced deposit, beforehand).

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  • Signing the contract

    Contracts are signed immediately by you (buyer) and the vendor and the agent will exchange the contracts immediately with the 66W certificate meaning no cooling off period.

    As there is no cooling off period with this type of sale, it is imperative that you have carried out your pest and building reports prior to the auction and you are satisfied with the results.

    It is also vital that your solicitor has studied the contract for sale and gives you the go ahead to bid on the property. Ensure prior to the auction that your finances are in place to be able to purchase the property.

    Remember, that with an auction there is no cooling off period, meaning you cannot back out if you are the successful bidder. If you do back out, you are liable for the 10% deposit of the purchase price.

  • Waiting period

    Once contracts are exchanged, you wait the mandatory 42 days (6 weeks) for settlement to take place. Your solicitor will arrange for the settlement date. Notify your lender as soon as possible of the purchase details.

If you have not been to auctions before, I recommend that you attend a few. This way you will familiarise yourself with the auction process as well as getting a feel for the emotions that are at play throughout the auction.

Remember that Stamp Duty is payable on settlement date, which is added on top of the purchase price.

Pest & Building Reports (pre purchase)

ALWAYS obtain a pest and building report. The building report will outline any building defects. Pay close attention to these defects. If they are cosmetic defects or minor defects (non structural) then ascertain an approximate cost required for repairs and factor this into the purchase price.

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  • Negotiate the price

    Negotiate the price with the agent using these repair costs as leverage. In my experience, the majority of the time, the vendor will renegotiate the price as a result of the cost of repairs required.

  • Or do not proceed

    If the defects are structural such as foundation and footing issues, structural cracks, severe drainage issues just to name a few, then simply do not proceed with the possible purchase of the property. Just move onto the next property. Structural defects will extract an unlimited amount of money for repair.

In Summary

A pest report will identify if there has been any previous termite damage to the timber framework and also if there are active termites. If there are active termites my recommendation is to walk away from the possible purchase. If there is evidence of past termite activity, then confirm the extent of the damage, the cost to repair this damage and what treatment is currently in place to prevent any future termite presence. Do not be alarmed if there has been past termite activity as long as the damage is minimal, effective treatment was implemented and preventative measures are currently in place. It is quite common in Sydney for termites to have been present at some stage in older Sydney homes where termite protection was not as effective or prevalent as it is today.

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Strata & Body Corporate

If buying into a strata complex such as a unit, villa or townhouse, have your solicitor look at the strata plan and by laws and that they are in proper order.

strata
  • Be satisfied financially

    You must be satisfied financially with the administrative fund/strata fees that are required to be paid quarterly as this impacts your loan serviceability requirements. These strata fees cover the day to day running of the complex, such as the gardening, cleaning of the common areas, insurance payments, general maintenance issues, pest control, body corporate management fees etc.

  • Status of the sinking fund

    Of particular importance also is to determine the current status of the sinking fund for the complex. A sinking fund is a mandatory fund that money is paid into by the owners of each strata unit to pay for future expenses that may include:

    • Repainting of the building
    • Replacement of fencing
    • Driveway refurbishment
    • Replacement of common property items such as carpets, roofing & guttering
    • Lift overhauls

    Ensure that the sinking fund has a reasonable sum of money that will cover potential future expenses. If the sinking fund is close to zero, expect to be hit with a demand for the sinking fund to be topped up.

  • Special levy

    Confirm that there are no special levies. A Special Levy is often raised when there aren’t sufficient funds in either the Administrative Fund or the Sinking Fund to pay for emergencies or an expense/project that has not been budgeted for. This may cover specific items such as structural defects, on-going drainage issues and upgrading the balustrades and balconies of the building, to name a few. These special levies tend to be very expensive and dilute your rental income. If you come across such special levies, do not purchase the property, walk away from it.

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