Tips To Help You Before You Buy

Signing contracts when buying a home

Joshua Mackow of ratemyagent.com.au guest blogs today, giving us some practical tips to help you when purchasing a property. Joshua’s advice will provide you with some great options that you may not have considered or even realised possible. So enjoy the article and feel free to contact us for more specific advice regarding your particular situation.

Before you buy

Negotiating a competitive price is an important part of smart buying, but it’s not the only factor. Before you bid at auction or sign a contract, consider these four tips to enhance your position.

Vary the deposit amount. The convention amongst real estate agents is to ask for a 10 per cent deposit, with the balance payable upon settlement. However, because the sale process is governed by contract law, there’s no actual legal requirement stipulating the size of the deposit. The buyer is merely required to provide some sort of ‘consideration’ (payment) as a commitment to making the purchase.

Offering less than the standard 10 per cent deposit keeps more money in your bank account where it can earn interest, rather than sitting in the real estate agent’s trust account. Having said this, it’s wise to offer a deposit large enough to reassure the vendor that you’re serious about the purchase; that you’re not going to walk away from the agreement and risk losing the deposit.

Negotiate the payment method. Traditionally, real estate agents have asked for payment of deposits in the form of a personal or bank cheque. Today, however, this isn’t always realistic. Not everyone has a personal cheque book or can find time to visit a bank during business hours to organise a bank cheque.

Instead, you can use a promissory note (a kind of ‘IOU’) undertaking to transfer funds electronically into the real estate agent’s trust account the next working day. Promissory notes are legally binding so you must have the funds available to deliver on your promise.

Promissory notes can be particularly useful when you’ve been saving for a property using a term deposit account. Because these accounts ‘lock’ the money away for a defined period, you could risk substantial financial penalties if you withdraw the funds before the deposit term expires.

If you’re about to bid at an auction and need to access money in a term deposit in case you’re successful, arrange with the real estate agent to offer a small cash deposit or a promissory note instead of the full deposit amount. This way, you only need to break the term deposit when you have actually purchased the property. You may still incur a penalty for breaking the deposit, but at least you’ll have done it for a good reason.

Allow for a change of name on the contract. If you’re planning to buy a property with another person, and only one of you can attend the auction or sign the contract, you can use an ‘and/or nominee’ clause in the contract of sale. This provides flexibility to replace the name on the contract or add new names, provided you do so before settlement. In most cases, using the ‘and/or nominee’ clause means you won’t incur additional stamp duty.

Alternatively, if neither of you can attend the auction or negotiate the purchase in person, you can assign power of attorney to a family member, friend or professional advocate, authorising them to sign a contract on your behalf. Make sure the document stipulates an upper price limit to ensure that your representative acts in accordance with your wishes.

Negotiate early access. If the property is vacant and you’d like to show tenants through or undertake minor renovations, you can negotiate with the vendor’s agent to access the property on an ongoing basis, starting from a mutually agreed date before settlement occurs. This means you can tenant the property from the day of settlement and avoid missing out on valuable rental income.

If the property isn’t vacant, or the vendor isn’t comfortable with granting you ongoing access to undertake renovations, you may still be able to negotiate limited access for tradespeople to measure up and quote on the job. Then, you can start the renovations once settlement has gone through and the property is legally yours.

TIP BOX

  • Offer a reduced deposit, but enough to show the vendor you’re serious
  • Use a promissory note instead of a personal or bank cheque
  • Add an ‘and/or nominee’ clause to allow for a change of name
  • Assign power of attorney to a third party to sign a contract on your behalf
  • Negotiate early access for renovations so the property is ready for use on settlement day.

Post by: Joshua Mackow from Rate My Agent

 

 

 

About Tim Cullen

Since joining McGrath Estate Agents 18 years ago, Tim Cullen has defined himself as a first class industry leader with an outstanding track record and rapidly growing client base. He consistently ranks in the top 50 agents nationwide in the Real Estate Business’ Top 100 Agents List, ranking as high as 21st in Australia. He is passionate about real estate and delivering premium results for his clients.

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