Buying a Home? What you need to know!

Times have changed.  If you are buying a house, simply signing the contract that is presented to you is increasingly dangerous.

You need to remember that:

  • the selling agent acts for and is paid by the vendor;
  • contracts are no longer standard – the general conditions are starting to change and special conditions need to be reviewed carefully;
  • consumer protection is increasing – but to the extent it relies on expensive court proceedings it is fundamentally flawed; and
  • a property is one of the largest purchases of your life – and you need to make sure it is right and not just hope that it will work out.

The downside of signing a bad contract might be a few thousand dollars in costs that you didn’t budget for or, in a worst case scenario, being stuck with a contract that you can’t settle or get out of.

In this article I will explore five issues that are either causing clients grief or conditions that we have had changed for clients about to sign a contract.

Land Tax

Land Tax is an increasing issue with property investments.  Since 2000/1 when land tax collected by the State Revenue Office was $525 million it has increased to $4,142 million in 2021/2.

Even if you are buying you’re a home to live in, you may be required to reimburse part of the vendor’s land tax.  If the vendor is a trust and / or owns multiple properties the amount of the land tax can reach thousands of dollars.

Even if the vendor is not paying land tax this calendar year you might be asked to reimburse a portion of the vendor’s land tax if settlement is in the new calendar year and the vendor moves home prior to the new year.

The solution is to carefully review any special conditions in relation to land tax and maybe insert a special condition that says that land tax won’t be adjusted.

Finance Conditions

The standard finance condition needs to be approached with caution. 

It isn’t enough to say that your finance wasn’t approved and that you want to terminate the contract.  The standard condition provides that you can only terminate the contract under the finance condition if:

  • you made immediate application for a loan;
  • you have made every effort to get the loan approved; and
  • you aren’t otherwise in default under the contract.

Vendor representatives increasingly ask for evidence of this.  In one case, the special condition inserted required a letter from the purchaser’s bank, on bank letterhead, verifying that the purchaser had indeed made immediate application for a loan and done everything required.

I don’t know about you – but I can’t imagine a bank providing this sort of letter!  Not getting the letter would have the effect that the purchaser couldn’t validly terminate the contract.

The standard finance condition can also create issues if you are seeking a higher loan amount to cover a renovation / build or if you were relying on raising funds from a joint venture or money partner.

You need to ensure that you understand the finance condition and that it suits your situation.

Condition of Property at Settlement

Purchasers expect that the property will be clean and tidy at settlement and that all the vendor’s chattels (rubbish?) will be removed.  The standard contract is a little vague on this – it simply says that the property will be in the same condition as it was in on the date the contract was signed.

I recommend a special condition that makes this very clear.  After all, you don’t want to spend your first day of ownership cleaning!

It is also important to be aware that the standard contract does not require that appliances are in working order at settlement.  The vendor’s obligation is to deliver the property at settlement in the same condition as it was in on the date the contract was signed – with an allowance for fair wear and tear. 

If you didn’t check whether the appliances were working when you signed the contract you won’t get to first base on this test.  Most clients aren’t this careful with their inspections. You may also miss out if an appliance simply failed in the course of normal use.

The solution is a special condition that requires the appliances to be in working order at settlement – which is what most purchasers expect.

Building Works

Domestic building work and work by owner builders is fairly tightly regulated.

In very simple terms, any work that goes beyond simple renewal and maintenance may require a building permit.  If the vendor (or a previous owner) has done work to a value of more than $16,000 they may be an owner builder.

In both cases specific disclosures are required.

However, many people, including real estate professionals are not aware of the precise requirements and overlook the required disclosures.

As a purchaser, this can be disastrous.  You may be buying a home with non-complying works and / or you may face restrictions on your ability to on-sell the property when the time comes.

The answer is to be vigilant when looking at a home that has been recently renovated or extended and to make sure that the right permits and other paperwork is included in the contract of sale.

Nominations

Unlike other states, in Victoria, nomination is a pretty simple process.

However, this simplicity disguises some tricky issues.

Firstly, you should be aware that the original purchaser (the one that signed the contract) remains as a guarantor even after the nomination is signed.  That means if the nominee doesn’t settle, the original purchaser could be liable for the vendor’s costs and losses (to the extent they exceed the deposit paid).

Secondly, many contracts restrict your right to nominate.  This could be as simple as preventing you nominating in the 14 days prior to settlement.   However, in the case of off the plan contract your right to nominate may be completely removed or at the vendor’s discretion.

Thirdly, if you nominate at a profit or after land development (including getting permits) double stamp duty may be triggered.  This means that the State Revenue Office could ask for stamp duty on the original contract price and a second amount on the higher nomination value.

If you are planning to nominate, make sure you know what restrictions the contract imposes.

Contract Review Service

Lewis O’Brien and Associates offers a contract review service to help purchasers about to sign a contract.  For a fixed fee of $125.00 plus GST you can book a convenient time to review the contract with an experienced lawyer.

We will review the above issues, make sure you are generally aware of the terms of the contract, identify any major problems and also suggest special conditions to tailor the contract to your needs.

If you are about to make one of the largest purchases of your life – this is a simple and cost effective way to protect yourself and feel more comfortable.

To book this service – please click here.

If you aren’t in the market to buy a property, but know someone that is please share this article with them.

Lewis O’Brien