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Money and Life
(Financial Planning Association of Australia)
Ready to take the plunge and buy your first home? Make sure you know exactly what to expect from the home buying process with our simple step-by-step guide, covering everything from making an offer to moving in.
Making an offer – private treaty
In Australia, properties are offered for sale either through an auction or private treaty arrangement. The process for buying your home will be different, depending on which sales method is being used.
When you make an offer on a property that’s for sale by private treaty, the owner – or the real estate agent acting on their behalf – will let you know if the offer has been accepted. There are a couple of advantages with this type of sale. You can make your offer conditional on the outcome of inspection reports or certain repairs being carried out to the property before settlement. Plus, most private treaty contracts will include a cooling-off period, allowing you time to arrange inspections and ensure you’re 100% certain this is the property you want to buy. The length of the standard cooling-off period varies between different states and territories.
Having an offer accepted on a private treaty sale doesn’t guarantee you’ve got the property. Until you pay the deposit and exchange contracts, you run the risk of being ‘gazumped’. This is when the vendor accepts a better offer from another buyer after they’ve said yes to your offer. This is perfectly legal if no contracts have been signed and no money has exchanged hands.
Buying at auction
Going to an auction is quite a different experience to negotiating a private treaty sale. You need to do all your homework and research in advance, as your decision to bid and buy the property is binding on the day of the auction. There is no cooling-off period and you’ll be expected to sign contracts and pay the deposit immediately.
This is why you’ll need to arrange inspections and carefully review the reports before going to auction. You should also have your conveyancer look at the contract and inspection reports and request any changes to the contract prior to auction. If you’d like a longer settlement period, for example, you need to arrange this before the auction.
Whether you’re buying at an auction or through private treaty, you’ll need to have funds available to pay the deposit on signature of the contract. You should also make sure you have pre-approval for a mortgage up to the amount needed to pay the final sale price, plus all other costs associated with the transaction.
Deposits and contracts
10% of the sale price is the usual amount you’ll be paying as a deposit when you exchange contracts and commit to buying your first home. So when you attend an auction or meet with a real estate agent after making a successful offer, bring your cheque book and make sure you have the funds in your account to pay this amount.
Having a conveyancer check the contract before you sign is very important, particularly if you’re buying at auction and won’t benefit from a cooling-off period. Your conveyancer should be familiar with all the terms of the contract before you sign, so they can alert you to anything that might be a deal-breaker.
Having your prospective home inspected for any sign or risk of pest damage or for building defects isn’t a mandatory part of the buying process. But becoming a home owner is probably the biggest financial commitment you’ll ever make, so it makes sense to be as certain as you can be that you’re not about to buy a property that will need expensive repairs in future.
If inspections do reveal some type of problem, you may choose to use this information to negotiate a lower price with the vendor or decide on a lower bidding limit when you go to auction. Your conveyancer can help you look for any issues in the report that may be significant and give you grounds for a reduction in price.
Your mortgage provider will arrange a valuation of your property as they process your home loan application. This is to ensure the lender isn’t loaning you more for the property than it’s actually worth.
The settlement period is the time between contract exchange and transferring ownership of an existing property. There are recommended settlement periods for different states, but generally speaking, vendors and buyers can negotiate a settlement to suit their circumstances. For example, a longer settlement period may be requested by a vendor who hasn’t yet found their next home to buy.
During this time, your mortgage provider and conveyancer will work with you to prepare all the paperwork and the balance of the purchase price to complete the sale. On the day of settlement there isn’t actually much you’ll need to do as your conveyancer and mortgage provider will finalise the legal and financial details of the transaction.
At settlement you’ll become the legal owner of the property. Even if you’re not planning to move in straight away, it’s worth arranging a visit to ensure that everything is as it should be with the condition of property and any fixtures and fittings included in the contract. And you should also arrange building insurance to cover your property starting from the settlement date.