FULL VERSION : 5 Essential Steps to Buying a Property in Victoria
*Please note this is a general guide only and should not be used in place of obtaining our advice. Any references are relevant as of the date of posting.
Whether you’re a first time buyer or you already own property, buying property in Victoria can be both exciting and confusing at the same time. It’s essential that you’re on top of not only on the look and location of the property, but also on a number of other key matters, including the legal side of a purchase.
We have created the following guide in relation to the legal steps involved in purchasing a property to assist you. Over the coming weeks we will outline the three key areas of buying a property, being 1) before signing the sale contract 2) post signing of sale contract/pre settlement 3) just before settlement 4) settlment 5) post settlement. We will make this Guide available through our website and upon request.
Once you’ve had an opportunity to read this Guide, please don’t hesitate to contact us if you have any queries or require more information.
STEP 1: Before Signing the Contract
We recommend the Contract for Sale be reviewed by a lawyer prior signing. We can go through the terms with you and bring anything to your attention that you might not be aware of, and otherwise explain the implications of any special conditions and recommend amendments where required.
Joint Tenants or Tenants in Common?
If you are buying a property with one or more other people, you need to decide whether you will hold the property as joint tenants or tenants in common. If you hold it as joint tenants, then if one owner dies that owner’s interest in the property automatically passes to the remaining owners. If you hold it as tenants in common, then if one owner dies their interest in the property will be distributed in accordance with that person’s Will (which may not result in the existing owners getting ownership).
An often tricky and confusing part of purchasing property is the title search. A title search enables you to confirm that the person selling the property is actually the registered owner.
While the Section 32 Vendor’s Statement included with the Contract gives a buyer information about the property, a title search can confirm this information is correct. A title search can also reveal whether there are any registered encumbrances (such as Easements) over the property.
We can undertake a title search for you and explain any encumbrances and other issues found in the search.
Measurements of the Property
It’s important to check the actual measurements of the property against the measurements recorded on the property’s Certificate of Title, which will have information on the boundaries of the land. If the measurements don’t match up, there may be costly disputes in the future in relation to the boundaries of the land.
If time permits we recommend you obtain a valuation of the property you are looking to purchase, as this can assist you in determining how much you should offer for the property. Your lender may also organise a valuation of the property to make sure that you’re paying market value.
STEP 2: Post Contract Signing/Prior to Settlement
Generally you must pay the deposit under the Contract to the agent immediately on singing the Contract. The agent will hold the deposit and the seller cannot access it until settlement.
Cooling Off Period
Once you sign a Contract to buy a property, generally you will have three business days to terminate the Contract by giving notice to the seller. This period is designed to give you time to “cool off” and carefully consider whether you wish to proceed with the purchase. If you terminate under the cooling off period, you will get a refund of your deposit.
However, the cooling off period does not apply to all contracts for sale of property, including properties purchased by auction or commercial/industrial properties. If you are considering terminating under the cooling off period, please contact us and we can discuss the best option for your circumstances.
Building and Pest Inspection
Even if your Contract is conditional on a building and pest inspection report or not, we recommend that you have a qualified and fully insured building inspector examine the property and to provide you with a building and pest inspection report.
The report will show defects in the building and pest problems which may reduce the value of the property and could save you the hassle of experiencing problems in the future. Generally you can only terminate a Contract under the Building and Pest Inspection condition is conditional and the reports reveals significant issues.
We recommend using PropDocs to facilitate your purchase. PropDocs offers cost effective and high quality building and pest reports from $195, which you can obtain through their website: www.propdocs.com.au. You only pay the difference of the full price is you purchase the property. Importantly they have only the most compliant inspectors on their books. **(Disclosure: I am a director of PropDocs)
If your Contract is subject to finance, you need to obtain satisfactory finance approval from your bank prior to the due date of this condition. If you do not obtain satisfactory finance, you must notify the seller in writing on or before the due date that the Contract is terminated as otherwise you may be locked into the Contract.
If your Contract provides that the property is at your risk once you sign the Contract, we recommend you contact your broker and take out building insurance straight away.
Title insurance is another form of insurance that you can take out. Even when the most diligent searches are undertaken on the property for risks, there may be risks that are unable to be identified. Examples of these risks include buildings without building approval certificates and boundary disputes between neighbours. Title insurance will ensure that you are protected from these unknown risks associated with the property.
Your broker will be able to provide you with further advice in relation to insurance. We can also review the policy for you if you wish, to ensure you are completely covered.
Recently an online e-conveyancing portal called PEXA (Property Exchange of Australia) commenced operating in Australia, which allows solicitors, banks and the land registry to transact together online quickly and efficiently. We frequently undertake conveyancing through PEXA, and the advantages of PEXA include reducing the risks of errors, not needing to attend any physical settlement, as well as a decreased chance in your settlement being delayed and you incurring penalty interest.
STEP 3: Just Before Settlement
Within seven days of the date of settlement, you should inspect the property to ensure that it is in the same condition as when you signed the Contract. The Contract normally requires that the property be handed over by the seller to a buyer in the same condition it was in when the property was sold.
If you perform this inspection and notice the property is in a different condition to what it was when you signed the Contract, please contact us to discuss your options – which may include a requirement for the seller to repair the property or pay you the costs of the repairs. If you don’t perform this inspection and the property has in fact gone into disrepair, it can be difficult for you to recover the repair costs from the seller after settlement.
We prepare a settlement statement the day before settlement, which contains the adjustments to the purchase price based on the results of the searches we have done for you (such as rates, water and taxes).
This statement is important as it ensures that the seller has paid the rates and taxes until the settlement date, and the buyer then takes over paying these rates and taxes.
STEP 4: Settlement
Settlement will generally occur between 30 and 90 days from the date you sign the Contract. This is the day you become the registered owner of the property and are free to move in.
Generally the buyer’s and seller’s solicitors will attend settlement, plus the bank for each party (if applicable). As we use PEXA, often your settlement with us will occur online.
The buyer must ensure the remainder of the purchase price is paid to the seller at settlement (whether by the buyer’s bank or from personal funds), and the seller must give the buyer the title documents.
If settlement does not occur on the settlement date due to a breach of contract by the buyer, the buyer is liable to pay penalty interest on whatever the remaining amount due to the seller – which can be up to 16% per annum, accruing daily!
Land Transfer Duty
It is the responsibility of the buyer to pay land transfer duty (previously known as stamp duty) when buying a property. Duty is calculated based on the greater of the market value of the property or the purchase price, and concessional rates of duty exist where the property will be your principal place of residence.
Transfer of Land
Once settlement has occurred, the transfer of land document must be lodged with the Land Registration Services office. If your settlement occurred through PEXA, this happens automatically.
STEP 5: Post Settlement
Problems with the building
We can assist you if you find problems with the building following settlement. You may be covered by legal warranties in respect of the workmanship of the building or even a builder’s insurance policy. Legal warranties/insurance may still apply even though a property has been bought and sold many times.
You must ensure the property is compliant with all smoke alarm requirements. You also need to ensure telephone, electricity and gas connections are in place for your property.
The Council and the water authority must also be given notice of the change in ownership of the property, which we can take care of for you.
If you have any questions or require our assistance with the purchase or sale of a property please contact us today.
*Please note this is a general guide only and should not be used in place of obtaining our advice.