What is a Contract of Sale?
The sales contract is the legal contract by which a vendor agrees to sell a specific property and a buyer agrees to buy that property.
Buying a property is no small feat and the Contract of Sale is the core to protecting your rights as a buyer or a seller (vendor).
Where most property buyers go wrong is not understanding their rights and not getting adequate legal advice so they know when they should walk away from a deal.
What does every contract of sale need to have?
Each state has a different name for the Contract of Sale and they each use different terminology for the legal process of buying a home.
For example, when buying a house in Victoria, the contract is known as a Contract of Sale of Real Estate, but in NSW, it’s known as a Contract of Sale of Land.
No matter the state, a typical Contract of Sale consists of the following:
- The names of the vendor and purchaser.
- The property address.
- The amount of the deposit that must be paid.
- The sale price of the property.
- The date of the property settlement.
- Certificate of title information.
- Whether the property will be available as a vacant possession, or if it is subject to a lease.
- Conditions of the sale such as financing information or whether additional building inspections are required.
- Other general and special conditions/encumbrances (mortgage or a lease agreement).
You should check for all these details in the Contract of Sale but don’t sign it just yet!
If you’ve found a property, please call us on 1300 889 743 or enquire online so you can be sure you can qualify for a home loan and borrow the amount you need.
The big red flags to watch out for
Before signing the Contract of Sale, you should do your due diligence and try to find out as much about the property as much as you can.
Pay particular attention to the following:
- Sellers who aren’t willing to negotiate on the property price.
- No disclosures about the condition of the property.
- Sometimes, the bank valuation may come in lower than the asking price and, while you can’t predict this, you can protect yourself by asking us for an upfront valuation first.
- Any special conditions that have been added by the real estate agent, such as ‘subject to inspections’ and ‘subject to finance’.
Getting a pre-approval before buying signing the Contract of Sale is essential!
Can you prove your identity?
In the past few years, the legal requirements of Verification of Identity (VOI) have become erroneous due largely to growing rates of fraud in the home buying process.
You need to provide more identification (ID) than you would have to provide a few years ago, particularly if you’re a foreign investor, temporary resident, Australians living overseas and anothe type of non-resident borrower.
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What is Section 32 and why is it important?
A Section 32 statement, or the vendor’s statement, is derived from section 32 of the Sale of Land Act in Victoria.
It is a legal document provided by the seller of a property (prepared by a solicitor) to the interested buyer.
This document dictates that a seller provide specific information about a property’s title to a buyer before they sign the Contract of Sale.
A Contract of Sale should include the below information:
- Statutory warnings such as details of the cooling off period as specified by the state and any penalty rates that may be applicable to you as the buyer.
- Title details, such as the property owner’s name, the land size and whether there are any limitations on the title such as mortgages, caveats, easements or encumbrances.
- Building permits on the land if the property has been renovated or extended, or it needs to be in the future (this can be checked with the local council).
- Information on permitted land use.
- Services connected to the property such as water, electricity, gas and Fibre to the Node (FTTN) connections.
Depending on the state, you may have the right to pull out of the contract if these details aren’t provided.
A seller who knowingly provides misleading information, or fails to provide all of the information required under Section 32 is committing a criminal offence and can be fined.
Check for easements in the sales contract
An easement is basically a section of your land registered on your property title which gives someone (usually your neighbour or council) the right to use or access the land even though they don’t own it.
Examples include shared driveways, or where drainage, electricity, sewerage, carriageway, telephone poles or other general services are running through your land.
A drainage easement, for instance, allows the council to enter your land to undertake repairs, while carriageway easements (right-of-way easements) allow vehicles to pass through your property in order to enter a road.
In some rural locations, there have even been restrictions that said the buyer needed to have a rope in their pool so koalas could climb out.
There have been other cases where a large electricity easement in an off the plan property affected the building envelope.
The building envelope basically separates the inside and outside of the property and can determine how cool or warm a property is all year round.
These minor restrictions will be something you have to live with so consider the Contract of Sale carefully.
The existence of easements can affect your plans to improve the land or renovate the property in the future, such as installing a pool, extending the driveway or adding a courtyard.
Can easements affect your chances at home loan approval?
Yes, in some cases, easements, subdivisions and resumptions can see you declined for a home loan.
For example, power lines within 50 metres of the property will almost always raise red flags for banks and their mortgage insurers.
Similarly, properties with no access to the power grid, which is common with rural properties and hobby farms, can spell the end of your application, unless the property is connected to solar power.
Other restrictions stop clients from building in specific areas on the lot and dictate the type of materials that you can use.
Appetite for unique properties varies between each lender but, luckily, there are ways to mitigate the banks’ concerns.
At the end of the day, lenders care about the marketability of a house in the event of a forced sale due to mortgage default.
Speak to us because we’re experts in getting home loan approvals for unusual property types.
Call us on 1300 889 743 or fill in our online enquiry form before signing the Contract of Sale and saving yourself from heartache.
How to avoid contract pitfalls when buying off the plan
- Always speak to a solicitor, and research the vendor and the developer, to ensure they have a good reputation.
- Send a copy of the Contract of Sale for a quick review to the solicitor before signing.
- Recognise that you have a right to negotiate the cooling off period, whether you’re buying an established property or off the plan.
Most off the plan sales contracts have allowances (typically no more than a 5% change in the property size) that allow the developer to make changes to the building design during the contruction process, so be sure to negotiate on what allowances you willing to accept.
The developer can promise you high grade inclusions but instead use lower grade materials but this would not necessarily allow you to withdraw from the Contract of Sale.
The biggest risk with off the plan is that you don’t know when the property will be completed and what the value of the property will be at that time yet you’re required to pay your deposit and enter into contract without pre-approval.
It doesn’t mean that you shouldn’t buy an off the plan property.
It just means that you need to understand the risks, your legal rights and recognise that everything is negotiable.
Always speak to an experienced solicitor!
We have a comprehensive list of recommended conveyancers for each state along with their contact details.
If you’re ready to buy and need home loan approval, call us on 1300 889 743 or complete our free assessment form to speak with one of our expert mortgage brokers today.