In this week’s episode, Dave, Cate and Pete take you through:
- The starting point – what constitutes a legally binding contract? The commonality between all states and territories in Australia, is that no legally binding contract exists until the contract is signed by both parties. However, some states also hinge on the concept and requirement that contracts must be ‘exchanged’ as well before they are binding. The different approaches here can cause confusion and also leave the door open for gazumping, (which we will explain shortly). The trio discuss the different requirements in each state and how that impacts the purchasing process.
- Cooling off periods. The trio discuss the varying statutory cooling off periods in each state, (or absence of cooling off periods in the case of some states), when a cooling off period does not apply and can the cooling off period be waived as a negotiation tactic?
- Negotiating ‘subject to’ clauses and contract conditions. While all states allow for ‘subject to’ clauses to be entered into contracts, interestingly, this is not common practice in the states of NSW and ACT. The trio discuss the common conditions that are negotiated between the buyer and the vendor and also why NSW and ACT don’t take this approach.
- Gazumping – what is it and why is it legal? Gazumping occurs when an agent or vendor accepts an offer made on a property, but before the contract is signed to formalise the deal, another buyer swoops in with a higher offer or better conditions and the vendor sells to them, leaving the first buyer out in the cold. This occurs because in most states, the buyer and vendor do not sign legally binding contracts at the time of the sale agreement. Before the contract is signed, the agent is legally oblgiated to present to the vendor any further offers received for the property.
- Why is gazumping most prevalent in NSW and how do you minimise the risk of being gazumped? The trio discuss why gazumping is most commonly seen in NSW, which no doubt feeds into their reluctance to enter ‘subject to’ clauses in the contract of sale. Although NSW is the king of gazumping, it can occur in most Australian states. The trio explain what you can do to minimise the risk of being gazumped!
- Settlement periods. The trio share with you the common settlement periods for each state, most of which range between 30 and 90 days. Speak to your strategic mortgage broker to understand how quickly you can have your finance approved, particularly if your financial situation is complex.
What constitues a legally binding contract?
- The key for each state is that you need the contract to be signed first, before it is legally binding.
Cooling off periods
Subject to clauses
- Common subject to clauses
- Purchaser obtaining finance
- Building and pest
- Contract review by the purchaser’s solicitor/conveyancer
- Maintenance – eg: broken window being fixed by vendor
- Purchaser selling an existing property
- Can you negotiate a subject to clause?
- What is gazumping – Gazumping occurs when an agent or seller accepts an offer you make to buy a property at an agreed price but the property is sold to someone else.
- The typical scenario is:
- A buyer shakes hands with the vendor and their agent on a property deal
- The buyer then carries out their due diligence or other things to ensure they can complete the deal (eg: surveying, building and pest, contract review, arrange finance)
- Then, before the contract is signed to formalise the deal, another buyer swoops in with a higher offer or better conditions
- The first buyer is out in the cold, they just got gazumped.
- This is more likely to occur in a moving market
- Gazumping is a a legal grey area
- Gazumping usually happens in that no-man’s land between an informal agreement on a property between buyer and vendor – the handshake – and the actual contract signing day, which usually occurs sometime after.
- The agent is legally obliged to pass on to the vendor any further offers received for the property up until the exchange of contracts.
- This occurs because in MOST Australian states, the buyer and vendor aren’t obliged to sign legally binding contracts at the time of the sale agreement.
- If, as a buyer, you get gazumped, you can’t recover the money and time you spent putting the deal together from your side. You’re out of pocket, with nothing to show for it, and you’re the only one who’s been put out.
- The vendor is still happily progressing their sale with the new buyer.
- Is Gazumping allowed?
Common settlement periods
Cate Bakos – The Property Buyer’s Golden nugget: for people who are contemplating having all of these layers of protection when signing a contract, be conscious of the things you are genuinely worried about and be clear about the things that are not a huge issue or that you’re confident about. If you’re looking to protect all your rights, then it may water down your offer and you can lose it to someone with better or less conditions or the vendor will be expecting a higher price because they see you as a high-risk buyer. If you’re not in a high-risk situation, don’t add all these special conditions and subject to clauses, just to feel that you can sleep well at night when it might completely disadvantage you.
David Johnston – The Property Planner’s Golden nugget: In a fast-moving market, putting down subject to clauses might cost you the property. Keep in mind, if you’re buying at auction, you’re buying unconditional – there is no opportunity to put the subject to clauses in place. Can you get your ducks in a row enough prior to be able to put in an unconditional offer?
- Highest annualsalessince December 2003. Over the last 12 months, national dwelling values have risen 25.2% across regional Australia and 21.3% in capital cities. An incredible story for the regions that we are excited to keep watching closely. In the same period, ~614,000 homes were sold, which is the highest annual sales volume reached since December 2003. However, buyer demand is so great at the moment, that stock on the market is simply being soaked up at a rapid rate.
- Fixed rates on the rise, and here’s why. Lender fixed rate offerings have risen sharply since June, when the Property Planner made his prediction that fixed rate hikes were likely to occur. Three year fixed rates have taken the biggest hit, with some lenders increasing the rate by as much as 0.95%. The trio discuss the reasons why fixed rates have experienced a sharp incline in recent months. Those who took advantage of the low fixed rates will be laughing all the way to the bank now!