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Reproduced with permission.
The following is an extract from Property Vs Shares, a new book from industry commentators and authors Peter Koulizos and Zac Zacharia.
You will need to deal with many professionals when you are buying, managing and selling your property or shares. It’s crucial that you ask the right questions of these professionals so that you understand their roles, how they can help you and what their help or advice will cost. In some circumstances, they won’t give you all the information you need upfront, because they fear it might jeopardise their opportunity to make money, but most of the time they just don’t know what you don’t know, as they aren’t mind readers!
You should also have a good rapport with your advisers: find someone who speaks your language and doesn’t use a lot of jargon, and whom you believe will act in your best interests.
There’s no point in dealing with someone who isn’t transparent or that you don’t like or feel comfortable with.
Here’s some of the key questions you should be asking in relation to the purchase of property.
Accountant: What experience do you have with setting up structures within which to buy property?
It is critical that you work out in whose or what name the property should be held before you finalise the purchase contract. The easiest option is to buy in your personal name, but this may not be the best option for your circumstances. Rounds 14 and 15 have more information about structures. Make sure you consult an accountant who understands property and will be able to give you guidance in this area.
Banker: What are the interest rate, the upfront, ongoing and exit fees of the most appropriate loan for my circumstances?
It’s relatively easy to determine the interest rate of a loan, but what can be more difficult to find out are some of the hidden fees. When I say hidden, I mean that they are somewhere in the contract but they are often specified in the small print or somewhere among the volume of pages that makes up the loan contract.
Typical upfront fees include application, establishment and valuation fees. Many loans have regular ongoing fees that are generally charged monthly. Banks can also charge hefty exit fees if you pay off the loan too early or want to terminate a fixed rate loan before the end of the period interest rate if the fees and charges are very high.
Building or pest inspector: Can you please provide me with a written report and an estimation of the repairs that are required on this property?
Generally two types of reports can be provided by a building or pest inspector: written or verbal. A verbal report is not worth the paper that it is not written on! A written report provides a permanent record of the inspection carried out. It can be very useful to show the selling agent to try to discount the asking price by factoring in repair costs. It could also be critical at some time in the future if a building fault is discovered that should have been apparent to the inspector at the time of the inspection.
Conveyancer or lawyer – Is there anything out of the ordinary in this contract?
Contracts that deal with land are legal documents and they can be difficult to read and understand.
A conveyancer or property lawyer should be able to read through the contract and determine if your property or contract is typical or whether there is something that should be noted.
For example, it might be heritage listed or there might be an easement (a section of land you cannot build upon) on an unusual part of the land.
Mortgage broker: Do you charge for your services?
Mortgage brokers should not charge you for their services. They are paid by the lender with whom you decide to take out the loan.
Mortgage broker: What is the best and most appropriate loan for my circumstances?
One of the great advantages of speaking with a mortgage broker is that they have access to the loans offered by many banks, whereas when you speak to someone at your own bank they can only offer you loans from their own institution. Your mortgage broker should have around 20 or more lenders on their panel from which they can select the right loan for you.
This means that they will have hundreds of loans that you can choose from.
Real estate salesperson or agent: Why is the vendor selling the property?
If you can find out why a vendor is selling a property, this can greatly enhance your bargaining position. A vendor may need to sell for a number of reasons: they may have already bought another property; separation or divorce may cause a sale; or following a death, the estate just wants to sell off the property.
Some vendors may want to sell, but don’t need to sell. They may just be trying out the market and if they get the price they want, they will sell. You must remember that the salesperson or agent is working for the vendor, so they shouldn’t tell you, the prospective purchaser, anything that will disadvantage their client.
They don’t have to tell you why the vendor is selling.
Just because an owner puts a price on a property, doesn’t mean that it is worth that much. The price specified might be the price that they hope for or need to sell at to buy their next property. If you are unfamiliar with property or don’t have any idea about the worth of a particular property, you should ask a valuer to value the property you are considering. If you are borrowing money to buy the property, the lender will probably have the property valued, but this may not be the market value of the property.
The bank’s valuation will probably be based on a worst-case scenario where it wants to know what it could sell the property for if you default on the loan and it has to sell in a hurry – in other words, a fire sale price.
Before you make an offer on the property, you should have a very good idea what its market value is.
Happy House Hunting!
Written by Peter Koulizos, university lecturer, author and buyers advocate.