The Legal Process of Buying Real Estate

A handy summary of the legal process of buying real estate by one of our property lawyers:

Step #1: Obtaining finance pre-approval

Unless you are interested in window shopping there is no point looking for potential properties unless you can pay for it. In today’s market for most people this will mean obtaining a loan from a financial institution. The first stage in the loan process is to obtain pre-approval. Obtaining pre-approval does not mean you are guaranteed to progress to unconditional loan approval, but it’s a certainty that if you cannot obtain pre-approval then you will not obtain unconditional loan approval, so obtaining pre-approval will give you a good guide as to what price range you can afford. Remember to keep in mind other costs of buying including the fees and charges of the bank (including Lenders Mortgage Insurance), removalist charges and stamp duty.

Step #2: Locating a property

Buying a house is expensive, so you don’t want to be doing it too often. Think about your future needs and whether the property you are purchasing will stand the test of time, especially the location. Is a new property in a bad location better than an old property in the street you desire? Once you have found the property for you then it’s time to begin negotiations. Our tip is to do your homework, inspect open house after open house, even if the property is not exactly what you are after. By doing so you will be building a property profile and knowledge base better than the agent selling the property you want, after all the agent has not inspected all of the competing properties for sale. By ensuring you do your homework you will be in the best position to confidently offer a fair and reasonable price.

Step #3: Make an offer

Offers are made through the vendor’s real estate. When making an offer do your best to be in a position to exchange contracts quickly, by having all of your appropriate contacts in place and finance approval. A property will stay on the market unless the exchange of contracts- so do your best to get it off the radar of your competition as soon as possible. In some circumstances a vendor will not accept the contract unless the purchaser waives the cooling off period. This can be done by provision of a certificate signed by the purchaser’s lawyer in accordance with section 66w of the Conveyancing Act 1919.

Step #4: Signing the Contract

On certain occasions the real estate agent will ask the purchaser to sign the contract with a cooling off period. If doing so please note that the ‘holding deposit’, being 0.25% of the purchase price will be forfeited in the event that the contract is rescinded during the cooling off period. The contract for sale is a document prepared by the vendor’s lawyer, and although every contract for sale of residential property must include certain documents each contract contains different clauses drafted for the sole purpose of protecting or benefiting the vendor.

The importance of the contract for sale should not be overlooked, each clause and document included in the contract needs careful consideration and explanation. This stage is where an experienced property lawyer plays the most important part. Quality advice as to the contract, risks with the purchase and steps to eliminate or minimise those risks will ensure your biggest investment is looked after.

Before signing the contract, or before the expiration of the cooling off period we will take you through the following key considerations:

a) Contract advice. Vitally important to understand your obligations under the contract and the legal restrictions on the property being purchased. We will advise you of these matters in plain English.

b) Unconditional written finance approval. The risks of proceeding without unconditional finance approval outweigh the disappointment of losing a property to another purchaser. No property is worth risking your 10% deposit.

c) Deposit at hand. The deposit is to be paid to the real estate agent. Usually 10% negotiations can reduce the deposit to 5% of the purchase price if necessary.

d) Buyer beware. There is a lot to know about buying a property so act quickly and obtain advice from your property lawyer. We will take you through quality issues and benefits of pest and building reports, the difference with strata property, illegal building structures, encroachments, government proposals and title insurance.

Step #5: Post exchange & Pre-settlement

The standard settlement period is 6 weeks after the date the contracts are signed and exchanged. There is much work to be done by the lawyers during this period, but for a buyer the one and only focus needs to be on executing any loan documents and satisfying the bank of any outstanding requirements to ensure settlement is not delayed.

Once the bank is satisfied attention can then be turned to planning for the day of settlement. Beforehand the buy must:

– take out building insurance effective the day of settlement

– conduct a final inspection of the property after the vendor has vacated the property

– arrange gas, telephone and electricity connections

– arrange removalists. Plan to move in on a day other than the day of settlement. This provides a buffer in the event that the vendor does not comply with their obligations and settlement needs to be postponed.

Step #6: Settlement

Settlement is the day of completion of the contract. On settlement the lawyers and banks meet at a pre-arranged venue to exchange money and title documents. When all is confirmed the real estate agent is notified of completion of the contract by way of fax sent by both parties which authorises the agent to release the keys to the buyer and release the deposit to the vendor. Allow for 1 hour following the scheduled settlement time to collect the keys (note buyers and vendors do not attend settlement in person).

Step #7: After settlement

The bank will retain title documents, arrange registration at the Department of Lands and then hold the newly issued Certificate of Title until the loan is repaid. Having obtained the keys from the agent shortly after settlement you can now move box after box after box …..but when it’s all over, you will have your new home.

If you are buying a property then get in touch with one of our property lawyers by contacting your nearest Prime Lawyers office. If you would like to obtain a no obligation quote visit our conveyancing website by clicking here.

We have property and conveyancing lawyers located at Sydney, Parramatta, Sutherland and Wollongong.