What is the first thing I need to know as a first home buyer?
Conveyancing is a legal and adversarial process
First, buying real estate and the conveyancing transaction are legal processes, and legal processes in Australia are generally adversarial – in other words, it’s you versus everyone else who is involved in the transaction. Here are some examples:
- Vendor vs Purchaser – Vendors and purchasers are adversaries in property transactions. Each party is also bound by rules that they have agreed upon, namely, the conditions of the contract they have both signed. If everything proceeds according to the law and according to the conditions contained in the contract, then the adversarial nature of the transaction is not obvious.
However, if one of the parties breaks the law, or fails to honour any of the conditions of the contract, then the parties may become involved in a legal contest as adversaries.
- Real Estate Agent vs Purchaser – Many first home buyers believe that the real estate has a role in assisting and protecting them. In fact, real estate agents have a well-deserved reputation for deceiving purchasers, first home buyers in particular. Sometimes, the behaviour of the real estate agent can even allow the purchaser to cancel a contract. However, if the vendor of the property is an innocent party, the purchaser may not be permitted to cancel the contract, and may have to sue the real estate agent. In these circumstances the real estate agent becomes an adversary.
- Lender vs Purchaser – Lenders, including the largest banks, have been known to be unscrupulous when dealing with purchasers. It is for this reason that the Consumer Credit Code (CCC) applies to non-commercial residential home loans. The CCC contains a set of rules which lenders must obey when dealing with a purchaser of residential real estate, but these rules are regularly breached. In addition, there are standards of banking practice that have been adopted by most lenders. If your lender breaks the law or the standards of banking practice, you are entitled to complain or to enforce your legal rights. This will make your lender an adversary.
The role of your lawyer
Your lawyer is your adviser, and is the ONLY person in the transaction whose role it is to protect your legal interests and to keep you safe.
As your lawyer, it is our role to represent you during the conveyancing transaction. This role requires us to examine a situation, determine whether you are in dispute with a party to the transaction, decide which party (there may be more than one) is involved, and to determine your rights or responsibilities in relation to that party. We must then provide you with legal advice, obtain your instructions, and do what is necessary to properly fulfil your instructions.
Sometimes a potential adversary may attempt to convince you that it is in your interests to do things their way. For example, the real estate agent may claim to be assisting you by writing a condition into the contract on your behalf. Or your finance broker may tell you to do something that is contrary to our advice. To use your lawyer effectively you must never accept advice, information or guidance from any potential adversary without checking with us first.
You should always trust your lawyer above all other parties to the transaction.
Sometimes, we have clients who, after being given conflicting information from numerous parties to their transaction, complain, “I don’t know what to believe or who to believe, because everyone’s telling me something different.” This indicates to us that the client has failed to understand that all other parties to the transaction are adversaries, and have their own interests to consider.
We cannot properly represent a client unless the client puts their trust in us, and accepts the advice we give. Remember, no other party to the transaction is being paid specifically to advise, assist and protect you. “Free” advice offered by others is worth what it costs!
Complaints about your lawyer
It is all very well for us to say that you should trust us only, trust us completely, and rely on our advice. But what happens if you feel that you have good reasons to doubt that what we are advising is truly in your best interests? You should let us know immediately!
If a member of our conveyancing staff is unable to explain the situation to your satisfaction, you should ask to speak with the Legal Practitioner Director (LPD). No-one will be offended if you ask to speak with the LPD, as it is the first step in resolving what could otherwise become a major misunderstanding. It is also the first step in our formal complaints procedure.
Having a formal complaints procedure in place allows us to demonstrate that you are safe in putting your complete trust in us; it shows that we have the backup to ensure that a failure to honour that trust is dealt with by way of a proper, formal procedure.
Another reason why it is safe for you to trust us is that our firm has been certified to Legal Best Practice through LAW 9000, the Australian Standard for quality law firms.
What happens during a conveyancing transaction and what can I expect?
At the start:
- Your conveyancer will give you detailed information about the conveyancing process (the legal costs involved, advice on measuring the land, lodging a caveat etc.);
- The Transfer of Land (the document used to register you on title as the new owner of the property). This is sent to you for signing. It is the most important document in the transaction and must be signed and returned as a matter of urgency; and
- Searches are ordered:
- A search of the Certificate of Title to confirm identity of the property and the current owner, as well as any registered encumbrances; and
- Rate and planning certificates for the council and water rates, land tax and owners corporation fees (if applicable) are ordered to get information for the adjustments (explained below).
Most of the real action happens in the two weeks leading up to settlement
About two weeks before settlement, the adjustments are prepared. These calculations make sure that the outgoings for the property are paid in full by the vendor at settlement, for example water and council rates and land tax. This ensures that you get the property at settlement with a “clean slate”: no amounts owing or debts attached to the property.
Organising settlement is another major task. Your conveyancer will arrange for all of the interested parties to meet at the same place and time for settlement: the purchaser’s and vendor’s settlement agents and the banks involved (if any).
The purchaser and vendor do not need to be present at settlement, settlement agents ensure that settlement occurs smoothly. And all that is left on settlement day is the phone call from your conveyancer to let you know that settlement has been completed successfully.
Most conveyancing matters follow a relatively straight course. That said, it is not always this simple. The skill in conveyancing can be keeping things on track, and anticipating and identifying potential problems and preventing disaster.
No news is good news
In general, conveyancing proceeds on a “no news is good news” basis. First time home buyers can become frustrated because they do not have regular contact with their conveyancer in the stressful weeks in between when the contract is signed and settlement. Their anxiety is understandable, given the large sums of money involved in property transactions. Clients anxious about the progress of their file are encouraged to contact their conveyancer, if they feel concerned.
However, this is propbably because their conveyancer has nothing to tell them. As mentioned above, the main conveyancing work begins in the week or so before settlement. Most conveyancing matters are smooth, and contact with the client is not required until close to the settlement date. Rest assured, your conveyancer WILL contact you if anything happens that requires your attention.
How can I found out about the First Home Buyer Grant (FHOG)?
We have set up a separate FHOG FAQ page to deal specifically with questions about the First Home Owner Grant. [More]
What do I need to know about concessions on stamp duty?
If you plan to live in the property, and the purchase price is under $500,000, you may be eligible for a reduction in the stamp duty (called a PPR or Principal Place of Resdence Statutory Declaration).
This needs to be organised with your bank, and the reduced stamp duty amount is charged at settlement.
If you think you are eligible, contact the State Revenue Office (SRO) on 13 21 61. The SRO can tell you if you are eligible for the PPR and how to access the form required.
Next, contact your bank and find out if they will organise a PPR concession at settlement. If the answer is yes, submit the PPR form to your bank. If the answer is no, after settlement you will have to apply at the SRO for the PPR.
BEWARE, not all banks will organise the PPR for their clients. Many purchasers have been surprised to find out that the full stamp duty amount was charged at settlement, despite what their broker or banker told them, and now it is their responsibility to organse the PPR with the SRO. Contact your bank and make sure you have a clear understanding of the services they will provide.
Why is pre-purchase legal advice so important?
Making a mistake when buying an asset worth hundreds of thousands of dollars can have catastrophic consequences. In addition to simple mistakes, consumers are faced with incorrect and even misleading information and advice from commission-hungry real estate agents, finance brokers, and so on. First home buyers are particularly vulnerable.
Finding out where you went wrong AFTER you are committed, or have forfeited a $30,000 deposit, or incurred horrendous penalties, is a terrible way to become an informed consumer.
Obtaining pre-purchase advice gives you an understanding of the roles of the various players in the real estate transaction, an appreciation for the need to take care and to be prepared before making a commitment, and what issues or problems may arise as a result of choosing to buy a particular property. [More]
Do I need a finance clause in the contract if I’m pre-approved?
Yes! “Pre-approval” means that your home loan is NOT approved yet. “Approval in principal” and “Approved subject to valuation” and “Approved subject to conditions” also mean NOT approved.
If you buy a property on the basis of pre-approval the bank may still decline your loan application, leaving you locked into a contract you may not be able to complete, and facing bankruptcy! Buying at auction can be particularly dangerous, as it is always assumed that bidders have ready cash and are not relying on bank finance.
Unless you have ready access to sufficient cash to cover the whole of the purchase price, plus stamp duty, you MUST ensure that the sale contract includes a condition allowing you to cancel the purchase if your home loan is not approved. [More]
Do auctions present problems for first home buyers?
The major problem for a first home buyer is that real estate auctions are meant for purchasers who have the ready cash to complete the purchase without relying on a finance condition. Auction sales are generally UNCONDITIONAL, which means that you will not be permitted to cancel the contract if your lender declines your loan application.
As most first home buyers require bank finance in order to purchase, the only way a first home buyer can buy at auction is to take an enormous risk by assuming that their home loan will be approved. Having your home loan “pre-approved” does not eliminate the risk (See “Do I need a finance clause in the contract if I’m pre-approved?” above).
A further problem for first home buyers is that real estate auctions are often a vehicle for deception, and “dummy bidding” is still very common. [More]
What do I need to know about “Cooling Off”?
Basically, “cooling off” means that if you make a formal offer to buy real estate you have 3 days in which to change your mind and walk away from deal, no questions asked.
It is well recognised that real estate agents often deceive, trick or misinform purchasers (first home buyers tend to be quite trusting of real estate agents, and are therefore particularly vulnerable), and cooling off goes some way to allow a purchaser to gather their thoughts, obtain legal advice, and to make a well-considered decision to proceed.
Sometimes a purchaser may act impulsively, or forget to insert a finance condition, and the cooling off period allows them to cancel the contract and start again.
The right to cool off is subject to certain conditions, and may not be available in all cases. It is certainly NOT a substitute for obtaining pre-purchase legal advice. [More]
How can I find out what the General Conditions in the contract are about?
Every purchaser of real estate is expected to know what they are agreeing to when they sign a Contract of Sale of Real Estate. Sure, lots of purchasers read the conditions, but very few actually understand them.
In addition to not understanding the conditions of the contract, many purchasers are given incorrect advice by real estate agents and finance brokers (often well-meaning but mistaken, but sometimes deliberately false).
Our legal team has written a full explanation of the General Conditions contained in the standard form Contract of Sale of Real Estate. It is available for purchase by vendors and purchasers alike, and it can be instantly downloaded from the www.RealEstateDocuments.com.au website for a cost of $22. A copy of the standard form Contract of Sale of Real Estate is also available on the same site free of charge.
Click on the following link to visit www.RealEstateDocuments.com.au:
Why is it dangerous to buy subject to a building inspection report?
Prudent purchasers arrange building inspections
This is clear example of illegal and deceptive conduct that is regularly perpetrated by real estate agents, and condoned by the Real Estate Institute of Victoria (REIV).
Plenty of purchasers want to protect themselves by having a building inspection carried out before they commit to buying a property. Because of the cost of building inspections, most purchasers will make their purchase subject to a building inspection by having a special condition inserted into the contract.