The “Oh”, “Really?” and “I Wish I Had Known That!” of Making an Offer and Organising Finance
OPINIONOn Monday morning purchasers can experience a real estate hangover. After a weekend of elation at finding their dream house and pressure from the agent to make an offer, with hesitation they sign on the dotted line and their concerns about legal advice are pushed aside. They are locked into a contract. Unfortunately, the emotive attachment that causes you to buy a property can also cause you to forego certain protections when you make your offer.
SPECIAL CONDITIONS
Give yourself a way out.
A precisely worded finance condition can give you a way out if, despite your best efforts, your finance is rejected.
One of the worst situations is telling a client, who doesn’t have a finance condition and can’t get finance, that they will have to come up with the money for settlement somehow.
Specific pest and building inspection’s special conditions can stop you being saddled with a property that requires expensive repairs. To protect the purchaser a building inspection special condition should be to the purchaser’s satisfaction, not simply for major structural defects. Legal advice before you sign can assist you in wording special conditions effectively.
Don’t let the agent word them for you.
I’m worried when a purchaser says that they relied on the agent to word their special conditions.
Last week a client came to us for help after he had trusted the agent to word a building inspection special condition for him. A subsequent building inspection uncovered building works were needed to the tune of $20,000. When he approached the agent to end the contract, he was stunned to find that the agent was unwilling to assist him in using that same special condition to end the contract. The agent was even angry at the purchaser for daring to end the contract after making the proper investigations.
Ask your solicitor about the proper wording of special conditions during the pre-contract advice process.
Be careful of what you commit yourself to.
The date on your finance condition should allow enough time to secure unconditional finance approval from your lender.
A rule of thumb is to give yourself two weeks to get finance approval, NOT three days after you sign the contract.
Unanticipated things can happen after you sign the contract;
- It can take longer than you thought to get unconditional approval
- You might not be able to borrow as much as you need
- Your finance could be declined
- The banks valuation may be less than the sale price
Just this week, a purchaser’s pest inspection and bank valuation were delayed a week because the vendor was overseas. Delays, because the vendor or purchaser has gone overseas after the contract has been signed, happen regularly. Be prepared for the unexpected.
An adequate finance condition allows you the time to deal with problems when they occur and help you avoid the stress of scrambling to arrange finance with an unrealistic finance condition date looming.
One client faced the unenviable possibility of having to come up with $000,000s at settlement, when her finance was declined after the date on her finance condition.
She needed to borrow 80% of the purchase price and had fallen into the trap of a inadequately dated finance condition. The bank’s valuation was below the sale price in the contract and her finance was rejected. Fortunately, after a change in brokers and much fuss she got finance with another lender.
If you are getting a loan settlement needs to be at least one month away.
Even if you do get finance approval, the most frustrating and time consuming part can be satisfying your banks requirements so that they agree to come to the settlement party.
Banks can perform miracles, but for most mortals processing a loan takes time.
Again, give yourself enough time to do what is needed.
Earlier this week a client called enquiring about conveyancing. At first it sounded like a simple conveyancing matter, he assured me that his lender would be ready for settlement. I asked some routine questions. A month is required to comfortably prepare the documents needed and for the client’s bank to prepare and process mortgage documents.
It turned out that he hadn’t signed a contract yet, settlement was in a week and a half and he was buying an apartment in the city. This was not a standard matter; usually there can be several bodies corporate with multi-story buildings, we would not have enough time to prepare documents and be ready to settle, not to mention his bank.
We encouraged him to reconsider committing to this unrealistic time frame, because if his bank and/or his conveyancer were unable to settle on time he would be the one paying penalty interest.
Don’t sign anything until you get legal advice.
‘Making an offer’ is not as benign as purchasers can be made to believe. If you sign a Contract Note or Contract of Sale you may be committing yourself to the contract.
Legal advice is not a ‘cure all’ for buying real estate.
A common misconception is that the act of getting legal advice automatically makes buying the property safe. Read your advice carefully, ask questions if you do not understand anything, make enquiries as recommended with the council, water authority etc, and use the wording provided for special conditions.
A dud property is still a dud property if you get legal advice and don’t listen to the recommendations.
Avoid the urge to give in to pressure.
Purchasers should be well informed, and able to prepare the offer they want with special conditions that protect them. Yeah right.
“My broker said ‘just make the finance condition due in a couple of days and ask for a finance extension if you need to’.” It’s not, you risk losing the property when you request an extension.
“The agent said to sign the contract and get legal advice in the cooling off period.” That reduces your options and bargaining power.
The best advice is to not let your fear of losing the property stop you from getting legal advice and including special conditions to protect yourself.
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