D is for Deposit
When you have sold a property, your selling agent will collect a deposit from the buyer. Quite clearly, when you are buying a property, you will need to pay the deposit to the selling agent. There is no hard and fast rule as to what amount of deposit is to be paid. The general rule is that 10% of the purchase price is paid by way of deposit, but this is purely a contractual matter to be agreed by the parties to the transaction. From a seller’s perspective, the deposit is a form of security against the buyer’s default. Consequently, the seller has less security if the buyer pays less deposit. A buyer should have no issue with paying a 10% deposit (provided that they have the funds available to pay it) as it is held in trust subject to the Contract of Sale becoming unconditional and the transaction proceeding to settlement or the deposit being released prior to settlement provided that the deposit release process has been followed. This process has in-built protections for the buyer so an early release of deposit should not concern the buyer, provided this process has been followed.
The deposit can (and often is) paid in stages. An initial deposit, often a nominal amount like $1,000, is paid upon the purchaser signing the Contract of Sale, with the balance due when the contract becomes unconditional. Generally, this will be following the purchaser obtaining finance for the purchase but could also involve satisfactory completion of building and pest inspections.
Tips for the Buyer-(1) Only agree to pay the deposit that you can pay. Many clients agree to pay a 10% deposit but don’t have those funds available, some even thinking that their lender will provide those funds as part of the loan process. This mistake is made when the buyer is obtaining a 100% loan to cover all of the purchase price and the costs associated with the purchase by using equity in another property, only to find that the lender won’t release any funds until all loan and security documents are signed for the new purchase. (2) Consider whether 10% is an appropriate deposit to pay. If the purchase is long dated (eg six month settlement period or waiting on new titles to issue), a deposit of 5% might make more sense. If you are purchasing off the plan consider the use of a deposit bond instead of a deposit if the Contract of Sale permits this.
Tip for the Seller - Always insist that your selling agent obtain a 10% deposit unless there is a good commercial reason not to. Remember, it is your security against the buyer’s default. The inability of a buyer to pay a 10% deposit can sometimes indicate that the selling agent has not qualified the buyer adequately, resulting in the buyer being unable to obtain finance and the deal falling through.
E is for Easements
An Easement can come in various forms and may be registered on the title to a property or it might be a right that is not so registered. For the moment we will focus on the one that causes some problems, which is an easement which grants the local water authority rights over land. This easement is generally for the sewers or drains that run through property. From time to time, the water authority may require access to these sewers or drains to do work on them. Because of this, a property owner cannot build over such easements without written approval from the water authority. The implications of this is that if you purchase a property with the intention of extending it or, for example, putting an in ground pool in, you are going to need to know where the easements are so that you don’t encroach on them. More fundamentally, it might preclude you from doing what you want to do, which might change your mind about purchasing the property in the first place.
Tip for Buyers-Obtain advice from your solicitor before purchasing and also talk to the relevant water authorities to ensure you know of the exact location of any easements on the property>Note that in some instances the easement is no longer one that is needed by the water authority as older drains may no longer be operative, but always check first.
F is for Fees
When you purchase a property there are a whole range of fees and costs that you need to take account of. These range from fees charged by your lender, professional costs incurred with your solicitor, building and pest inspections of the property if you chose to obtain them, disbursements that are incurred on your behalf (for example, title searches and property certificates relating to the property you have purchased), rate and other adjustments included in the settlement amount, valuation fees and any GST payable on these services. Any number of other expenses could be incurred depending upon the nature of your property transaction.
For a seller of property the main fees incurred are your selling agent fees and marketing expenses, costs associated with complying with any contract special conditions (if applicable) and any fees or charges payable to your lender upon discharging your mortgage, the key one being early exit fees if you have a fixed rate loan or a variable rate loan where your lender charges exit fees regardless of the loan type.
Tip for Buyers - You need strong, independent advice. Start with your solicitor don’t end with your solicitor. Most buyers start with their bank, a finance broker or a real estate agent as these are the natural parties to start with. Once you have decided what to do you then go to your solicitor. Do it the other way around so you can get full and clear advice as to what to do and what the costs should be. Use your solicitor as a sounding board-again, the fees will be worth it. Whatever you do, inform yourself as to the different aspects of your transaction and the likely costs that will be incurred.
Tips for Sellers - Before you put your property on the market talk to your bank/lender and understand if there are any exit fees and, if so, what they are likely to be. One possibility is to use a portability product (if you are selling and buying) which involves substituting your new property as security for your loan, which might enable you to avoid exit fees. Check with your lender though, as they all have different rules and criteria. The other possibility is to negotiate the exit fees away so they are not incurred-tell your lender you will transfer your business to another lender if they are charged.