Elizabeth Kerr looks at how to weight the sale and purchase agreement in your favour if buying property

By Elizabeth Kerr

Let’s be honest. Unless you work as a real estate agent or are a property investor, the buying and selling of property isn’t something you are going to get the chance to do all that often.

So this week I’m going to introduce you to a few non-negotiable parts of the process.

Yes I know, for some of you this will seem like I’m telling you to suck eggs but for the rest of you it might be exactly the lesson you need right now.

(Butt-covering disclaimer: I am not a lawyer, so seek professional advice BEFORE you go house hunting).

Right, before you even start trawling Trade Me and dating the real estate agents you need to know why you are buying a property in the first place. Is this a rental purchase or a new family home? If it is a rental are you buying is it for capital gains with the intent of selling it and pocketing the cash for something else (boosting your money machine perhaps), or do you want it to have it for the rental income after paying down the mortgage?

Either way, the following are some important steps. Ignore them at your own peril!!!

Get it under contract

So, I’m assuming you’ve done your sums and you know you can afford to purchase the property. The first thing you want to do is get the property under contract. Yes, you could organise valuations and property inspections and builders to go through first (only novices do this by the way) – but why would you bother paying money for those inspections unless you know you can actually buy it?

What if after all that effort the vendor didn’t want to sell it to you for your offering price? You only need to do that a couple of times over, and suddenly, house hunting becomes a very expensive shopping trip and you’ve still got nothing to show for it.   No, I think you should agree the purchase price and get a contract signed together first, and this is the important thing, subject to getting all your ducks in a row afterwards.   

I get that some real estate agents may put the pressure on you to sign the contract as soon as possible.

They might tell you that there are other buyers wanting to make an offer today, or the vendor wants to put the price up next week, or take the house off the market and that if you don’t sign today you risk missing out. All of that might be true. You need to understand that real estate agents are working for the seller.  Yes, they must treat you, the buyer, fairly – but “fairly” has a different meaning for everyone.  

So first up, don’t sign if you feel pressured. But if you do sign for any reason before you can take the contract to your lawyer to look it over, make sure you put in the following Get-Out-of-Jail clause into contract on the page marked Special Conditions at the back.

Now this clause is not unique or special, and I can’t claim to have made it up myself, but not many people know it exists unless you are a seasoned property purchaser. Most lawyers will be able to provide you with one to the same effect. 

If you know you are going house hunting, why not give your lawyer a call and ask for their version of this clause before you go out? Put it in your phone and be prepared to write it out, or print it on sticky paper and stick it in the back of the contracts before you sign it. (Obviously this clause won't work if you’re buying at auction – that’s another entirely different kettle of fish.) 

The power comes from the words “being satisfied in all respects and entirely at their own discretion …” This essentially means you need to be happy and can change your mind because you’ve found something that you don’t like, and you don’t have to justify it to anyone … even the seller. Maybe on reflection you’ve realised that the house doesn’t have enough storage for your enormous Star Wars collection, or you’ve found out it's not in your preferred school zone, or there is a shopping mall going up next door, then use this clause to get out of the purchase.

“But I can just use the Builders Report or the finance clause to get out of the contract," you say. “...Oh no you can’t”!!! Keep reading below to understand why.

Due Diligence Must-Dos

Building Inspection

Your brother’s friend of a friend who used to work for a builder is NOT the right person to conduct a formal building inspection for you. You need someone who has the tools and experience and knows what to look out for. You are to expect that they will spend close to two hours going through each room, the ceiling and under-floor cavities, and taking moisture readings. You are then to expect a phone call with a brief update that day and a written report within the week. The cost of this will be in the range of about $600 + gst, but is dependent on the location, size and age of the property. 

If you had not used your Get-Out-Of-Jail free clause in the contract and just circled the builder's inspection box on the front page, then hypothetically, if the vendors are entitled to that report and if they remedied the building inspection findings, then they could argue that you still should buy the house because your building inspection is now perfect. That would suck if your real reason for getting out of the contract was that it didn’t have enough storage.

Finance

Again, your lawyer will be able to give you a clause to carry with you. What you want to avoid is being vague. Quite often the contract might say under Finance “Enough to satisfy the purchase” or just the remaining amount required at settlement… but this is too vague. What if you can’t get a mortgage from your chosen bank, but the vendor has a mafia-mate who will give you one at 22% interest? …Tough luck you have to take it. You never stipulated you needed to like the terms of your finance – just that you needed enough to close the deal.  A better option would be to use this clause in the Special Conditions page:

The key sentence in here being “On terms and conditions entirely satisfactory” to you! This means no mafia boss or loan-shark helping you to close the deal. You can just walk away if you can’t afford it.

So that’s building, leakiness and finance done.  These can all be addressed on the front of the contract by doing this:

Meth Lab

Okay you think you’re buying in the “right” neighborhood and you doubt your house was used for P-production.  But you just can’t be so sure. Meth labs are totally random and you can’t discriminate to a particular property. The costs for checking for meth may be approximately $250 plus gst and can be done at the same time as your building inspection.

If you think for a moment that skimping on any of these checks to save a bit of money is a good idea then think again. You are likely to be spending a shit-load of money on your house so what’s $1000 in due diligence in the scheme of things? If you don’t have a spare $1000 then chances are you should not be buying a house right now either!!!

Other Due-Diligence

The other question you need to know is can you really afford it. Remember the costs don’t stop at the purchase price. Get out a piece of paper and write down the following costs:

• Rates: (can be found on the city council website)
• Bank fees & mortgage repayments
• Body Corporate Fees (if any): should be provided by the agent on behalf of the body corporate committee
• Insurance: (Call an insurer for a quote)
• Water Rates
• Buying entity set up – ie are you buying in a company or family trust and still need to set this up?
• Noticeable repairs or maintenance costs
• Rental income and property management fees (if you are renting it out)
• Renovation costs (if you have ambition for a doer-upper)
• Increase in transport costs (if you are an owner occupier do you have to pay more in petrol to get to work – is it worth it?)

Going unconditional

When you are satisfied with both your physical and financial due-diligence and you have your mortgage approval for the purchase then you can give the nod to your lawyer that you are happy for the contract to go unconditional. Once it goes unconditional – that’s it. Short of a meteor crashing into the earth and destroying mankind…it’s pretty difficult to get out of a contract without specialist help from a very proactive and experienced lawyer. This is not a service you want to have to pay for so, don’t expect that they will be your ambulance at the bottom of the hill if you skimp on any of the above.

In closing:

Buying a property is a big deal, but at least armed with those two clauses above you might feel a little more empowered about your decisions. Real estate agents may not like you changing the contract but they need to treat you fairly and this requires that they respect your right to change the sale and purchase agreement to suit your terms. However, they are a poor second for getting professional legal advice though, so, if you are property hunting why not call a lawyer and discuss your approach first? 

The main point today is that when buying a house you are about to part with a lot of money. So, you have every right to have this purchase work entirely to your personal conditions and no one else’s. How about sharing your tips below for how you do it?