The contract of sale is at the heart of buying and selling property. Every contract is different –not only does the contract need to reflect the property as it is at time of sale, it also includes conditions around the sale itself.
Contracts are drawn upby the vendor’s conveyancer or solicitor. If you’re buying, you’ll have a chance to review the contract and you can request changes. Here are the most often requested changes to the contract of sale, with our comments.
The standard deposit amount is 10% of the purchase price, but with the price of property in Sydney(even in the outer suburbs), that’s a lot of money! Almost every purchaser asks for a 5% deposit.
You might be a first time buyer who’s worked to save a deposit and has pre-approval to borrow 95% of the value. You might have equity in your current home, but not have liquid cash for a deposit. Or you might just want to improve your cash flow by paying less at deposit time.
If you’re a vendor, your biggest risk is the purchaser deciding to withdraw. When a purchaser breaks contract the vendor can keep the deposit, but you could end up with only5% of the purchase price instead of 10%.
Whenever we accept a5% deposit in a contract of sale, we include a clause to counteract this. In simple term, it says that if the purchaser defaults they are liable for a full10% of the purchase price. But even so, they won’t necessarily pay. You may have to go to court, which could cost tens of thousands of dollars. Add in the stress and time of a court case and you can see why this isn’t a great option.
Even worse, in one recent case the court determined that only the original 5% was payable. This sets a precedent. While there are various ways to word the contract of sale, there is still risk to you as the vendor.
It makes sense to take a practical perspective rather than a legal one. As a vendor, consider this:
· Does the5% cover your out-of-pocket expenses in listing the property, marketing it and getting a contract drawn up? If it does, at least you won’t go backwards financially.
· What is the likelihood that the purchaser will default on the contract? The percentage of defaults is very small – we have not yet experienced one.
In other words, assess the impact and the likelihood of the risk before making a decision.
This is a very common request. It’s actually one which comes from the vendor as well as the purchaser.
Purchasers may have sold their current property and want to settle the same day or the day after so that they can move in smoothly. Vendors may have a target date to move into their new home. Alternatively, they may want a long settlement which gives them time to find a new home, to pack up and to move.
In terms of making changes to the settlement date, whether it’s possible depends very much on your circumstances and the other party’s circumstances. The only firm recommendation from us is that if the settlement date is important to you, you discuss it before exchange of contracts. That’s when you have the most power to negotiate with the other party.
This is another common request from purchasers which is driven by real life practicalities.
The statutory cooling off period is 5 business days. This means that you can withdraw from the contract with no penalties and your deposit will be returned to you.
(Note that if you buy at auction or sign a Section 66W Certificate, there is no cooling off period.)Your bank or mortgage provider may need a longer period to convert your pre-approval to an unconditional approval.
No purchaser wants to be in a position where they cannot withdraw without losing their deposit. Realistically, the vendor doesn’t want a purchaser who can’t get funds either. Vendors also understand that many lenders need 7-10 days to go through their processes, so extending for another week or so is generally not an issue.
Many purchasers want their offer to be conditional on positive pest and building reports.
Unfortunately, there are no good options here.
· Exchanging contracts will fix the purchase price of the property. If your inspections find any issues, the vendor can refuse to renegotiate. Then your only option is to rescind and lose 0.25% of your deposit.
· Alternatively, you can wait to sign the contract of sale until you have your pest and building reports, but then the property stays on the market. You risk losing it to someone else.
There are options now where the vendor organises pest and building reports which all prospective purchasers can access for a small fee. In most cases, the inspections are conducted by reputable firms and are unbiased, but there is still more risk than in obtaining your own independent reports.
Inspection reports often include a comment that sections of the property were inaccessible. The question is, how hard did the inspector try to access all areas? We know of one case where the vendor’s report said that the subfloor was inaccessible, but our client sent their own inspector out. After a couple of visits, that inspector gained access to the subfloor and identified around $15,000 worth of repair work required. Both reports were valid, but the results were different.
While these are the most common changes people request to their property contract of sale, we also get other requests based on specific circumstances. In addition, there are often concerns which we raise with you proactively. We deal with contracts of sale every working day, so we notice anything out of the ordinary. As your legal representative, it’s our duty to look for issues and bring them to your attention.
If you’re a vendor, you specify the terms of the contract. We’d love to help you get that right and avoid unnecessary negotiations and changes later in the process.
If you’re a purchaser, we can review and assist with any contract issues. We strongly recommend you organise this review before purchase –especially if you’re buying a property at auction. It’s a small investment to protect your much larger investment in property!
