Before making an offer on a house, always get your finance pre-approved. Often it is advisable to make any offer to purchase subject to at least a satisfactory LIM report.
Remember, unconditional is unconditional & once unconditional, you are legally bound to buy the property. It effectively makes you a cash buyer. Pre-approval generally lasts for 120 – 180 days (depending on the lender), costs nothing and can easily be renewed.
Once pre-approved, there are a few different methods of purchase that you need to be aware of.
Methods of Purchase
- Offer and Negotiation
The most common method of purchase is offer and negotiation. A written offer is made on a sale and purchase agreement (normally through a real estate agent), the buyer then accepts or amends your offer and sends it back to you. You then agree or counter, and the negotiation carries on until you agree (or don’t!).
- Auction
Usually there is a reserve price at auction. If the reserve price is not met, the house becomes ‘passed in’ (it doesn’t sell). Offers are unconditional, so tread carefully and do your homework first.
A deposit (generally 10%) is required on the fall of the hammer.
- Tender
At a tender, you place your ‘best’ offer in writing to the vendor. The vendor receives all offers by a set date and chooses the one they like best (a bit like a blind auction).
The vendor may not choose any tender made & pass the property in, or negotiate with the highest offer. You can place conditions on your offer, but be aware the more conditions the less likely your offer will succeed.
Learn How to Protect Yourself
Always make an offer subject to finance for 7 working days, a builders report and a LIM. This means if something bad with the property pops up you can legally get out of the contract and contact your lawyer.
- Finance Clause
A 5 – 7 day finance clause will give you time to back out of the deal if you don’t want the house anymore, or if the bank finds the house unsuitable. This is extremely important and should be part of every offer you make.
- Builders Report
Get a qualified builder to walk over the property and give you a full report. This is the biggest thing you will do other than get married or have children and a mistake now could cost you hundreds of thousands of dollars down the track.
- Registered Valuation
When you have less than 20% deposit the bank will require you to get a registered valuation. These are done by a qualified valuer, cost around $550 and take up to five working days to complete. The valuer will pick up any problems with the house that you or the builder didn’t see.
The registered valuation gives the bank a snapshot of the house and makes them comfortable that you are buying a quality house that will not require a lot of ongoing maintenance.
- LIM
A LIM report is issued by the local council for the area in which the property is situated and contains information the Council holds in relation to the property. This confirms all is OK with the Code of Compliance and your lawyer will ask to see it.
- Accountant
If you are self-employed, have a talk to your accountant about tax issues and relay them to your mortgage broker. If you are buying an investment property, a good accountant is critical as a Look-Through Company (LTC) and a trust might need to be set up.
Settlement Date
This is the date you will own your dream house. Settlement date is usually around 3 weeks from the finance date, but allow for things like giving notice at the house you are renting and conditions around the sale of your own home.
Often people choose Friday to settle. Make it another day if possible as lawyers and banks are extremely busy on Fridays. A Thursday or Monday is a better day.
Keep in mind, the lawyer has to get the money from the bank and pay the current owner before they can tell the real estate agent to hand you the keys. This could mean you might not own the house until 4pm on the settlement date, which makes it very tough to move in at 5pm on a Friday night.
Keep it simple and give yourself plenty of time to allow for unforeseen delays.
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