Price and cooling-off periods
The two key differences between pre-contractual negotiations in a private treaty sale and an auction sale relate to price and cooling-off periods.
While a private treaty sale involves negotiating around a vendor’s asking price, an auction sale involves the price being set by the competition on the day or the reserve price specified by the owners (the minimum price the property will be sold for).
Malcolm Gunning, President of the Real Estate Institute of New South Wales, says buyers in a private treaty sale should ask the agent the price at which the owner will sell.
“If the agent can’t answer that question, then it’s a bit like not knowing what the reserve is – you are making an offer against an unknown asking price,” he says. “You should put pressure on the agent to firm up that price.”
Gunning also says that buyers need to be ready and willing to sign the contract straight away if their offer is accepted. “A purchaser should have their finance approved and – subject to their solicitor reviewing the contract – should be able to exchange. Making throw-away [non-serious] offers doesn’t endear you to the agent or the vendor.”
There is no cooling-off period when buying at auction, so you need to complete your contractual negotiations, have your finance ready, and conduct your building and legal checks prior to auction day.
Private treaty sales generally have a cooling-off period, which begins when the contracts are exchanged and the buyer pays a deposit. Within this specified time, the buyer can change their mind, though they may have to forfeit a small part of the deposit if they do so. The length of the cooling-off period and the cancellation fees, if any, vary between the states and territories.
It is common for the length of the cooling-off period to be negotiated longer or shorter, or even removed from the transaction. Gunning says that waiving the cooling-off period can be a strong negotiation tool.
“It shows you are really serious, and that’s your best tactic, as long as you are well researched, know your prices and have your finance approved, get your solicitor to sign off without a cooling off period.”
Richard Harvey, property law specialist and Law Society of New South Wales representative, agrees that it is becoming more common for vendors to request the cooling off period to be waived, which makes it all the more important buyers obtain legal advice, conduct relevant inspections and obtain finance prior to the exchange of contracts.
“Shortening or waiving the cooling-off period requires a written certificate from the buyer’s solicitor indicating why the certificate is being given and that the solicitor explained to the buyer the effect of the contract, the nature of the certificate and the effect of giving the certificate to the seller,” explains Harvey.
Negotiating a settlement period– the time between the exchange of contracts and the exchange of title and ownership upon settlement– that suits both parties can be key to the success of a property transaction.
A shorter or longer settlement may clinch the deal even over price, which is why it is helpful for both the buyer and seller to have some understanding of each other’s motivations . For example, a seller may need to time settlement with a pending property purchase or move overseas, while a buyer may need to vacate their existing accommodation on a certain date or would like to move before the arrival of a newborn.
The settlement period should be long enough for all final legal checks to be undertaken (see ‘Exiting a sale after exchange for legal reasons’ below). An auction sale contract (including settlement, deposit and inclusions) can be negotiated prior to auction day.
The deposit amount, method of payment (including cash, cheque, electronic transfer or deposit bond) and whether the deposit paid by the buyer can be used by the seller is all up for negotiation according to Harvey. Generally a seller will ask for a 10 per cent deposit and the buyer will look to pay the smallest amount possible. Buyers should confer with their financial advisor about the payment method and whether they should make a lump sum payment or instalments.
Fixtures and other property inclusions
While certain items are considered permanent fixtures in a home and will be sold with the property (like dishwashers), other elements aren’t considered permanent (fridges, for example). It is important to review what is and isn’t classified as a fixture in the sale contract. Don’t automatically assume something is a permanent fixture.
As we make greater use of the existing space in our homes, custom-built furniture is becoming more popular. Gunning points out that there has been an increase in the instances of built-in appliances – like fridges, sound systems and televisions – which are difficult to remove and instead should be factored into the sale. When reviewing a home for sale, you may see items that add value but are not considered permanent features. You can always make an offer that incorporates these items.
Tax and tenants
Other common elements that, according to Harvey, might form the basis of pre-contractual negotiations include whether or not land tax will be adjusted between the parties, GST issues, the terms of any special conditions in the contract, and whether the property will be sold with vacant possession or with a tenancy in place.
“The buyer’s solicitor will also check whether all the documents that should be included in the contract for sale and purchase of land by law have been attached,” says Harvey.
Exiting a sale after exchange for legal reasons
There are occasions when a buyer has the right to get out of the sale contract and get their deposit back, even when contracts have been exchanged and the cooling-off period has been waived or has passed, for various legal reasons. This also includes sales by auction where exchange is immediate.
An example of this is when a seller has not adhered to the vendor disclosure requirements.
“By law, these rules oblige sellers to put certain information about their property in the sale contract. This includes making certain promises about the property and attaching certificates that reveal such things as any rights of way [public thoroughfares across the property for example], drainage and zoning,” explains Harvey. “A buyer’s solicitor can advise the buyer if the seller hasn’t complied with these obligations and whether the buyer might be able to pull out of the contract and have the deposit returned.”
This article was originally published by Domain.
This article represents the views of the author only and do not reflect the views of AMP.
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