As a first homebuyer, you’ll spend time choosing a property and arranging a home loan, but how long do you spend getting to know the legalities? In the second of a two- part series, Geri Forsaith, founder of Sydney Property Conveyancing, explains why it can be a powerful strategy to know your legal responsibilities before you purchase
Buying a home is a legal process; this means that after signing and exchanging contracts you’re legally bound to buy the property – and forfeit a substantial amount of your deposit if you don’t go through with it.
So it’s vital that buyers speak to their conveyancer or solicitor about the conveyancing process before exchanging contracts to avoid the common pitfalls.
The confidence that comes with knowledge helps the purchaser when negotiating price and also in securing the property quickly to reduce stress.
Let’s look at the remaining legal issues you need to be aware of before signing on the dotted line.
Investment of the deposit
The deposit holder is usually the vendor’s estate agent and if there isn’t one, it’s held by the vendor’s conveyancer or solicitor. The agent should invest the deposit in an interest-bearing account and interest earned is usually split 50/50 between vendor and purchaser less any bank fees.
Both parties should give the agent their tax file numbers to avoid the top margin rate of taxation. Interest earned is paid by the agent to the purchaser and vendor after settlement.
If the deposit is held in a conveyancer’s trust account, interest earned is payable to a Statutory Interest Account and may be applied to the Property Services Compensation Fund to assist with a client who may have suffered a monetary loss as a result of failure by a conveyancer to account for money that was entrusted to a licensee.
Release of the deposit
It’s only been a recent development that vendors have requested the deposit to be released before settlement. Traditionally, it was held in trust to ensure the vendor sold the property to the purchaser at the agreed price.
Many experienced conveyancers and solicitors have concerns when the purchaser is asked to release the deposit. In the event the sale falls through, getting the deposit back from the vendor may prove to be difficult if it has already been used for other purposes.
It’s common practice for some vendors to ask for the deposit to be released only for the purchase of another property.
In any event, a decision to release the deposit should only be taken after your conveyancer or solicitor has carefully considered the circumstances and you’re aware of the risks involved.
When you buy a property in NSW there’s usually a cooling-off period of five business days after you exchange contracts. On exchange, the buyer pays the agent 0.25% of the purchase price with the balance due before expiry of the cooling off period.
If the buyer wants to exercise their ‘cooling off’ rights in the five business days and get out of the contract, the vendor keeps the 0.25%.
If the buyer doesn’t exercise their right, after the five days they’re bound to pay the balance of deposit and proceed to buy the property.
In a market where there are a number of purchasers for one property, it maybe wise to exchange contracts with a cooling-off period, the effect being that the property is taken off the market and no other purchaser can secure it within the five days.
It gives the purchaser time to arrange pest and building inspections and strata searches, and get formal approval of the finance, as well as have the contract reviewed by their conveyancer or solicitor.
These checks can also be carried out before exchange of contracts without a cooling-off period but the property is still on the market and available to another purchaser.
Not all vendors agree to a cooling-off period and it’s wise to ask the agent if the vendor will accept one when making your offer.
A cooling-off period doesn’t apply if you buy a property at auction or exchange contracts on the same day as the auction after it’s passed in.
While it’s the vendor’s responsibility to hand over the property on settlement in the same condition as at the time of exchange, if there’s no insurance policy in place, the question of where the money comes from may be an issue.
With a house, you have an insurable interest from the moment that you exchange contracts.
The purchaser’s mortgagee requires a copy of a building insurance policy noting their interest as mortgagee and usually advises the minimum insurance they require, otherwise it should cover the insurable value of the property. These details are usually part of the loan- …….
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