What Happens After Exchange Of Contracts
What Happens Next? Now that I have exchanged contracts to buy a property
Client Property Address
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What Happens After Exchange Of Contracts
Our promise to you Since 1988 we have strived to provide the very best real estate service in Sydney to the many property buyers, sellers, investors and tenants who call on us for help and advice each week. This booklet and the advice it contains is part of that promise. We hope you enjoy the content and profit from the experience. Remember, our offices are open 7 days a week to help you with any real estate matter so be sure to call us if you think we can help. You'll find contact details for your nearest Prudential Real Estate office on the back page of this booklet.
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What Happens After Exchange Of Contracts
Congratulations ! If you have just signed a contract to purchase a property you will find the next few pages of information absolutely invaluable.
KEEP THESE NOTES UNTIL YOUR SALE HAS BEEN COMPLETED Each of these simple steps will explain what happens over the next few days and how your sale will proceed to settlement. More importantly, these notes will explain what you can do to make the whole process smooth and headache-free.
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Is Your Property Off The Market ? Any property is available to any purchaser right up until an exchange of contracts has occurred – unless, of course, the vendors (the property owners) have provided us with written instructions to the contrary. When you sign your copy of the contracts (to buy the property you have chosen) this is not an exchange of contracts. In order to have an “exchange of contracts” we also need to obtain the signature of each of the property owners on an identical contract to the one you have just signed. Once we have two identical signed contracts (one signed by you, the buyer/s, and one signed by the owner/s) we can then “exchange” the contracts by firstly checking them (to ensure each is identical to the other) and then by dating them. If the property owners are not available immediately to sign their contract (or are overseas, interstate or located some distance from our office) there may be a delay in obtaining their signature and therefore an exchange of contracts. Up until an exchange of contracts has taken place the property you have chosen is available for any purchaser to buy. Under current legislation, the most sensible way to secure the property of your choice is to exchange contracts as quickly as possible. This is generally best achieved by allowing the agent to conduct the exchange of contracts.
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What Happens After Exchange Of Contracts
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How Much Deposit Have You Paid ? A contract for the sale of property in NSW generally requires a deposit of 10% of the purchase price to be paid at the point where you actually sign the contracts (immediately prior to an exchange of contracts). Many buyers ask us if it is OK to pay a 5% deposit rather than a 10% deposit. A 5% deposit is acceptable so long as the vendor agrees – and only if the vendor agrees. As well as the vendors agreement to a reduced deposit an additional special condition acknowledging the reduction in deposit must be included in the contract. This special condition will specify that, in the case of default (after unconditional exchange of contracts), the purchaser will be required to forfeit 10% of the purchase price rather than the 5% that may have been paid. Many buyers also ask us if they could pay the 10% (or 5% deposit) in two payments rather than in one lump sum. Again this is acceptable so long as the vendor agrees. The way we arrange this is we ask you to pay, say, $1000.00 when you sign the contract and the balance of the deposit at the end of the cooling-off period. All parties agree to this “split-deposit� arrangement by signing a special condition to this effect. We then include this special condition in the contract prior to exchange.
3.
What Have You Bought ? When you buy a residential property you not only buy the "bricks and mortar" (the house) and the land on which it is built you also buy the inclusions. The "inclusions" are household extras that the property seller agrees to sell to you along with the house. The list appearing below details all of the inclusions that the owner has agreed to sell to you and you have agreed to buy. A similar list appears on the front page of the contract which you have just signed.
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4.
Number
Number
This list is very important. You will need the list when it comes time for your final inspection prior to settlement so that you can correctly identify each item that is included with the sale.
Fixed Floor Coverings
Garden Shed
Light Fittings
Gas Heater
Blinds
Bar-B-Q (all or part ?)
Curtains
Insulation
Alarm System
Slow Combustion Fire
Fly Screens
Clothes Hoist
Screen Doors
Garden Lights
Ceiling Fans
Sprinkler System
Ducted Air Conditioning
Range Hood
In-wall Air Conditioning
Other :
Dishwasher
Other :
Microwave
Other :
Pool Cleaning Equip. (Manual)
Exclusion :
Pool Cleaning Equip. (Auto)
Exclusion :
TV Antenna
Exclusion :
A Simple Explanation Of The Cooling-Off Period When you exchange contracts with the assistance of a real estate agent the law in NSW requires that you be allowed the benefit of a 5 day cooling-off period. The object of this cooling-off period is twofold ; a. To allow you to make a calm, relaxed decision about your purchase without feeling under pressure to proceed with the sale ; and, b. To allow you sufficient time to find out more about the property and your own finances so that when you make the final decision to proceed (prior to the expiry of the cooling-off period) you are doing so in an informed and knowledgeable fashion.
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What Happens After Exchange Of Contracts
The standard cooling-off period is 5 business days. Both the Law Society of NSW and the Real Estate Institute of NSW agreed that this period was sufficient when the legislation was first drafted in 1991. The cooling-off period commences on the day after an exchange of contracts. So, if you sign your contract on a Tuesday and the vendor signs their contract on the following day we would exchange contracts on that same day (being Wednesday). The first day of the cooling-off period would then be Thursday. The 5 business day cooling-off period would then be Thursday, Friday, Monday, Tuesday and Wednesday. In this example the cooling-off period would expire at 5.00pm on Wednesday. (Note: Public holidays are not counted as business days) What happens if you arrive at the beginning of the fifth business day and you haven’t finished all the things you had planned to complete ? Perhaps you are still waiting on the arrival of your written loan approval or perhaps a copy of the pest inspection report or any number of vital elements required prior to the end of the cooling-off period. Don’t panic ! Call us here at Prudential Real Estate and we will contact the vendor to ask about an extension of time. An extension of time can only be approved by the vendor and so long as your request is reasonable most vendors will oblige by extending the cooling-off period by a day or two – after all they want to sell and, at that point, you will be their best opportunity of a sale. It is very important to note that should you decide not to proceed with the sale (for any reason whatsoever) during the cooling-off period you will forfeit 0.25% of the purchase price. This penalty amount is then paid directly to the vendor as compensation to them for having their property off the market for you. Here’s an example of this calculation as it applies to your purchase ;
Agreed Purchase Price $ Deposit paid On Exchange Of Contracts $ Penalty Amount forfeited to the owner should you decide not to proceed $ Refund payable to you (by cheque only) $
Most people (about 97%) proceed with their purchase after the cooling-off period expires – in other words they encounter no problems with the property or their finances and are happy to go ahead with their purchase. In addition, their deposit goes on to become part of their funds required to complete the purchase.
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First, Phone Your Solicitor / Conveyancer When you sign the contract for your purchase the salesperson attending to you will provide you with a copy of the front page of the contract for your records (as well as an additional copy for your bank if needed). In addition, a copy of the front page will be faxed directly to your chosen solicitor or conveyancer immediately after an exchange of contracts has occurred together with the relevant details of your purchase. However, even though we provide your solicitor or conveyancer with all the details of your purchase, it is very important that you make contact with them personally no later than the day following exchange of contracts. When you first speak with your solicitor or conveyancer be sure to ask them about arranging a pest inspection and a building inspection on your behalf. (Note: These inspections are not required when you buy a block of land and are sometimes optional when you buy a home unit) Whatever you do it is very important that you make contact with your solicitor or conveyancer and maintain close relations with them during the balance of the transaction.
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Next, Apply For Your Finance If you require finance to complete your purchase then now is the time to make application for your loan. If you haven’t had time to shop around for the best home loan deal there probably isn’t enough time to do this during the cooling-off period unless you speak to a mortgage broker. A mortgage broker is someone who can weigh up your home loan options (from 35 banks and more than 200 loan products) within a few minutes using specialised computer software. He can then make an instant recommendation as to the best home loan for you and your family. He can do this in your home, after hours or on weekends. He can then process all the paperwork and chase up all the required approvals on your behalf. There is no cost to you if you decide to use a mortgage broker – they are paid a small fee by the bank you choose to place your home loan with. The mortgage broker we recommend is Craig Corbett of CHOICE HOME LOANS. You can call Craig anytime on his mobile 0418 204 120. If you have already arranged finance then be sure to make application as soon as you have signed a contract. Loan approvals often take several days so it’s very important you begin this task immediately. What happens if your loan application is rejected ? Don’t panic – this happens more often than you realise. If your loan has been turned down let us know immediately. Over more than 20 years helping local home buyers we’ve developed a number of solutions to problems such as this, so be sure to call us as soon as you hear.
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What Happens After Exchange Of Contracts
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What Happens When You Get The Results Of Your Pest Inspection Report Or Your Building Inspection Report ? Whatever you do, if you are buying a "pre-loved" home be certain your solicitor or conveyancer orders both a pest inspection and a building inspection for you. The cost of these inspections is very small compared to the financial disaster that could result from your purchase of a damaged property. Whilst these inspections are invaluable there are also a couple of matters you should be aware of before you read your reports . . . m The property you are buying is "second-hand" and just like a second hand
car there are sure to be things that need repair - most of them cosmetic and of a minor nature. m During your inspection(s) of the property, you will probably have already
noted many of the things that need repair or maintenance - your building report will simply highlight these same issues for you again. m Both Building Inspectors and Pest Inspectors are required to take out
professional indemnity insurance to protect them from being sued for making an error on a property report. As a result, their estimates for the repair of some items in your reports may be inflated by as much as 50%. You are encouraged to obtain your own independent estimates for any major repair item mentioned in your reports. m Pest reports often make mention of "past" termite activity. This means the
termites have either died or moved on - often, there is very little residual damage. m Even if your pest report indicates the presence of live termites this is
something that can be corrected with modern elimination methods. m Almost 50% of all properties have a leaking shower recess. This type of
repair is very common and relatively inexpensive. If there is anything that concerns you in your pest report or in your building report please call and let us know immediately. If the problem appears to be a major issue of repair or damage the owner may agree to contribute part of the repair cost (depending on circumstances). After all, if your building or pest report has highlighted the problem so too will the reports for any future buyer. It is therefore in the best interests of the owner to have the matter repaired quickly and professionally. Whatever happens be sure to call us immediately if there is any problem with either your building report or your pest report.
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What Happens After Exchange Of Contracts
8.
Be Sure To Get Your Finance Approval In Writing Sounds obvious doesn’t it . . . and yet many people ignore such advice every day. Be certain that you receive a written home loan approval from your bank before the expiration of your cooling-off period. If you arrive on the last day of your cooling-off period and your bank has been delayed in issuing your loan approval be sure to ask for an extension of time. Generally, all that is needed in such circumstances is only 1 day extension of your cooling off period.
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How And When To Pay The Balance Of Your Deposit Most property buyers these days opt to pay their deposit in two parts. The first part (generally $1000) is paid on exchange of contracts. The balance of the 10% or 5% deposit is due on or before 5.00pm on the last business day of the cooling-off period. The balance of the deposit cannot be paid after the cooling-off period expires. If you do not pay the balance by 5.00pm on the last business day of the coolingoff period your contract may be terminated, you may forfeit 0.25% of the purchase price (just as if you had decided not to proceed) and the property may then be sold to another buyer. Here’s how your deposit will work ;
Amount of deposit paid today
$
Balance of deposit to be paid at the end of the cooling-off period
$
TOTAL deposit to be paid
$
You can pay the balance of the deposit by personal cheque, bank cheque or by Eftpos. Cheques should be made payable to "PRUDENTIAL REAL ESTATE". After we receive the money, we bank it into our trust account in both your name and the name of the vendor until settlement occurs. At settlement, this deposit forms part of the purchase price and we pay it over to the vendor.
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What Happens After Exchange Of Contracts
If you have any difficulty getting to our office to pay the balance of your deposit please call us and let us know. We will then endeavour to make alternative arrangements that will ensure your deposit is paid on time. If your solicitor or conveyancer has arranged to pay the balance of your deposit by way of a DEPOSIT BOND you will not need to deliver this to our office in the same way as you would a cash deposit. Simply ask your solicitor or conveyancer to drop us a line to let us know that you will be paying the balance of your deposit by way of a bond. Once you have paid all of the required deposit and your cooling-off period has expired (expiration is at 5.00pm on the last day of the cooling-off period) you have reached a point in the sale process called "unconditional exchange of contracts". At this point you are committed to the completion of the sale - you can no longer pull out of the sale without incurring the loss of all your deposit.
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What To Expect If You Are Buying A Rented Property If a tenant currently occupies the property you are buying there are a few extra things you need to know. The single most important thing you need to know is whether the tenant has a current Residential Tenancy Agreement or an expired Residential Tenancy Agreement. If the Residential Tenancy Agreement (RTA) is current you cannot expect the tenant to vacate the property any earlier than the last day of the RTA (the expiry date) despite the fact that you are buying the property. In these circumstances the tenant's agreement with the landlord overrides your agreement with the owner to buy the property. So, if there is a current Residential Tenancy Agreement in place at the property you are buying you may not be able to move in until the tenant moves out. On the other hand, if the Residential Tenancy Agreement has expired and you exchange contracts to purchase the property we will issue the current tenant with a notice to vacate the property. Under current legislation an occupying tenant must receive a minimum notice of 30 days to vacate their property. Such notice is only given after unconditional exchange (after the cooling-off period has expired) Two problems sometimes occur with this procedure.
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What Happens After Exchange Of Contracts
Firstly, the cooling-off period usually ends less than 30 days prior to the contracted settlement date. In these cases the settlement period has to be extended to allow the tenant a 30-day notice period to expire. So, instead of the standard 42-day settlement period you have to wait an extra 7 to 14 days to settle. Your solicitor will guide you should this happen. Secondly, despite being given the correct notice, the tenant refuses to vacate the property. Although this happens very rarely such occasions create friction and anxiety with both the buyers and the sellers. If the tenant refuses to vacate the property the managing agent will commence action in the Consumer Trader and Tenancy Tribunal. Such action can be protracted and stressful. Fortunately this happens less than once in every 200 rented properties we sell. In the past we have generally been able to amicably negotiate an acceptable arrangement for all parties without having to appear at the Tribunal. If you have any questions about buying a rented property please contact your representative who's details appear on the last page of this booklet.
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What Happens If You Intend To Rent Out Your Property ? If you are buying this property to rent out we can help you. Firstly, our property management staff can assess the current market rent for the property you are buying. Secondly, we can issue a rental guarantee certificate * for the property you are buying. This certificate has several conditions and you should review this document with our property manager well before settlement to ensure you gain most advantage. You can find a copy of the terms of this guarantee in our booklet called “The Smart Way To Buy A Property� Finally, we can begin showing prospective tenants through your property before settlement. In this way there is a good possibility that we can have a paying tenant in your property immediately after settlement. Naturally these arrangements are subject to the permission of the current owner and your own instructions to our property manager. You will find our costs for managing your property are very competitive and will reflect the value we place in our relationship with you as a client of our company. If you already own an investment property please ask our property manager about multiproperty discounts. * Our rental guarantee specifies the amount of rent you should receive and if we cannot find a tenant within a stated time period we will pay the rent direct to you. Conditions apply.
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What Happens After Unconditional Exchange Of Contracts From this point there are only a few short weeks until your purchase is completed (this is called settlement) so it's very important to chase up a few matters. m Call your solicitor or conveyancer and make sure they have arranged
building insurance for the property you are buying. If they haven't done so it would be a good idea to organise this now rather than wait until settlement. m Chase up your bank or lending institution to ensure that any mortgage
document requiring your signature is sent to you immediately. The worst thing that can happen is that settlement is delayed because your bank has failed to allow you sufficient time to sign and return all required forms and documents. The important thing to remember is that from this point forward your solicitor or conveyancer controls the timing of events so it's very important to keep in close contact at all times.
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When Can You Move In If you look at your copy of the front page of the contract you will see a section called “Completion Date”. This section should be about 8 centimetres from the top of the page. Immediately after the words “Completion Date” you will see words similar to “42nd Day after the date of this contract” Some contracts say 42 days (as in the above example), others say 35 days or 49 days. In each case this is the number of days from exchange of contracts until settlement. And settlement is the day when your solicitor or conveyancer pays all the money for your purchase and you can move in. So, for example, if the date of exchange is 11th June and the contract allows for a settlement period of 42 days the expected date of settlement would be 42 days after the 11th June being the 23rd of July. Now that you’ve worked out the expected date of settlement you should be aware that the date of settlement is often a different date to the one you’ve worked out above. Although all parties try and work to the settlement period shown on the front page of the contract all sorts of things can happen during this time and the solicitors for both parties can often agree on a date up to two weeks earlier or two weeks later. Therefore, it is best to assume that the settlement period shown on the front page of the contract is an estimate rather than a “concrete” date.
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The best advice we can give is to keep in contact with your solicitor or your conveyancer for any changes to the settlement date. NOTE : In some circumstances you can obtain "early occupation" of the property you are buying. Example # 1 - If the property you are buying is (or becomes) vacant after unconditional exchange of contracts and you would like to paint the property before you move in you could put a special request to the owners (through your solicitor) for you to gain entry each day from, say, 9.00am to 5.00pm. There is generally no cost in these circumstances but you must be prepared to offer a guarantee that you won't undertake any structural work whilst on the premises. Your solicitor can best guide you on this issue. Example # 2 - If the property is (or becomes) vacant after unconditional exchange of contracts and you would like to move in early you could put a special request to the owners (through your solicitor) for you to move in "under licence". Moving in under licence is a little like renting. You agree to pay rent for the time you occupy the property up until settlement. This "rent" or occupation fee is then generally paid on settlement in one lump sum in addition to the purchase price of the property. Again, your solicitor can best guide you on this issue.
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Final Inspection Your "Final Inspection" of the property you are buying is probably the most important thing you do during the sale process. During the final inspection you will check out every aspect of the property to ensure that everything is in the same condition as when you agreed to the purchase (at exchange of contracts). You can arrange your final inspection by calling your representative who's details appear on the last page of this booklet at least 7 days prior to settlement. Final inspection should always occur on the day prior to settlement. Even if this is a normal working day for you it may be advisable to take all or part of the day off to conduct this inspection. There are 3 important things to consider during this inspection ; m Does the property contain the same inclusions as when you exchanged
contracts? You can use the list of inclusions found at the beginning of these notes. m Is the property in lesser condition than when you exchanged. Is there any
sort of damage at the property that wasn't there when you exchanged ? m Is the property abnormally dirty ? Is there any rubbish on the premises that
will not be removed prior to settlement ?
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If, during your inspection, you find that things are not as you would expect them to be the correct person to call is your solicitor or your conveyancer. They will immediately call the owner's solicitor and alert them to the problem. The important thing to remember is that in 90% of cases there is no problem at the final inspection - the inclusions are all in place, the property is clean and undamaged and everything is as it should be. Even if there is a problem there is always a solution. Generally, the solicitors can work out a compromise that suits both parties. If everything is OK at your final inspection you should call your solicitor or conveyancer and advise them that you are happy to proceed to settlement. But remember this . . . once settlement has occurred you cannot ask the owner to fix, to replace or to clean anything. Your final inspection is your last opportunity to correct anything that's not right. NOTE : If you would like us to arrange for your property to be professionally cleaned prior to settlement please let us know. Naturally, professional cleaners will need at least one clear day to commence and complete any job and this is not always possible in a conveyancing transaction. Call our office at any time to enquire about the additional cost of this service.
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On The Day Of Settlement When the day of settlement finally arrives it can often be a mad rush – packing up, kids, cleaning up, moving furniture, unpacking again, etc, etc. In order to make the process a little easier we recommend the following steps . . . 1.
At least two days prior to settlement make a point to ring your solicitor and ask for the exact time of settlement, e.g. 10.30am.
2. We can only release the keys to you after we have received confirmation of settlement from the owner’s solicitor, usually by facsimile. This advice may not arrive at our office for up to an hour after settlement. 3. Allow 60 minutes to elapse after the expected time of settlement before coming to our office. In this way we will be sure to have all the correct confirmations and (failing any additional complications) the release of keys can happen immediately.
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After Settlement Once settlement has occurred please let us know if any fixture or fitting left by the previous owner is found to be faulty. We have a list of recommended tradespeople available to assist you in such circumstances and we would be happy to refer the right person to you for any household repair. These tradespeople undertake work for us all the time and therefore we are confident of their professionalism and their workmanship. In addition you will find that their prices are very reasonable.
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Finally (And Most Importantly) Keep In Contact With Us At All Times
Remember our phone number . . .
And remember my mobile number . . .
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And remember that I am here to help you. Every month we assist more than 20 families through the stress of buying a property and we are more than happy to answer any question you might have. All you have to do is keep in touch.
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PLEASE NOTE : 1.
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Recipients of this report are reminded that, although due care has been taken in the preparation of the within contained material, prospective property buyers, sellers and investors are always best served by making their own independent inquiries before entering into any real estate transaction. This report has been prepared for the sole and exclusive use of Prudential Real Estate clients and customers. The whole of the contents and design are protected by copyright. COPYRIGHT Š Michael O'Sullivan 2001-2015