Negotiating a residential property contract need not be a daunting task. The key is to anticipate each phase of the private treaty transaction and the contingencies that may arise along the way.
Before beginning to negotiate price, the savvy buyer should calculate an upper price point, never to be exceeded, no matter how attractive the property. Some use a third party negotiator, such as a professional buyer’s agent, solicitor or friend to keep price discipline.
Mortgage pre-approval at that upper limit may do a great deal to strengthen a buyer’s negotiating position at the bargaining table. First-time home purchasers should also explore whether they are eligible for a First Home Owner Grant scheme (“FHOG scheme”).
The next prerequisite is market research. Sale prices of comparable properties in the same area for the previous three months are a good guide. Some buyers engage an expert in property valuation who has access to detailed sales and other data or purchase data from property research firms.
Suitably armed with firm discipline and market research, go house hunting, find a property and make an offer. Most asking prices have some latitude, but the offer should not be so low as to offend. If the seller rejects the offer but indicates a willingness to continue negotiations, buyers may still have negotiating room if the initial offer was below the limit. If not, it’s on to the next property.
When a seller accepts the offer, contracts are exchanged. The buyer’s attorney will review it carefully prior to signing. At signing, buyers typically pay a deposit of at least 10 percent of the purchase price. Deposits can be paid by way of cash, cheque, electronic transfer of funds or by using deposit bonds or bank guarantees.
Cooling- off period
Residential property buyers in NSW have a cooling-off period of five business days after contracts are exchanged. During this period, buyers may withdraw from the contract with written notice.
A buyer who withdraws during the cooling-off period may reclaim the deposit less 0.25 percent of the purchase price. In negotiation, some buyers choose to waive the cooling-off period. It may also be reduced or extended by written agreement with the seller.
Settlement usually takes place about 6 weeks after contracts are exchanged. At settlement legal ownership of the property changes and the remainder of the sale price is due. Most contracts are contingent on the satisfaction of certain conditions concerning pest inspections, financing, and a variety of property searches. The purchaser typically orders and reviews the pest and building inspection. In NSW, the property searches include a title search, zoning search, strata plan search and a historical search. The buyer’s solicitor will typically order and review the property searches during the period between the exchange of contracts and settlement. The buyer’s obligation is not fixed until the conditions specified in the contract are satisfied.
On the morning of settlement, buyers should conduct a final inspection of the property to ensure it is in the same condition as when contracts were exchanged.
Exiting the contract for legal reasons
After the cooling-off period it may still be possible to withdraw if the property contract conditions are not met. Alternatively, the contract may give the seller an opportunity to cure the defect. One of the most important reasons that buyers should work closely with a solicitor is to understand what the withdrawal rights are in the event that conditions fail. This is the area where disputes tend to arise and where the most technical comprehension of legal rights and responsibilities is required.
About the author: Rolf Howard, Owen Hodge Lawyers
Rolf is a managing partner of Owen Hodge Lawyers. He has been in the legal practice since 1986 and a partner of Owen Hodge Lawyers since 1992. Rolf focuses on assisting clients to proactively manage legal responsibilities and opportunities to achieve competitive advantage.