Make an Offer
First Home Buyers Guide from Austral Mortgage
Step 6: Make an offer
Auction vs Private Sale
If the home you like is going to be sold at auction, the first thing you need to do is to establish what price the property is likely to go for. Keep in mind that the sale price can vary dramatically from what is anticipated and the price it will eventually sell for. At auction other bidders could possibly inflate the price.
Local real estate agents can provide you with the most recent sale prices on similar properties prior to the auction in the area as a guide. Make sure you don’t have any doubts about the property and that you have done all the necessary inspections and research.
It's important to know that once you place your bid and it is accepted, you are obliged to purchase the property without any ‘cooling off’ period and you have to put down a 10% deposit on the day.
If you’re bying a property privately (either through a real estate agent or a private seller) you can simply make an offer. You are generally not required to pay any deposit until both parties have agreed upon the sale price and contracts have been exchanged.
However, before committing to the purchase of an existing property it is always wise to have a building inspector and a pest inspector complete a report on the property. The building inspector will point out any major faults and give some estimate of repair costs (which may cause you not to proceed or at least offer you some bargaining power in the negotiation process).
On the pest front – a hidden termite problem can cause havoc, so avoid the risk and get a pest report.
If you’ve already done all your research and inspections, then you can make what is called an unconditional offer. If the seller accepts your offering price, you are legally bound to go through with the purchase.
You will be legally bound to purchase the property if all the conditions are met. If not, you can withdraw the offer and back out from the sale. Conditions can include - subject to satisfactory valuation, building inspection, finance, title search, pest inspection or anything else you may think relevant and important. Both Unconditional & Conditional offers are subject to ‘cooling off’ periods, which may vary from state to state.
If the seller wants to negotiate the price, the real estate will act as a ‘middle man’.
Buying off the plan
If you’ve decided to buy an apartment ‘off the plan’, you may be required to pay your deposit even before the construction has begun. You commit after viewing the proposed plans and computer generated photographs rather than inspecting the property itself.
You can obtain a both short and long-term deposit bonds. Short-term bonds apply (where settlement is expected within 6 months) provided you have an approval in principle for your finance and meet other standard requirements.
You can also access long-term deposit bonds (for off the plan purchases up to 4 years out), again provided you meet guidelines. Currently there is a requirement that applicants for long term deposit bonds must hold at least 50% of the new property purchase price in existing equity in Australian residential property. The Austral team will be more than happy to assist in arranging a quote and the deposit bond for you.
The cost of the long term deposit bond will vary depending on the term:
Example (as at 7/7/08)
Off-the-plan purchase price: $865,000
Deposit Bond Amount (10%): $86,500
Sunset date (being latest date by which the developer expects to complete): 1/9/2011
Deposit Bond Fee: $9552.50 once only
Deposit bonds mean you can avoid having significant funds tied up pending the completion of the development and settlement of your purchase.
Alternatively you can always pay a cash deposit. As a general rule this will be held in an agreed account until settlement. Interest earned on the deposit account will be split 50:50 between yourself and the vendor/developer.
If you are purchasing a new property or off the plan ask the vendor to provide you with a Depreciation Schedule of Items to assist you or your accountant at tax time. Check out the ATO website for deductible expenses relating to your property investment.
Also engage a good solicitor to help you through the process of buying because it can be complicated, especially if you have not done it before. If you proceed with an off the plan purchase, make sure your solicitor checks the contract carefully to ensure that you have the right to inspect the property at least twice before settlement (take a qualified building inspector with you) and that you are aware of any conditions relating to the standard of fit-out, colour schemes or building materials too.