Shoalhaven Heads / Nowra Conveyancing

FAQs

Buying Property in New South Wales

Once you have made an offer to purchase that has been accepted in principle by the Vendor, it is important that you obtain legal advice as soon as possible. Your solicitor will review the contract and point out areas of risk and advise you on what you can do to mitigate the risks.

Q: When my offer is accepted verbally only, should I pay a holding deposit to the agent?
A: You can, but understand it is merely a gesture of goodwill and therefore the contract cannot be enforced against the Vendor where only a holding deposit has been paid. 

Q: What is the usual time frame between the acceptance of an offer and contracts exchanging?
A: Typically 1-2 weeks, however, it can be shorter or longer. It really depends and your solicitor can give you advice about your particular purchase. 

Q: What is the usual time frame between the exchange of contracts and settlement?

The standard period for residential property in NSW is 42 days (6 weeks). Sometimes it can be less e.g. 35 days and sometimes it can be more. It depends on what has been agreed upon by the parties to the contract. Remember that stamp duty must usually be paid usually within 3 months of exchange, so even if you haven’t settled and the settlement period is longer than 3 months, you may have to pay the stamp duty a long time before you actually get ownership of the property.

With off-the-plan properties, purchasers should be aware that the time frame between exchange of contracts (and paying a deposit) and settlement is usually many months and it is quite common for the time frame to be extended further after contracts have been exchanged. Purchasers should have a Plan B in mind about where they will live in case the settlement takes a lot longer than initially anticipated.

Another issue is that even while stamp duty is deferred for 12 months in off-plan purchases, if the settlement takes longer than that to be completed, the stamp duty may become due prior to settlement.

The potential for things to go wrong is heightened in off-the-plan purchase contracts. For example, once the property is built, it might not quite be what you expected. You are bound to a contract for months and if your financial circumstances change in that time, it can be a problem. Furthermore, in a falling market, the value of the property may be less than what you agreed to pay for it but you will still be bound to pay the price you agreed to. While it may be cheaper to buy off the plan, the reason it is cheaper than buying an established property is that the buyer of off-plan property takes on much more risk than is usual for the purchase of an existing property.

Q: What does it mean to have a cooling-off period?
A: This is a protection period offered to the purchaser under law. It means even after the exchange of contracts, the Purchaser has a few days (in NSW, it is 5 business days) in order to change his or her mind without forfeiting the full deposit paid. This assumes of course, that you have not waived your cooling-off rights when contracts are exchanged. If you waive your cooling-off rights then your solicitor will make sure you understand what you are agreeing to.
​
Q: Can I pay a 5% deposit instead of a 10% deposit?
A: Yes, but only with the prior consent of the vendor.  Note that if you exchange contracts and then pull out of the contract, you are still liable to the Vendor for the full 10% purchase deposit. This means a Vendor can pursue you for the balance of the deposit by means of court proceedings if you fail to pay the balance after canceling the contract.

Q: What can I do if I do not have a 10% cash deposit?
A: You can ask the Vendor to accept either a lesser deposit (usually 5%) or secure the deposit by way of a so-called Deposit Bond. Note the vendor is not obliged to accept your request. Deposit Bond providers will charge a fee for issuing a deposit bond, but you can request a quote upfront.

In the case of purchasers who have no equity in other property or not enough savings to cover 20% of the purchase price, mortgagees will insist on purchasers taking out Mortgage Insurance. This can add thousands of dollars to the amount you need to borrow on your mortgage and may take several years to pay off.

The Government has introduced limited schemes to assist purchasers by guaranteeing their loans, however, eligibility criteria are strict, and only a limited number of individuals can apply. You are best off speaking to your broker or lender as to what is available to you before committing to a property purchase.

Q: Who do I pay the deposit to when buying a property?
A. Usually the estate agent, or where the sale is not through an estate agent, then to the trust account of the vendor's solicitor. The money is just held by the agent in escrow. The agent is not allowed to touch it except in certain circumstances and where you have consented to this.

Before making an offer

Even before you begin looking for your perfect property, it is really important that you speak to your broker, bank, or other lenders first. Not only are brokers and financial institutions aware of what concessions or grants you may be eligible for, but they can give you an idea of how much you would probably qualify to lend (i.e. provide pre-approval) and whether you would be eligible to borrow in the first place. Unfortunately, purchasers can waste time and money by making an offer and then only checking with their lenders as to whether they qualify for a mortgage and for how much.

In addition, if you have an area in mind in which you would like to buy, it is worth contacting real estate agents in the area to see if any properties have not been listed publicly but will be coming onto the market soon. This can give you an edge over other people competing in the same area for property.

Finally, if you are not an Australian citizen or Australian permanent resident, or a citizen of New Zealand (there are some other limited excepted visa classes) you do need to check with and apply to the Foreign Investment Review Board (FIRB) before making an offer. The approval process can take up to 28 days. You would also want to check on your tax liability in these instances. Foreign purchasers can be taxed extremely heavily on the purchase of Australian property and would want certainty about how much tax/ duty they would need to pay in advance of making an offer to purchase.

Making an offer to buy

If there is an estate agent marketing the property for the vendor, then generally negotiations about the price and state of the property would be managed by the estate agent. The estate agent also holds the purchase deposit after the exchange.

Estate agents are obliged to take all reasonable offers to the vendor.

Once an offer is agreed to (verbally) by the vendor, the purchaser’s solicitor or conveyancer receives a Sales Advice from the agent and arranges the exchange of contracts with the vendor’s conveyancer or solicitor.

Negotiation of the contract and due diligence​

If there is any time purchasers should be negotiating the terms of the contract, it is before the exchange of contracts takes place. This is where legal expertise is really useful. After the exchange of contracts, there is often far less room for Purchasers to negotiate terms with the Vendor. Your solicitor will attend to any negotiations for you and offer you advice about what it is you want to negotiate and how to best negotiate the terms of the contract prior to exchange.

Once you have received legal advice, negotiated the terms of the contract (other than the purchase price and state of the property which is what the estate agent manages) and done any necessary or recommended checks on the property, and if you still wish to purchase the property, you will then sign the contract and pay the purchase deposit to the agent or Vendor's solicitor to be held in trust. Soon after that, the Purchaser's signed contract is exchanged for the Vendor's signed contract and the agreement to buy becomes legally binding. This means that if you at any point after the exchange the purchaser changes their mind about buying the property, or for any reason are not able to proceed with the purchase, purchasers will forfeit 10% of the purchase price (regardless of what you actually paid as a deposit). This is why it is so very important to be very sure about the condition of the property you are purchasing and any encumbrances that might affect it - for example, easements, covenants, caveats on the title, and so on.

Many buyers will take advantage of a cooling-off period between the time of exchanging contracts and the contracts becoming binding. This is an automatic process that applies to most residential property purchases except where the purchaser has agreed to waive their cooling-off rights, which also happens frequently. To waive their cooling-off rights, purchasers of residential property must, at the exchange, or during the cooling-off period, have their solicitor sign an S66W certificate and give it to the vendor’s solicitor.

The Settlement, Stamp Duty, and Mortgages

Once contracts exchange, the settlement will generally occur 4-6 weeks later, but the wait can be shorter or longer depending on what is agreed by the contracting parties prior to the exchange of contracts. (see also discussion of off-plan purchases - above)

​In that time, your solicitor will attend to getting everything ready for settlement. Certain matters must be attended to in all property purchases in NSW prior to settlement:

1. Requisitions on title
Your solicitor will attend to putting requisitions on title to the Vendor. Essentially it is a process of  Purchaser asking the Vendor certain questions about the property sold, and being satisfied with the answers provided. The vendor then answers the purchaser's questions.

2. Preparation of the Transfer and other documents
Your solicitor will draw up the documents needed to be handed over on settlement and which are lodged and registered with the NSW Land Registry Services after settlement.

3. Payment of stamp duty (not first home buyers)
All first home buyers of any dwelling and land worth $650,000.00 or less or land only worth between $350,000.00 and $450,000.00, are exempt from paying stamp duty. Concessions apply in the range of $650,000 to $800,000. All other purchasers must pay stamp duty.

Q: What is Stamp Duty and how is it calculated?
A: It is a state tax and is calculated according to the market price of the property. It is important to note that where parties to a purchase and sale are related in some way, and/or the price on the contract does not reflect a true market value, the purchaser must still pay stamp duty based on a value determined by an independent valuer, not on the actual price paid. You can find online calculators for determining the duty payable or your solicitor or banker or broker can assist here.

4. Coordinating the settlement with your mortgagee
The purchaser's solicitor will find out exactly what mortgage sum will be available at settlement to purchase the property once bank fees and charges have been deducted from the amount lent to you for the purchase of the property. First-home buyers who are also successful applicants under the First Home Loan Deposit Scheme can purchase a property with a 5% deposit and not pay mortgage insurance. For others purchasing a property, a deposit of 20% of the purchase price is required to avoid paying mortgage insurance. The Vendor's solicitor will check exactly what amount is left owing by the vendor to the mortgagee and ensure that that remaining amount is paid (discharged) at settlement.

5. Determining what the final purchase price will be.
The final purchase price is calculated by adjusting rates, water rates, levies, water consumption, rent, Land Registry Fees, and other amounts to take into account what proportion of these costs is payable by the Vendor, and what proportion is payable by the Purchaser based on the time each party is in occupation of the property over the relevant billing or charge period.

6. Arranging the details of the settlement
Your solicitor will calculate the adjusted purchase price. The purchaser's solicitor will arrange for the necessary payments from your mortgage advance and/or your savings funds to be paid to the vendor at settlement. The vendor's solicitor makes sure that the vendor's mortgagee and the estate agent are paid from the proceeds of the sale. Other costs payable by the vendor including legal fees, adjusted rates, water rates, etc., are also paid from the proceeds of the sale by the vendor's solicitor and the remaining balance is then paid to the vendor directly.

HANDY TIP:  Ideally, you will take out a mortgage with the same bank you have your savings account and have the savings or offset account linked to the mortgage account to allow hassle-free flow of purchase funds to the Vendor at settlement. You must make sure any part of the purchase price that is to be paid in cash (from savings) is available at settlement. It means you have to ensure your bank has very specific, written instructions to release and pay over this cash sum at settlement. Failure to ensure this is done could lead to a delayed settlement, which could cause great inconvenience and financial losses both to you and the Vendor and even others relying on the sale proceeding on time.

The date, time, and location of the settlement need to be negotiated and finalised. Furthermore, the Vendor will require the purchase price to be paid as directed in the Vendor's cheque directions. Your solicitor will attend to arranging all these things.

Registration of the title and electronic settlement

Your lawyer will ensure your ownership is registered on the title of the property - in other words, you become the registered owner. Registration of ownership protects your title and is perhaps the most important part of the conveyancing process.

Most settlements will take place online through an Electronic Lodgement Network Operator (ELNO) of which the most well-known and often used in NSW is PEXA. It means that by the settlement date, all parties to the property purchase will have done everything they need to do to transfer the title in the property from the vendor to the purchaser. All the data needed to proceed with the transaction is recorded in the ELNO. The funds for the transfer are verified, released from the purchaser's mortgage and/or savings account, and paid to the vendor (or their mortgage account) and other payees at the settlement time including NSW Revenue. Immediately after that, the title is registered in the purchaser's name by the ELNO lodging documents at Land Registry Services. At registration, the purchaser becomes the owner of the property. Simultaneously, the vendor's name is removed from the title.