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How to Protect Yourself When Buying a Property (Finance Clause Explained!)
202 Plays2 months ago
Ready to make an offer on a property but not sure where to start? In this episode, we cover everything from finance clauses and pre-approvals to negotiating with real estate agents and protecting yourself legally. Whether you're bidding at auction or making a conditional offer, you'll learn the essential steps to avoid costly mistakes and secure your dream home with confidence.
Looking for more support on your journey to homeownership? Visit huntergalloway.com.au to get started.
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Transcript
Introduction to Home Buying in Australia
00:00:01
Speaker
Welcome to the Buying Your First Home Podcast, your personal guide through the Australian housing market. Here we tackle the big questions and the small details that come up when buying your first home. From financial prep to finding the right neighbourhood, we're here to ensure that you've got all the knowledge at your fingertips. So let's take the first step towards unlocking the door to your new home.
Is Pre-Approval Necessary for Offers?
00:00:26
Speaker
Learn what to do once you found a property you'd like to make an offer on, whether you're pre-approved or not. Can I make an offer without a pre-approval? If you've spoken to your mortgage broker and understand your eligibility, you don't necessarily need a pre-approval to make an offer on a property. This is because that in many states, you can include a finance cause a part of the standard contract terms and conditions. As an example, in Queensland, the standard contract is from the Real Estate Institute of Queensland and it includes a provision for the finance cause, which offers protection if it falls through. Similarly, in other states such as WA or Victoria, this is a common contract term. However, regardless of the location you're in, it's always best to consult your legal representative to confirm.
How Do Finance Clauses Protect Buyers?
00:01:12
Speaker
There's a misconception that a pre-approval is required to make an offer on a property. Real estate agents often push this narrative as it's their way of verifying if a buyer is qualified or not. But because having a finance clause protects your interest, it means you can exit the contract without any penalty if your homeland isn't approved. This is a main reason you can enter into a contract even if you're not pre-approved.
Understanding Lender Approval Timelines
00:01:35
Speaker
How quickly can my lender process an approval once I have made an offer? Let's say you found the perfect property and you're ready to make an offer. There are three scenarios that affect the timeline of your application's approval. Scenario one, you don't have pre-approval. In this case, your mortgage broker will help you apply for a formal approval. And in this case, the bank will treat your application once it's received as a priority, aiming to finalize their assessment
00:01:59
Speaker
and fast tracking it due to the deadline associated. Most banks can process formal approvals within three to 10 business days. This means a standard 14-day finance clause in your contract is sufficient. Scenario two, you've lodged your application for pre-approval, but the bank hasn't finalized it yet. Once you've got a contract to sell, your application will be fast tracked. And in this case, the bank will prioritize your application to formal approval, moving it out of the pre-approval queue. And by moving it into their formal approval queue, as explained previously, banks will process your application typically within three to 10 business days. Scenario three, you already have a pre-approval.
00:02:36
Speaker
This is the ideal scenario because the bank has already completed all of the hard work. The only step that's remaining is for the bank to complete a property evaluation. As long as there are no other conditions with your pre-approval to satisfy, the bank can formalize your application very quickly, usually within less than two or five working
Special Contract Conditions and Legal Review
00:02:55
Speaker
days.
00:02:55
Speaker
Special conditions. These are clauses in the Contractor Sale that go beyond the standard terms and conditions. The standard conditions cover things like deposit, settlement and finance date, but special conditions allow for customized terms to be added. If the contract you're about to sign includes a special condition, it's always best to have them reviewed by your legal representative. They'll ensure that the conditions are fair and reasonable and align with your interest.
00:03:19
Speaker
And on the flip side, you might want to ensure that certain fixtures or appliances like a built-in television are included in the sale proceeds. A special condition confirming this allows everyone to be on the same page at settlement, buildings insurance.
Building Insurance Obligations by State
00:03:33
Speaker
This is one of those clauses that can catch some people off guard as it operates completely different to what you might expect.
00:03:39
Speaker
In many states, as soon as you sign a contract, you become legally responsible for the property even though you don't own it. Well, if something were to happen to the property like a car crashing into it or a fire breaking out, you could be liable for the cost of repairs. This is the case even if your settlement hasn't occurred or your finance hasn't been approved yet. Because of this, building's insurance is a critical step to ensure you're protected. It's worth noting that if you're buying a property within a body corporate arrangement, such as a unit or a townhouse, that it's possible that the building's insurance is already covered through the body corporate arrangement. However, never assume this is the case and always question to clarify. The tricky part is that each state requires different timing. Here's a quick breakdown of each state. In New South Wales, insurance isn't required until the settlement date.
00:04:29
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Victoria, you'll need insurance as soon as a contract becomes unconditional. In Queensland, ACT, South Australia and Tasmania, insurance must be arranged from the first business day after both parties have signed the contract to sale. And in Western Australia, insurance is generally required at the point with which you take possession of the property or settlement whichever comes first. As always, it's a good idea to double check with your legal representative to ensure your obligations have been met.
Risks of Unconditional Offers
00:04:58
Speaker
Finance Clause is a condition in your contract that allows for a set period, usually around 14 days, to arrange a home loan approval. If your application is unsuccessful, then the finance clause lets you exit the contract without any any penalty. Unconditional offers. If you're planning to make an unconditional offer or you're planning to bid an auction, it's especially important to seek advice from your mortgage broker and legal representative. It's because you're unable to include a finance clause, and it means that once your offer is accepted, you're fully committed to the purchase and can't back out. A pre-approval is critical in this situation. Without it, you're exposing yourself to significant risk. If you don't get your home loan approved, you're still legally bound to the contract. So, missing settlement will lead to serious financial consequences.
00:05:45
Speaker
calling off clawuses This clause gives buyers a short period, typically between 2-5 days, to withdraw from the contract without needing to provide a reason. However, if you do decide to exercise this right, there is a financial penalty up to 0.25% of the purchase price.
00:06:01
Speaker
building and pest. This clause gives you a specific period, often seven days, to conduct a professional inspection of the property's structural integrity and to also check if there's any pest issues such as termites. What happens if my application is declined? Your application can be declined for various reasons, even if you are pre-approved. Banks always reserve the right to reassess your financial situation and can withdraw their pre-approval if new information arises. Declines can happen for reasons such as changes in your income,
00:06:31
Speaker
increased debt, valuation issues, or even a change in the bank's lending policies. If your application is declined, there are typically two options you can choose from. The first is to apply with a different lender. And this is where a mortgage broker can help assess alternative options and guide you through a new application. The second is to exit the contract using a finance clause. So if no lender is able to approve your home loan, you can exit the contract under the finance clause and you'll have no penalty.
00:07:00
Speaker
Remembering that if you are buying an auction or need to make an unconditional offer, this protection may not be available. So if you're considering offering a no-finance clause, it's essential to seek advice from your mortgage broker to understand the risks associated with your unique situation. They can help assess whether it's a suitable option given your financial position and the nature of the purchase.
Negotiation Tactics with Sellers
00:07:22
Speaker
and In the negotiation phase, before your offer is accepted, understanding the seller's priority is key. There are generally two factors that can help you with the negotiation, price and terms. As an example, if the seller is going through a divorce, they may value a quick settlement and terms are more important than, say, the highest offer. On the other hand, if the seller is financially stable and not necessarily in a rush,
00:07:47
Speaker
such as someone selling an investment property, they may prioritize the highest price over quicker terms, remembering that the seller isn't obligated to accept the highest offer, they have complete discretion over whose offer they accept.
00:08:00
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real estate agent. When making an offer on a property, it's important to remember that the real estate agent's role is to get the best possible price for the seller. As they're paid by the seller, their responsibility is to represent the seller's interest. Understanding this dynamic will help you understand their position and intentions during the negotiation process.
00:08:21
Speaker
When making an offer, consider adding an expiry date such as it valid until 5pm on a particular day. This presents the agent from holding your offer indefinitely or using it to push other home buyers to increase their offers. Agents may use multiple offer situations to drive up the price creating a sense of urgency and competition amongst buyers. Although there are strict rules and regulations that govern real estate agents, conduct and compliance varies and some agents might employ tactics that skirt on the boundary of what's deemed acceptable. Things to keep in mind when dealing with agents. One, do your own research. Understand the property's fair market and set a maximum limit you're comfortable with. Do this simply by looking at what's sold recently online.
00:09:09
Speaker
Two, stay calm and consistent. Real estate agents may try to create a sense of urgency. Remember to stick to the plan. Avoid having an emotional decision. Properties can be likened to waiting at a busy bus stop. If you miss one, there's always another one on its way. Three, request transparency. While agents don't have to disclose others' offers, ask heaps of questions to get as close to the truth as possible. Four, have clear conditions.
00:09:36
Speaker
Ensure your offer includes conditions such as finance and building in pest so that you're covered if any unforeseen issues may arise. It's always recommended to seek legal advice from your conveyancer or solicitor to review the contract before you sign.
Roles of Solicitors vs. Conveyancers
00:09:52
Speaker
Conveyancer or solicitor's role.
00:09:54
Speaker
When you're making an offer on a property, you'll need to appoint either a solicitor or conveyor. Both can assist in reviewing the contract and advise you on any specific terms and conditions, ensuring that your best interest is protected from a legal standpoint.
00:10:09
Speaker
The main difference between a solicitor and a conveyancer lies in their scope of expertise. A solicitor is a qualified legal professional with expertise ah across multiple areas of law, including property, family, and more. Because of their broader knowledge, solicitors can offer more comprehensive legal advice and are typically more costly than a conveyancer. Their expertise can be beneficial if your property transaction is complex or if you require legal advice outside property law.
00:10:38
Speaker
On the other hand, a conveyancer is limited to property law, exclusively focusing on the buying and selling process of real estate. This often makes them much more affordable.
Why Contact Hunter Galloway for Broker Services?
00:10:49
Speaker
And if you're looking for a great mortgage broker here at Hunter Galloway, we can help. We service Australia-wide and don't charge a fee for our service. So reach us online at huntergalloway.com.au or call us on 1300 088 065. Thanks for watching and until next time, I'll catch you then.