Purchasing a home will be the most expensive thing that the majority of people ever do, and is definitely an exciting time of anyone’s life. The process itself, however, can be stressful, confusing and overwhelming. A good solicitor will be able to guide you through each step and ensure everything goes smoothly. It’s important to have a general understanding of how things work and to know when to ask for help, which is why this post will give you an overview of the legal process of purchasing a residential property.
Prior to signing
Once you have decided you want to buy a property, the first step is to talk with your bank to confirm the amount you can borrow, and to get a written pre-approval of this figure. It is also a good idea to make sure that the amount you are going to pay for the property is within the right price-range for the area—you can do this buy simply browsing some real-estate webpages or alternatively speaking with local real-estate agents who will be able to give you some estimates.
Next, you need to contact your solicitor and request for them to look over the Contract. A sale for contract is a complex legal document, but your solicitor will be able help explain some of the ‘legalese’ terms and conditions, such as easements and covenants, so that you are able to understand what exactly you are agreeing to. If there is anything in the contract you don’t like, your solicitor will be able to assist in making the required changes.
Exchanging contracts and paying a deposit
A sale is neither complete nor legally binding until the exchange has taken place and the deposit has been paid. The exchange of contracts is the legal conclusion of the purchase. Prior to exchange, both you and the vendor have the right to change your minds. It is called an exchange because there are two copies of the sale contract—one for you and one for the vendor. Each party will sign and swap the copies (in hand or by post and is usually arranged by the solicitor).
At the same time of the exchange, you will have to pay a deposit. Usually, the vendor will request a deposit of 10 per cent of the purchase price, however, sometimes the parties may agree to a different figure.
During the five days following the exchange of contracts for a residential property in NSW, you are free to rescind the contract with only token penalty—0.25% of the purchase price. This is called the ‘cooling-off’ period. The cooling-off period commences immediately after the contracts have been exchanged and ends at 5pm on the fifth business day after exchange. It is important to note that no cooling-off period applies for properties bought at auction.
If a property is attracting a lot of attention from buyers and you are worried that you may miss out on it, it can be a good tactical move to organise a quick contract exchange and to then carry out building and pest instructions during the cooling-off period. This way, you haven’t let the opportunity of the property ‘get-away’ but you also still have the chance to back out if any issues come to light in the inspection process.
It is possible to modify the cooling-off period, by either reducing it, extending it, or waiving it entirely. Your solicitor will be able to assist with any of these modifications as required. An example of why you may wish to modify the cooling-off period is if you already have completed all the other steps (i.e., if your solicitor has already examined the appropriate certificates, a pest and building inspection has been carried out, and the finance has been approved), then offering to waive the cooling-off period may act as an incentive for the vendor to accept your offer.
The final stage of purchase is settlement, which will generally take place around 6 weeks following the exchange of contract. On the day of settlement, your solicitor will meet with the vendor’s legal representative and representatives from each of the banks. The necessary cheques will be exchanged and documents for title in the property will be transferred to your name in order to give you legal ownership.
On the morning before settlement, either yourself or your solicitor should conduct a final inspection of the property to ensure that everything is in the same condition as when the contracts were exchanged—this is to avoid any unpleasant surprises after you’ve picked up the keys!
Sometimes, things may not go exactly as planned and it may become necessary to delay settlement to a different day due to a minor mistake by one of the parties. This can cause inconvenience, particularly if you had planned to immediately move in to the property following settlement. It’s a good idea to maintain contact with your solicitor through the period leading up to settlement to ensure everything is on track to go off without a hitch.
Following settlement, it’s time to breath again and celebrate—you’re the legal owner of the property!
Harris Gomez Group is an international Law firm, with offices in Santiago, Bogotá, and Sydney. Our Sydney office specializes in property, commercial and corporate law. We find that our real estate clients appreciate the quick turn arounds on contracts, often same day, helping them look good in front of clients while ensuring the deal gets done.
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