Investing in property can be a daunting task, fraught with risk. Following the approach below will put you on the path to purchasing an asset, not a liability.
LOOKING TO BUY A PROPERTY, BUT DON’T KNOW WHERE TO START?
This step-by-step guide will help you determine your budget, find the right property, and provide confidence to negotiate, all while minimising your risk.
1. Check Your Financial Baseline
Before you start looking at properties, you need to ascertain:
- How much of a deposit do you have?
- What is your lending capability?
- How much will you be able to borrow and therefore…
- What’s the maximum you can pay for a property?
- How much can you afford to service the loan?
Start talking to your lender or mortgage broker and get the ball rolling.
Many people order an independent property valuation on their existing properties at this time (or their parents’ property if their parents are assisting with finance) to enable them to gauge what their current properties are worth and what equity may be available. The equity in a property is the money available if the property was to be sold and the amount outstanding was repaid to the bank. This information can then be provided to the lender/or mortgage broker.
Getting this wrong at the beginning can lead to a myriad of issues down the track. If the equity in your existing property turns out to be less than originally thought, you may be required to borrow a higher amount (often meaning thousands of dollars in lender’s mortgage insurance) or you may not be able to borrow at all.
3. Plan Your Purchase
What is the purpose of this purchase? The family home or an investment property? If it’s an investment, do you plan to:
- Buy, renovate and sell
- Buy, renovate and rent out
- Buy and hold
Does your portfolio require a cash flow positive property (where the income received from the property is more than the cost to hold) or a negatively geared property (where the cost to hold is more than the income the property is producing) with the potential of greater capital growth?
House or unit? Maintenance vs body corporate fees? You decide what best suits your needs. You will cut down on your search time if you know exactly what you are looking for.
This step stops a lot of people who just can’t decide at the outset what they plan to do. Talk to your partner. What do you want to gain? What experience do you have to achieve these aims? What professional help do you need to sort out a plan? A financial advisor can be a good place to start.
5. Are You Eligible For Government Grants?
Each state is different but it pays to research this topic well to ensure you are getting every cent and not missing out on any opportunities.
7. Get Pre-approval For Your Loan
So, you know how much you can borrow (from earlier in the checklist); now it’s time to get pre-approval for the loan. This is important so you have greater bargaining power when you find the perfect property. Often a vendor will be more willing to accept an offer when there are fewer delays.
But don’t take this step too soon. Often, to pre-approve a loan, the bank will need to do a valuation on any existing properties which will be lent against, to ascertain the equity available in these properties. A valuation is only valid for three months from the date the property is inspected (when you apply for the loan). If you do not find the new property you wish to purchase within the following three months, then the existing properties you own (if being lent against) may need to be valued again.
You need to have all finance approved prior to the expiration of the valuation on any existing properties. However, keep in mind, lending policy differs between banks. Some may rely on a valuation even after the three-month expiration date. Ask them at the outset.
8. Find Your Suburb
It’s important to hone in on one or two (maximum 3) suburbs.
- Target the best area you can afford
- Avoid suburbs with a prison or too close to the airport
- Find the last suburb to boom and look at suburbs nearby. As buyers get priced out of the more expensive suburbs they will move to cheaper adjoining suburbs
10. Attend Inspections And Auctions
Attending inspections and auctions can be an effective way to gauge market conditions to better estimate the value of a property.
Follow up with agents to determine the sale price. This is difficult though, as agents cannot reveal the sale price until after the sale has gone unconditional, which can be months. If you don’t have months to spare, this is where engaging an independent property valuer can help. A valuer can quickly ascertain the price of a property you are keen to purchase. They are already familiar with the area and are entering five or six properties each day.
Also, conduct inspections at different times of the day – this is helpful to check traffic and noise, neighbour’s habits and exposure to the sun.
12. Do You Need A Buyer’s Agent?
There are buyer’s agents who can step you through this part of the process. A buyer’s agents’ services can vary and can provide as many or as few services as required. A buyer’s agent will ascertain your preferred property and location and will set about to find the property. They can then negotiate on your behalf to purchase the property and can assist with the preparation of documents. Their commissions will eat into your investment, but for the time poor, it can be worth the cost.
14. Check For Possible Resumption
Call the local council and Department of Main Roads regarding infrastructure plans.
16. Check For High Density Community Housing
Check for high density community housing in the immediate area. Community housing often comes in similar building materials with similar paint colours and designs which can be easily distinguished by a valuer familiar with these properties.
18. Check For Legal Building Heights Of All Rooms
We’ve had clients come to us who had previously purchased a three bedroom, two bathroom house only to find out later that the bedroom and bathroom on the lower floor are not to legal height. They haven’t been able to legally do the renovations they had planned. And worse still, when they went to sell they were advised that they had to advertise the property as two bedroom, one bathroom as the downstairs rooms were not legal height.
20. Check For Asbestos
It’s important to know other terms that also refer to asbestos i.e. CAC (corrugated asbestos cement), Super Six roofing and ACM (asbestos containing material).
22. Conduct A Thorough Inspection Yourself
Most buyers simply walk around a property twice before deciding on the purchase. You can save on the cost of a Building and Pest inspection if you can eliminate purchasing the property from the results of your own inspection before spending money on other inspections, valuations and conveyancing.
- Look for cracks in walls and brickwork
- Look for signs of water damage – are their water stains or corrosion to the walls backing onto the showers or baths? Is there mold in cupboards, on walls or on the ceiling – mold can be a serious issue and difficult to get rid of
- Turn the taps on and off – how long does it take for hot water to start?
- Does water drain freely down the sinks and bath – or are there blockages
- Flush the toilet and look behind the seat for leaks at the waste pipes or cistern
- Look at the roofing and gutters
- Ensure that all electrical switches work – can you see the wiring, how old?
- Check the condition of the fuse box
- Are the ceilings sagging?
- Ensure all windows and doors open and close freely
All of these things are easy to check yourself, but so often overlooked. If all looks good, then bring in the professionals.
25. Negotiate The Best Price
Don’t allow emotion to cloud your judgement when trying to get the best deal, which may mean walking away in order to avoid overpaying. Remember, this is a business deal. Here are some pointers to assist:
- Don’t be afraid to ask for what you want, even if you think the vendor won’t consider it. You never know what they may accept
- Have a limit and stick to it
- Find out as much about the vendor as possible. This may give you more negotiating power
- Try to have all information verified by a third-party
- Ask the agent what the vendor needs – the vendor may be prepared to lower the price in return for a sooner or protracted settlement date, depending on their specific requirements
- Have finance pre-approved. This may be a bargaining chip if the seller (vendor) does not have to wait quite so long
- Put the vendor under pressure to make a decision by adding an expiry date to your offer
- Ensure your offer is subject to building and pest, valuation and finance clauses. This takes the property off the market while you conduct further research
The key to negotiating is having confidence and the right information. If your terms are not accepted then maybe it’s best to walk away from the deal.
26. Arrange For Conveyancing With Your Solicitor
It’s essential to choose a solicitor specialising in property law and conveyancing. There are many traps when signing a contract, which can be very costly.
27. Clauses For The Contract Of Sale
If you haven’t prearranged a building and pest inspection, or had a valuation completed, then ensure your contract has “subject to valuation” and “subject to Building and Pest” clauses as instructed by your solicitor. If the contract price doesn’t meet the valuation figure then the contract can be terminated without penalty.
29. Beware The Cooling Off Period
Most people don’t realise that termination penalties apply even during the cooling-off period. The vendor can charge 0.25% of the purchase price if the contract of sale is cancelled by the purchaser.
31. Arrange The Relevant Insurances
It’s important to protect your new asset. Many people don’t realise they are responsible for insurance from the time they sign the contract (or shortly thereafter). If the property is being rented out then the tenants are responsible for their own contents insurance. If this is your home, then you will need both building and contents insurance. Other considerations:
- Public liability insurance
- Check your policy covers “uninvited guests”, to avoid being held liable for injuries suffered by an intruder
- If the property is a rental consider purchasing Landlord’s insurance to cover you for vacancy and damage from a tenant
- Check the property can be insured. Some properties in flood affected areas or bush fire zones simply can’t be insured at all
2. Be Aware Of All Costs Before You Start
There’s more involved than simply the purchase price. Can you afford to buy a property? Here are some of the associated costs:
- Finance application fees
- Stamp duty
- Legal and conveyancing fees
- Title searches and rate certificates
- Body corporate searches
- Building and pest inspection
- Valuation fees
- Loan origination fees
- Mortgage insurance premium
- Fees if using a bank guarantee
- Electricity bonds etc
- Moving fees… just to list a few
As a rough estimate, allow around $10,000 for these fees, not including stamp duty. Stamp duty has not been included as this figure varies depending on the value of the property and the type of transaction. Do a quick online search for Stamp Duty in your state.
4. Ascertain The Best Purchase Structure (Individual, Company Or Trust) For Asset Protection & Tax Minimisation Before Beginning The Purchase Process:
This is where professional help is essential and not an area to skimp on costs and advice. Making the wrong decision at this step will cost you thousands of dollars down the track.
Will you purchase in your name, your partner’s name or both? Company structure or trust? Ask your advisor about a Discretionary Trust. This is often the preferred option for asset protection, but you still need to take into consideration if the property will be cash flow positive or negative as this will have an effect.
If purchasing in a company or trust structure you must get expert advice to suit your personal situation. If there’s the possibility you could become the subject of legal action (because of your profession etc.) then asset protection may be more important to you than the benefits of other options. For asset protection, it’s advisable not to purchase in your own name. However, you may choose to purchase the family home in your name to ensure you get the best outcome with Capital Gains Tax if you decide to sell the home down the track. Advice specific to your situation is essential when it comes to this topic.
6. Your Team Of Experts
When buying property having the right team of qualified and experienced professionals is essential, and may include:
- A financial planner
- An accountant
- A mortgage broker/financier
- Buyer’s agent
- A building and pest inspector
- A property valuer, and
- A solicitor for conveyancing
Following the purchase, you may also require:
- A quantity surveyor to prepare a Tax Depreciation Schedule
- An insurance broker, and
- Property manager
Engage your team in the right order – In general, you will require these specialists in the order as you see above. Be sure to order your building and pest inspection prior to arranging a property valuation. Often a valuation will not be required if a poor building and pest report is returned. Save yourself the additional fee. It’s also a good idea to provide a copy of the building and pest report to the valuer so he can take this into consideration
When choosing your advisors:
- Ask for referrals from family and friends
- Ask for referrals from other specialists in related industries
- Research your advisor, requesting qualification details
- Check their credentials with the relevant industry body
- Ask for examples of clients in your position they have
assisted - Ask for recent testimonials
9. Become An Expert In These Suburbs
You need to know everything about your chosen area:
- Flood prone areas
- Proposed infrastructure – is your chosen property highlighted for resumption?
- What are the most sought after areas in the suburb?
- Know the best streets (and the worst)
- Look at the zoning – is the area in a Demolition Control Precinct or zoned for medium/high density residential development?
- If it is an investment property ask local property managers what areas are most sought-after, and determine those with the lowest vacancy rates?
11. Find The Right Property
This is the challenging part and the next step of the process where most people get stuck and the process often ends. Some people spend so long looking for the perfect property, end up getting burnt out and never buy anything at all.
Register to receive alerts with www.realestate.com.au and www. domain.com.au. When a property matching your requirements comes on the market, you’ll be the first to know.
Also, connect with real estate agents in the area in which you are looking and keep in touch. Agents are keen to help prospective purchasers and will help where they can.
13. Check For Flooding
This is an essential search that you can’t afford to miss. The Brisbane City Council has a comprehensive flood search feature on their website as do most local councils.
15. Check For Development Applications Nearby
Check for development applications nearby which could affect your property e.g. your view being built out by a large apartment block next door. If so, it’s particularly important to check the zoning and see what plans the owners next door may have. Call the local council and ask what developments have been approved in the suburb in the last two years.
17. What Are The ‘buyer Objections’?
What features would stop someone from buying the property? Examples of this would be: located on a busy road; too close to commercial activity or next door to block of units. Steer clear of these properties.
19. Check That Any Renovations Are Council Approved
Ask for a copy of the approval from the selling agent. If they can’t provide this make an enquiry with the local council.
21. Check The Property Boundaries
Check that the actual boundaries of the property correspond with the title. Is the neighbour’s fence on your land? It’s important that this is sorted prior to purchase. Check the repair of the fences on all boundaries. Fixing fences can come at a considerable cost.
23. Order A Building And Pest Inspection
Always ensure the contract of sale is subject to a Building and Pest inspection no matter how new the property is. This is non-negotiable. Even brand new properties have failed the building inspection. Consider engaging an electrician for an electrical inspection too.
24. Ascertain The Property’s Value
Ignore listed prices. The asking price is a poor indication of worth. Of course vendors are going to aim high and agents will talk up the value of the property. This is their job. Looking at the listed price of other properties in the area is not an indication of real value, but looking at the confirmed sale price is.
To ascertain the property’s value:
- Attend auctions and open house inspections for three months before purchase to get a good indication of what similar properties are selling for. Also, purchase reports of properties that have sold in the suburb in the previous six months from the numerous property data websites OR
- Order a valuation: Why order an independent property valuation prior to making an offer?
- The valuation report and your discussion with the valuer will provide you with the confidence to make an offer (or not)
- The valuation will act as a powerful negotiating tool. The agent will know you’ve ordered a valuation
- Don’t give away the valuation figure. Go in with a fair price and negotiate as you need to. You paid for the valuation, don’t give it away
- As a last resort you may decide to present the valuation report to support your offer if need be
Don’t rely on the bank to conduct a valuation for you. Leaving your property purchase due diligence to the bank and relying on them to conduct a valuation is a risk you should avoid. It is prudent prospective purchasers engage their own independent valuer working for their best interest, prior to signing a contract of sale. Do not rely on the bank who may or may not order a valuation on the property. If relying on the bank to order a valuation on your behalf, there are four issues to consider:
- It is general practise in the industry that the banks will not provide a copy of the report to the client and in some cases will not advise the client of the valuation figure
- Often the bank does not order a valuation e.g. if the client has a solid deposit and therefore a low LVR (loan to value ratio). The bank may not consider a valuation necessary as the loan is low risk
- Some banks have a policy of simply accepting the contract price if it is under a certain value e.g. $500,000 and will not order a valuation
- The bank may order a ‘drive by/kerbside’ valuation, where the valuer will view the property from the kerb and provide the bank with a range of values
- The bank may simply conduct a ‘desktop’ valuation where the valuer does not visit the property at all and conductsnonline research. This provides the bank with a rough estimate of the value of the property, enough to ensure the sale of the property would cover the loan
28. Read The Fine Print
Take particular note of developer’s special offers like rental guarantees and rebates. A contract may advise of a two year rental guarantee, but the fine print may stipulate that the property must be vacant for three months before the guarantee will kick in. Also check which entity is responsible for the two year rental guarantee. Often it is not the developer.
Also note, valuers are required to subtract the value of rental guarantees, rebates and furniture packages from contract amounts when valuing for the banks. This means you may need to come up with an extra deposit to cover the cost.
30. Meet All Deadlines
Be sure to adhere to all deadlines. When completing the contract give yourself plenty of time to:
- Arrange the Building & Pest inspection – minimum of 7 days
- Arrange an independent valuation – minimum of 7 days
- Arrange finance – minimum of 21 days
Vendors may allow extensions, but if there are other buyers waiting in the wings, you may lose out.
32. Manage Your New Asset Well
- For the best results engage a reputable property manager. Don’t be frugal with repairs. This makes their job difficult, which won’t do you any favours
- Don’t skimp on insurances
- Undertake a personal inspection of each of your rental properties annually, compiling a maintenance plan to keep your asset in good condition
1. Check Your Financial Baseline
Before you start looking at properties, you need to ascertain:
- How much of a deposit do you have?
- What is your lending capability?
- How much will you be able to borrow and therefore…
- What’s the maximum you can pay for a property?
- How much can you afford to service the loan?
Start talking to your lender or mortgage broker and get the ball rolling.
Many people order an independent property valuation on their existing properties at this time (or their parents’ property if their parents are assisting with finance) to enable them to gauge what their current properties are worth and what equity may be available. The equity in a property is the money available if the property was to be sold and the amount outstanding was repaid to the bank. This information can then be provided to the lender/or mortgage broker.
Getting this wrong at the beginning can lead to a myriad of issues down the track. If the equity in your existing property turns out to be less than originally thought, you may be required to borrow a higher amount (often meaning thousands of dollars in lender’s mortgage insurance) or you may not be able to borrow at all.
2. Be Aware Of All Costs Before You Start
There’s more involved than simply the purchase price. Can you afford to buy a property? Here are some of the associated costs:
- Finance application fees
- Stamp duty
- Legal and conveyancing fees
- Title searches and rate certificates
- Body corporate searches
- Building and pest inspection
- Valuation fees
- Loan origination fees
- Mortgage insurance premium
- Fees if using a bank guarantee
- Electricity bonds etc
- Moving fees… just to list a few
As a rough estimate, allow around $10,000 for these fees, not including stamp duty. Stamp duty has not been included as this figure varies depending on the value of the property and the type of transaction. Do a quick online search for Stamp Duty in your state.
3. Plan Your Purchase
What is the purpose of this purchase? The family home or an investment property? If it’s an investment, do you plan to:
- Buy, renovate and sell
- Buy, renovate and rent out
- Buy and hold
Does your portfolio require a cash flow positive property (where the income received from the property is more than the cost to hold) or a negatively geared property (where the cost to hold is more than the income the property is producing) with the potential of greater capital growth?
House or unit? Maintenance vs body corporate fees? You decide what best suits your needs. You will cut down on your search time if you know exactly what you are looking for.
This step stops a lot of people who just can’t decide at the outset what they plan to do. Talk to your partner. What do you want to gain? What experience do you have to achieve these aims? What professional help do you need to sort out a plan? A financial advisor can be a good place to start.
4. Ascertain The Best Purchase Structure (Individual, Company Or Trust) For Asset Protection & Tax Minimisation Before Beginning The Purchase Process:
This is where professional help is essential and not an area to skimp on costs and advice. Making the wrong decision at this step will cost you thousands of dollars down the track.
Will you purchase in your name, your partner’s name or both? Company structure or trust? Ask your advisor about a Discretionary Trust. This is often the preferred option for asset protection, but you still need to take into consideration if the property will be cash flow positive or negative as this will have an effect.
If purchasing in a company or trust structure you must get expert advice to suit your personal situation. If there’s the possibility you could become the subject of legal action (because of your profession etc.) then asset protection may be more important to you than the benefits of other options. For asset protection, it’s advisable not to purchase in your own name. However, you may choose to purchase the family home in your name to ensure you get the best outcome with Capital Gains Tax if you decide to sell the home down the track. Advice specific to your situation is essential when it comes to this topic.
5. Are You Eligible For Government Grants?
Each state is different but it pays to research this topic well to ensure you are getting every cent and not missing out on any opportunities.
6. Your Team Of Experts
When buying property having the right team of qualified and experienced professionals is essential, and may include:
- A financial planner
- An accountant
- A mortgage broker/financier
- Buyer’s agent
- A building and pest inspector
- A property valuer, and
- A solicitor for conveyancing
Following the purchase, you may also require:
- A quantity surveyor to prepare a Tax Depreciation Schedule
- An insurance broker, and
- Property manager
Engage your team in the right order – In general, you will require these specialists in the order as you see above. Be sure to order your building and pest inspection prior to arranging a property valuation. Often a valuation will not be required if a poor building and pest report is returned. Save yourself the additional fee. It’s also a good idea to provide a copy of the building and pest report to the valuer so he can take this into consideration
When choosing your advisors:
- Ask for referrals from family and friends
- Ask for referrals from other specialists in related industries
- Research your advisor, requesting qualification details
- Check their credentials with the relevant industry body
- Ask for examples of clients in your position they have
assisted - Ask for recent testimonials
7. Get Pre-approval For Your Loan
So, you know how much you can borrow (from earlier in the checklist); now it’s time to get pre-approval for the loan. This is important so you have greater bargaining power when you find the perfect property. Often a vendor will be more willing to accept an offer when there are fewer delays.
But don’t take this step too soon. Often, to pre-approve a loan, the bank will need to do a valuation on any existing properties which will be lent against, to ascertain the equity available in these properties. A valuation is only valid for three months from the date the property is inspected (when you apply for the loan). If you do not find the new property you wish to purchase within the following three months, then the existing properties you own (if being lent against) may need to be valued again.
You need to have all finance approved prior to the expiration of the valuation on any existing properties. However, keep in mind, lending policy differs between banks. Some may rely on a valuation even after the three-month expiration date. Ask them at the outset.
8. Find Your Suburb
It’s important to hone in on one or two (maximum 3) suburbs.
- Target the best area you can afford
- Avoid suburbs with a prison or too close to the airport
- Find the last suburb to boom and look at suburbs nearby. As buyers get priced out of the more expensive suburbs they will move to cheaper adjoining suburbs
9. Become An Expert In These Suburbs
You need to know everything about your chosen area:
- Flood prone areas
- Proposed infrastructure – is your chosen property highlighted for resumption?
- What are the most sought after areas in the suburb?
- Know the best streets (and the worst)
- Look at the zoning – is the area in a Demolition Control Precinct or zoned for medium/high density residential development?
- If it is an investment property ask local property managers what areas are most sought-after, and determine those with the lowest vacancy rates?
10. Attend Inspections And Auctions
Attending inspections and auctions can be an effective way to gauge market conditions to better estimate the value of a property.
Follow up with agents to determine the sale price. This is difficult though, as agents cannot reveal the sale price until after the sale has gone unconditional, which can be months. If you don’t have months to spare, this is where engaging an independent property valuer can help. A valuer can quickly ascertain the price of a property you are keen to purchase. They are already familiar with the area and are entering five or six properties each day.
Also, conduct inspections at different times of the day – this is helpful to check traffic and noise, neighbour’s habits and exposure to the sun.
11. Find The Right Property
This is the challenging part and the next step of the process where most people get stuck and the process often ends. Some people spend so long looking for the perfect property, end up getting burnt out and never buy anything at all.
Register to receive alerts with www.realestate.com.au and www. domain.com.au. When a property matching your requirements comes on the market, you’ll be the first to know.
Also, connect with real estate agents in the area in which you are looking and keep in touch. Agents are keen to help prospective purchasers and will help where they can.
12. Do You Need A Buyer’s Agent?
There are buyer’s agents who can step you through this part of the process. A buyer’s agents’ services can vary and can provide as many or as few services as required. A buyer’s agent will ascertain your preferred property and location and will set about to find the property. They can then negotiate on your behalf to purchase the property and can assist with the preparation of documents. Their commissions will eat into your investment, but for the time poor, it can be worth the cost.
13. Check For Flooding
This is an essential search that you can’t afford to miss. The Brisbane City Council has a comprehensive flood search feature on their website as do most local councils.
14. Check For Possible Resumption
Call the local council and Department of Main Roads regarding infrastructure plans.
15. Check For Development Applications Nearby
Check for development applications nearby which could affect your property e.g. your view being built out by a large apartment block next door. If so, it’s particularly important to check the zoning and see what plans the owners next door may have. Call the local council and ask what developments have been approved in the suburb in the last two years.
16. Check For High Density Community Housing
Check for high density community housing in the immediate area. Community housing often comes in similar building materials with similar paint colours and designs which can be easily distinguished by a valuer familiar with these properties.
17. What Are The ‘buyer Objections’?
What features would stop someone from buying the property? Examples of this would be: located on a busy road; too close to commercial activity or next door to block of units. Steer clear of these properties.
18. Check For Legal Building Heights Of All Rooms
We’ve had clients come to us who had previously purchased a three bedroom, two bathroom house only to find out later that the bedroom and bathroom on the lower floor are not to legal height. They haven’t been able to legally do the renovations they had planned. And worse still, when they went to sell they were advised that they had to advertise the property as two bedroom, one bathroom as the downstairs rooms were not legal height.
19. Check That Any Renovations Are Council Approved
Ask for a copy of the approval from the selling agent. If they can’t provide this make an enquiry with the local council.
20. Check For Asbestos
It’s important to know other terms that also refer to asbestos i.e. CAC (corrugated asbestos cement), Super Six roofing and ACM (asbestos containing material).
21. Check The Property Boundaries
Check that the actual boundaries of the property correspond with the title. Is the neighbour’s fence on your land? It’s important that this is sorted prior to purchase. Check the repair of the fences on all boundaries. Fixing fences can come at a considerable cost.
22. Conduct A Thorough Inspection Yourself
Most buyers simply walk around a property twice before deciding on the purchase. You can save on the cost of a Building and Pest inspection if you can eliminate purchasing the property from the results of your own inspection before spending money on other inspections, valuations and conveyancing.
- Look for cracks in walls and brickwork
- Look for signs of water damage – are their water stains or corrosion to the walls backing onto the showers or baths? Is there mold in cupboards, on walls or on the ceiling – mold can be a serious issue and difficult to get rid of
- Turn the taps on and off – how long does it take for hot water to start?
- Does water drain freely down the sinks and bath – or are there blockages
- Flush the toilet and look behind the seat for leaks at the waste pipes or cistern
- Look at the roofing and gutters
- Ensure that all electrical switches work – can you see the wiring, how old?
- Check the condition of the fuse box
- Are the ceilings sagging?
- Ensure all windows and doors open and close freely
All of these things are easy to check yourself, but so often overlooked. If all looks good, then bring in the professionals.
23. Order A Building And Pest Inspection
Always ensure the contract of sale is subject to a Building and Pest inspection no matter how new the property is. This is non-negotiable. Even brand new properties have failed the building inspection. Consider engaging an electrician for an electrical inspection too.
24. Ascertain The Property’s Value
Ignore listed prices. The asking price is a poor indication of worth. Of course vendors are going to aim high and agents will talk up the value of the property. This is their job. Looking at the listed price of other properties in the area is not an indication of real value, but looking at the confirmed sale price is.
To ascertain the property’s value:
- Attend auctions and open house inspections for three months before purchase to get a good indication of what similar properties are selling for. Also, purchase reports of properties that have sold in the suburb in the previous six months from the numerous property data websites OR
- Order a valuation: Why order an independent property valuation prior to making an offer?
- The valuation report and your discussion with the valuer will provide you with the confidence to make an offer (or not)
- The valuation will act as a powerful negotiating tool. The agent will know you’ve ordered a valuation
- Don’t give away the valuation figure. Go in with a fair price and negotiate as you need to. You paid for the valuation, don’t give it away
- As a last resort you may decide to present the valuation report to support your offer if need be
Don’t rely on the bank to conduct a valuation for you. Leaving your property purchase due diligence to the bank and relying on them to conduct a valuation is a risk you should avoid. It is prudent prospective purchasers engage their own independent valuer working for their best interest, prior to signing a contract of sale. Do not rely on the bank who may or may not order a valuation on the property. If relying on the bank to order a valuation on your behalf, there are four issues to consider:
- It is general practise in the industry that the banks will not provide a copy of the report to the client and in some cases will not advise the client of the valuation figure
- Often the bank does not order a valuation e.g. if the client has a solid deposit and therefore a low LVR (loan to value ratio). The bank may not consider a valuation necessary as the loan is low risk
- Some banks have a policy of simply accepting the contract price if it is under a certain value e.g. $500,000 and will not order a valuation
- The bank may order a ‘drive by/kerbside’ valuation, where the valuer will view the property from the kerb and provide the bank with a range of values
- The bank may simply conduct a ‘desktop’ valuation where the valuer does not visit the property at all and conductsnonline research. This provides the bank with a rough estimate of the value of the property, enough to ensure the sale of the property would cover the loan
25. Negotiate The Best Price
Don’t allow emotion to cloud your judgement when trying to get the best deal, which may mean walking away in order to avoid overpaying. Remember, this is a business deal. Here are some pointers to assist:
- Don’t be afraid to ask for what you want, even if you think the vendor won’t consider it. You never know what they may accept
- Have a limit and stick to it
- Find out as much about the vendor as possible. This may give you more negotiating power
- Try to have all information verified by a third-party
- Ask the agent what the vendor needs – the vendor may be prepared to lower the price in return for a sooner or protracted settlement date, depending on their specific requirements
- Have finance pre-approved. This may be a bargaining chip if the seller (vendor) does not have to wait quite so long
- Put the vendor under pressure to make a decision by adding an expiry date to your offer
- Ensure your offer is subject to building and pest, valuation and finance clauses. This takes the property off the market while you conduct further research
The key to negotiating is having confidence and the right information. If your terms are not accepted then maybe it’s best to walk away from the deal.
26. Arrange For Conveyancing With Your Solicitor
It’s essential to choose a solicitor specialising in property law and conveyancing. There are many traps when signing a contract, which can be very costly.
27. Clauses For The Contract Of Sale
If you haven’t prearranged a building and pest inspection, or had a valuation completed, then ensure your contract has “subject to valuation” and “subject to Building and Pest” clauses as instructed by your solicitor. If the contract price doesn’t meet the valuation figure then the contract can be terminated without penalty.
28. Read The Fine Print
Take particular note of developer’s special offers like rental guarantees and rebates. A contract may advise of a two year rental guarantee, but the fine print may stipulate that the property must be vacant for three months before the guarantee will kick in. Also check which entity is responsible for the two year rental guarantee. Often it is not the developer.
Also note, valuers are required to subtract the value of rental guarantees, rebates and furniture packages from contract amounts when valuing for the banks. This means you may need to come up with an extra deposit to cover the cost.
29. Beware The Cooling Off Period
Most people don’t realise that termination penalties apply even during the cooling-off period. The vendor can charge 0.25% of the purchase price if the contract of sale is cancelled by the purchaser.
30. Meet All Deadlines
Be sure to adhere to all deadlines. When completing the contract give yourself plenty of time to:
- Arrange the Building & Pest inspection – minimum of 7 days
- Arrange an independent valuation – minimum of 7 days
- Arrange finance – minimum of 21 days
Vendors may allow extensions, but if there are other buyers waiting in the wings, you may lose out.
31. Arrange The Relevant Insurances
It’s important to protect your new asset. Many people don’t realise they are responsible for insurance from the time they sign the contract (or shortly thereafter). If the property is being rented out then the tenants are responsible for their own contents insurance. If this is your home, then you will need both building and contents insurance. Other considerations:
- Public liability insurance
- Check your policy covers “uninvited guests”, to avoid being held liable for injuries suffered by an intruder
- If the property is a rental consider purchasing Landlord’s insurance to cover you for vacancy and damage from a tenant
- Check the property can be insured. Some properties in flood affected areas or bush fire zones simply can’t be insured at all
32. Manage Your New Asset Well
- For the best results engage a reputable property manager. Don’t be frugal with repairs. This makes their job difficult, which won’t do you any favours
- Don’t skimp on insurances
- Undertake a personal inspection of each of your rental properties annually, compiling a maintenance plan to keep your asset in good condition
If we can be of any assistance please contact us on 1300 302 881 or [email protected]
