Home Buying Guide Step 5: Purchase Preparation

Information verified correct on October 21st, 2016

home buying guide purchase preparation check 5

Once you’ve completed your preliminary research, decided where to buy, and organised your finance, you need to prepare for your property purchase.

Navigating the home buying process takes discipline, effort and time but if done correctly (and if you put your mind to it), this preparation can be highly rewarding, saving you money and ensuring that you get the perfect home with minimal hassle.

From organising inspections and chatting to experts, to exploring purchase methods within the suburb and drawing the contract of sale and associated paperwork, preparing yourself for one of the largest transactions of your life is a crucial part of the fieldwork required for the homebuying process.

Speak to the experts

Surrounding yourself with trusted experts is one of the smartest things you can do to prepare yourself for the property purchase.

Consider using a buyer’s agent to represent you. A buyer’s agent locates and assess properties and can negotiate the property transaction on your behalf. You can significantly benefit from the local knowledge and negotiating skills of a buyer’s agent.

If you are yet to decide on a property, you can leverage the industry networks of a buyer’s agent to access off-the-market properties which means you get early access to different properties (and can potentially beat out competitive buyers).

Typically, a buyer’s agent will charge 1.5% - 2% of the negotiated purchase price of the property. For example, if you bought a property for $600,000, you’d need to put aside around $12,000 for the buyer’s agent fee.

While you may have already sought out financial counsel, it’s worth speaking to an accountant, financial planner and licensed mortgage broker to ensure that your planned property purchase will benefit your financial objectives.

A broker acts as an intermediary between a borrower and a lender and can draw on a panel of lenders to help you find the best home loan for your needs and help you organise pre-approval. While the broker doesn’t normally charge you a fee, they may charge the lender an upfront commission that amounts to 0.3 - 0.5% of the total loan value. For a $800,000 home loan, a 0.3% commission would be around $2,400.

It’s worthwhile speaking to a solicitor or a conveyancer to review your documents and ensure that all the relevant clauses are included in the contract of sale. They will also be able to explain your rights as a property buyer, including the cooling off period.

Organise pre-purchase inspections

If you have your heart set on a property and you’ve done your due diligence in terms of neighbourhood research and getting finance ready, you need to inspect the quality of the property to ensure that it aligns with relevant building regulations.

Look for pain points

Arrange a building and pest inspection to identify any structural issues that exist within the property foundation. Consult a qualified professional to carry out the building inspection prior to signing the contract of sale to identify any unsafe structures which may cause problems in the future. Remember to look for cracks in cupboards, windows and any other areas where imperfections may not be immediately obvious.

A pest inspection involves detecting the existence of termites or other pests that may have caused, or could potentially cause, damage to the property. If pests are identified, the professional will outline the type of treatment required to minimise the damage.

When you’re buying an established property, knowing the drawbacks of the property can give you an edge when it comes to negotiating a sale price. If you’re buying an apartment, the strata report should discuss any recent treatment of the building as well as any other strata-related problems including any current legal proceedings or special levies underway.

Pre-purchase inspections give you a chance to see if any damages are present in the property and also allow a professional to view the fixtures and fittings that come with the property, such as air conditioners, carpet or furniture, to make sure they are sound. Generally, the contract of sale requires the seller to hand over the property to you in the same condition as it was on the day the sale was finalised.

If there are any issues brought up in the inspections, you can have the required corrections added to the contract, or you can use those issues to negotiate on price.

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Which sale method is right for you?

While there are several purchase methods available in the Australian property market, including off-the-plan or sale by tender purchases, the most common way to buy property is through a private settlement (or private treaty), or via an auction.

Speak with a buyer’s agent or real estate agents to learn more about the most common purchase method for comparable properties in the suburb you are looking in, and to find out how the seller has chosen to sell the property and why. For instance, if the property is located in the CBD of Sydney or Melbourne, the seller may decide to sell the property via auction as more buyers will be familiar with this sale method.

Auction clearance rates (ACR) are a good reflection of buyer sentiment within the market which may help you understand how much demand there is for comparable properties in the suburb, and whether the market favours buyers or sellers.

Private treaty vs public auction

While the sale method will be decided by the seller, it’s worth knowing how both private settlements and auctions work so you know what to expect in either situation.

A private treaty sale takes place when the property owner sets the sale price and the real estate agent negotiates with buyers to achieve the highest possible sales price.

An auction involves buyers bidding on the property at a fixed location and time. The highest bidder on the day purchases the property, as long as the bid matches or exceeds the reserve price and the bidder has 10% of the property price available as deposit.

The main difference between a private treaty and an auction is that a private treaty has an asking price, whereas an auction involves marketing the property without a price guide.

Tips for buying at auction

Private treaty vs public auction

Generally speaking, a public auction may be the appropriate sale method if there are few comparable property sales in the suburb; if the property has strong emotional appeal (and the seller wants to create a sense of competition); or if the owner wants to sell the asset quickly.

Attending an auction for the first time can be a daunting proposition, but as long as you have a solicitor review the contract of sale before you bid, there’s no reason why an auction is riskier than a private treaty.

Here are some tips for buying at auction to ensure that you don’t get caught up in the heat of the moment:

  • Get familiar with auctions. If you haven’t attended an auction before, consider visiting other auctions in the area to understand how they work, to get a feel for what the atmosphere will be like on the day, and to observe the language of auctions. Talk to buyer’s agents, real estate agents and auctioneers to learn the ins and outs of auctions.
  • Request comparable sales. Ask the selling agent for evidence of comparable sales in the area to justify the asking price. If you’re thinking of conducting renovations to the property, ask the agent whether anyone in the area has undergone major renovations as this may give you an idea of what you can do in terms of council regulations and also from a strata perspective.
  • Get pre-approval. It’s highly recommended that you get pre-approval from your lender before going to an auction. This means you’ll have a pre-approved amount to borrow (subject to a property valuation) which gives you extra negotiating power when it comes to buying and establishing a fair price.
  • Set your limit. Know what you want to spend prior to stepping into the auction and stick to it. Understand how auctioneers work and don’t feel intimidated by their tactics. Set yourself an upper price limit based on the valuer’s price range. Your limit should be what the bank is willing to lend you plus your deposit amount.
  • Bidding strategy.  If you’re representing yourself, it’s recommended that you bid early (and low) to remain in control of the situation. Remember to take your time as drawing out the auction can put pressure on the seller to adjust the reserve price downwards.
  • Remove emotion. Setting yourself a bidding strategy is a useful way to remove emotion from the auction. Respect your limit and be prepared to walk away. However, if you don’t believe you can eliminate emotion from bidding, get a buyer’s agent or a family member on your side.
  • Deposit ready. Bring a cheque book to pay the deposit on the day- it’s normally 5-10% of the purchase price, but check with the real estate agent prior to the auction. Also, check if they prefer bank cheque or a personal cheque.

Check out The Block contestants, Josh and Charlotte’s tips for buying at auction.

Tips for buying at private treaty

Buying at private treaty

A private treaty transaction is useful when there are several comparable sales in the market, the seller would like to maintain discretion regarding the sale outcome, or if the seller does not have urgency to sell the property.

Buying property via private treaty is less dramatic than buying at an auction. When making a purchase by private treaty, the contract of sale comes into force once you exchange contracts with the seller. Once you’ve exchanged contracts, you’ll need to pay the deposit (generally at least 10% of the property price less a holding deposit which is normally 1%).

A private treaty sale can include a cooling off period which allows you time to finalise your finances, do all pre-purchase checks and get the contract of sale reviewed and negotiated by your solicitor.

A seller may request you sign a 66w certificate which waives your rights to a cooling-off period. This will be made known once you make an offer or show interest in the property so you can go through the due diligence required before contracts are signed. If this is requested, your solicitor will also make sure that you are fully aware of all the details of the contract and purchase.

If you’re thinking of buying a property through private treaty, here are some things to keep in mind:

  • Don’t give too much away. While you want to express genuine interest in the property, try not to display too much emotion to the real estate agent. Don’t disclose too much information about your financial position- be vague in your answers- because otherwise the agent may use this to negotiate a higher price.
  • Do some groundwork. Look at comparable sales in the area and do some research on local property market trends, such as clearance rates. This will help you understand the fair market value of the property and whether the market favours buyers or sellers.
  • Offer strategy. When you make an initial offer, make it below the price you’re actually prepared to pay as it is rare for the first offer to be accepted.
  • Be wary of agent tactics. Agents are seasoned negotiators so you need to understand that their objective is to secure the highest possible sale price for the seller. They may try to create a sense of urgency or competition by telling you that a higher offer has been made, so remember to stick to your limit and negotiate within your means. This is why a buyer’s agent can be useful.
  • Take the price guide with a grain of salt. While real estate underquoting is unethical, it is a common practice in Australia’s real estate industry. Underquoting is where agents advertise a property that is less than what the vendor is willing to accept. This is done to attract a wider pool of prospective buyers. It’s essential that you do your own research to come up with a ballpark figure of the fair market value of the property. Look at comparable sales, attend auctions, attend inspections of similarly priced properties, research the historic property sales, and check out median property values in the area to get a feel for what the property should realistically sell for.
  • Get it in writing. Real estate agents are required to present all offers to the seller, so submit your offer in writing. Keep in mind that your offer is not legally binding until you sign on the dotted line.

What is a cooling-off period?

cooling off period iconThe cooling-off period is the amount of time in which you have to cancel an agreement if you change your mind- this is normally 5 business days but varies from state to state. However, keep in mind that a cancellation of the contract incurs a penalty of 0.25% of the sale price of the property.

Also, a cooling-off period does not apply for properties that are sold through auction.

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Make an offer

As a buyer, be careful not to make an offer that’s too low as it’s likely that a higher offer will be put forward and you’ll miss out.

Most properties are sold around 5% below the original asking price so it may be worth making an offer that's 10% below the asking price to give you room for negotiation.

To guide your offer amount, ask the selling agent for the sales history of comparable properties in the area.

Once you’ve reached a figure, contact the representing agent and specify how much you’re willing to pay and the deposit amount. You can do this in person, mail or via email.

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Request contract of sale

Making an offer and entering into a contract of sale without knowing your legal rights can have a profound impact on your finances and your homebuying experience. This is why once you’ve made an offer, you need to work with a solicitor to review the contract of sale. You must ensure that all relevant clauses are present in the contract to protect your rights as a buyer.

What should be included in the contract of sale?

In general, the contract of sale should include the following:

  • Names. The contract should correctly identify the names and residential addresses of both the seller and the buyer.
  • Property description. A detailed description of the property should identify the complete address and the exact measurement of the property.
  • Inclusions and exclusions. Unless stated otherwise, the contract should outline that the property will be sold "in the state you find it" which means that fixtures are included. For example, a cooktop is generally considered a fixture as it is non-movable. The contract should therefore should clearly specify the things that are included or excluded in the sale such as furniture, fittings and fixtures (e.g. built-in wardrobe, washing line, range hood, stove).
  • Purchase price. The contract must identify the total purchase price, including the deposit (normally 10%).
  • Property taxes. The contract should outline any property taxes to be paid or maintained by the new owner, as well as any other adjustments.
  • Special conditions. Your solicitor will create amendments or special conditions for the contract such as “Clause 1: In the definition of “adjustment date”, insert “the completion date” after “purchaser.” This is done to remove any ambiguity within the language and to ensure that your rights are protected under law.
  • Strata by-laws (apartment only). If you’ve purchased an apartment, the contract of sale should include strata by-laws in relation to noise, obstruction of common property, behaviour of owners and occupiers, drying of laundry items, cleaning windows and doors, storage of inflammable liquids, floor coverings and garbage disposal, among others.
  • Environmental regulations. The contract should include information regarding the local council’s environmental planning, which may identify whether or not the area is bushfire prone, zoning laws and relevant legislation for residents such as housing for seniors or people with a disability.
  • Settlement details. The contract of sale should provide information about settlement, including the date of settlement.
  • Building certificate. Your solicitor should check to see if the contract of sale includes a building certificate or a homeowner’s warranty insurance certificate with information about any renovations that have been conducted on the property.

The contract of sale may also include additional documents, such as:

  • A zoning certificate
  • A copy of the property certificate
  • A copy of the plan for the land
  • Details of easements (e.g. rights of way or restrictions)

What is the exchange of contracts?

A contract of sale becomes legally binding when the buyer and seller each sign the contract and exchange them (at which time the buyer generally provides a 10% deposit).

If a property is sold via auction, the exchange of contracts occurs after the winning bid is accepted by the vendor. For a private treaty sale, contract exchange normally means that you will deliver your signed contract to the seller’s agent and pick up the seller’s signed copy. This process is typically handled by your solicitor.

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How can I protect myself?

How to protect yourself when buying a properety

The contract of sale should include contingencies that protect your rights as a buyer. These contingencies outline you and the other party are legally obligated under the contract if certain events take place. For instance, you could include a term to have the contract subject to finance or building fixes.

The situations outlined in the contingency contract are usually categorised under "subject to" clauses. A good solicitor or conveyancer will be able to draw up a contingent contract that will maximise your rights and protection as a buyer.

Here are some common ways you can protect yourself as a buyer, and prevent being "gazumped":

  • Organise finance: Get a loan pre-approval in which your lender will indicate that they are willing to lend you a certain amount of money to finance the purchase. Also make sure you have the 10% deposit available so there is no delay before the exchange of contracts can take place.
  • Legal advice: Obtain a copy of the sale of contract and request that it is assessed by a solicitor or a property law specialist to ensure that all relevant clauses, such as the cooling-off clause, are in accordance with state legislation. In addition, a solicitor can help you interpret your mortgage documents and understand your mortgage obligations.
  • Be proactive: Try to exchange contracts as soon as possible, as this will take the property off the market and secure the sale.
  • Inspections: During the negotiations or cooling-off period, organise a building and pest inspection to ensure that the property does not have any structural or other issues that may complicate or defer the transaction.
  • Due diligence: Remember that the vendor is not obligated to sell to any specific person and is free to change their mind at any time prior to the exchange of contracts. Ask the agent for a written agreement that they will notify you if another offer has been made, to give you the right to make a counter-offer.
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How can I prepare for settlement?

After the contracts of sale are exchanged, there are several steps you can take to ensure that the changeover is as smooth as possible in the lead up to settlement:

  • Available funds. Have funds available for stamp duty (this will be due at settlement) and make sure you have enough funds for the balance of the purchase price.
  • Building insurance. Organise building insurance for the property as this is something your lender will request to see.
  • Contact utility providers. Speak to utility providers to organise the connection of services so that you have running services from the day you get the keys.
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What happens at settlement?

When you sign the contract of sale, you’ll agree on the settlement date which is normally six weeks after the exchange date. At settlement, you’ll be required to pay the balance of the property price plus anything you owe the seller, such as utility bills or taxes, in order to settle the transaction.

If you’re unable to settle by the agreed upon date, you’ll be charged interest. If you don’t think you’ll be able to settle, speak to your solicitor immediately.

At settlement, you’ll receive the keys to the property and you’ll have a new place to call home.

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Property ownership

Once you’ve purchased a property, your name will appear on the Certificate of Title (or title deeds) to reflect the new property ownership. Your solicitor will help you through this process and register this certificate with your state department of Land and Property.

The most common types of property ownership are outright ownership and joint ownership. Find out more about different property ownership structures.

The property buying journey can be time-intensive and emotionally draining (and there may be some back and forth before you reach settlement), but it is worth your while.

Do your research, speak to experts and be patient. The homeownership journey is a gratifying and enriching experience, so hold tight and know that things will fall into place.

After all, there’s no place like home.

After arranging pre-purchase inspections, reviewing the contract of sale and learning about your rights, you can transcend to the final stage of the Home Buying Guide: Moving In.

Images: Shutterstock

Belinda Punshon

Belinda is a journalist here at finder.com.au. Specialising in the home loans and property sections, she is passionate about helping Australians improve their financial wellbeing.

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