For those of us who aren't proficient in conveyancing, here's what you need to know about contracts of sale and your rights as a purchaser.
Before you enter into a real estate transaction, you should practice due diligence and seek legal counsel to review and interpret a contract of sale.
Although the rules for property transactions differ from state to state, it’s important that you keep your wits about you so that you know what to look out for in a contract of sale.
From special conditions or clauses to agents that may have a conflict of interest, it’s vital that you know the elements of a contract of sale to ensure that you make an informed purchasing decision.
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When it’s in written form, the purpose of a contract of sale is to properly record the details of an agreement that’s been reached by the two parties, “If you want to have a contract that’s enforceable for real estate, it needs to be in writing and it needs to be signed by the party against whom it’s going to be enforced”, says Peter Mericka, legal practitioner and authorised principal from Lawyers Conveyancing.
The contract of sale should identify the interested parties, the land that’s subject to the agreement and the terms of the agreement including price and goods or chattels, such as whether the microwave or air conditioning is included.
Generally, a contract of sale should specify:
- The interested parties
- The land
- The price
- The date on which the final price is to be paid
- The conditions under which the sale is being conducted
With regard to supporting documents that should be put forward with a contract of sale, Mericka says that the vendor is required to provide basic information so that the purchaser can make an informed decision to buy the property, “The vendor has to serve the purchaser with an information statement and because that requirement comes from section 32 of the Sale of Land Act, it’s known as the section 32 Vendor Statement”, he says.
The cost of getting a contract of sale drafted and reviewed by a legal practitioner varies depending on the complexity of the legal work required. For instance, an off-the-plan contract has several special conditions which can often take precedence over general conditions or change general conditions.
“Our firm provides written legal advice. Legal advice on a contract in Section 32 for a standard residential property is $275 whereas if it’s a large off-the-plan contract, for example, for a high-rise apartment in the city, the cost of legal advice is $550”, he says.
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If you’ve decided that you’d like to purchase a property, the first thing you need to do is to seek legal advice from a solicitor or conveyancer to help you understand the contract and your rights as a buyer.
Secondly, you need to ensure that the property is correctly identified in the contract, “Quite often you get a large subdivision with a whole lot of vacant blocks and the only way you can tell one lot from another is to walk onto the lot and see a sign that says lot 213. When they [the purchaser] go to sign to buy the property, they might be given a contract for lot 211, so they buy the wrong lot. It’s happened in the past”, he says.
Next, you should carefully read through the terms of the contract and request for terms to be negotiated if required. Sit down with your solicitor and see if the vendor has added any special conditions that may cause problems for you. For instance, some contracts may specify that you cannot use a deposit bond or a bank guarantee for the deposit and that you must come up with a cash deposit.
Mericka warns that if you want to have a condition changed you must get it in writing and it must be added to the contract, “You can have all sorts of negotiations with an estate agent but if the contract doesn’t include the alteration, then it’s unenforceable”, he says.
Ever wondered if there’s anything you should be cautious about when reviewing a contract of sale? According to Mericka, any special conditions that have been added by a real estate agent should raise a red flag as it’s illegal for an estate agent to draft a special condition.
Subject to inspections
Another common pitfall is when purchasers tell the estate agent that they want to buy the property subject to a building inspection and the estate agent tells them that he or she has prepared a special condition specifically for that purpose.
“The problem with this is that it’s [the special condition] not designed to assist the purchaser, it’s designed to save the vendor’s sale by making sure that the purchaser can’t pull out of the contract unless the property has some major structural defect in it”, he says.
In other words, unless the property is likely to fall apart because of the defect, it won’t be enough to allow the purchaser to get out of the contract.
“If the building inspection comes back and it says that there is asbestos leaking into the living spaces and you compare that with the requirement that it has to be a “major structural defect” you can understand that purchasers would be upset if they couldn’t cancel the contract”, he says.
Subject to finance
You should also be careful about any finance conditions included in the contract. If you’re buying subject to finance, Mericka points out that you should read the general condition 14 of the standard form contract. He says that people often think that they can sign a contract subject to finance and then if they encounter difficulties or if they change their mind, they can simply cancel the contract based on the fact that they don’t have finance approved-- however this is not always the case.
“The purchaser has to make immediate attempts to obtain the home loan and then if the loan hasn’t been approved by the due date, then they have to serve notice to the vendor within 2 days of the expiry date of the loan condition”, he says.
People often don’t realise that when they sign the contract and they’ve handed it over to the real estate agent, between the time they sign the contract and the time that the agent tells you that the offer has been accepted, you’re entitled to withdraw the offer at any time up until this point of acceptance.
“You can have someone who puts in an offer on a Wednesday and the estate agent tells them that the property is going to auction, however if that offer isn’t accepted by Friday afternoon, they don’t have to cool off they can simply withdraw the offer”, he says.
If a buyer uses the cooling off provision, they have to pay 0.2% of the purchase price (in VIC). It’s important to realise that as a buyer, you shouldn’t always rely on cooling off.
“If someone suggests waiving the cooling off period, this indicates to me that person knows something that the purchaser doesn’t, and that’s something the purchaser should find out”, Mericka says.
In some situations, this could represent a conflict of interest. Remember not to take legal advice from an estate agent as the agent is representing the vendor.Back to top
Disclaimer: This article contains general information only. Any person who wants to act on it should seek independent legal advice before taking action.