Buying property is one of the biggest investments you’ll ever commit yourself to, but many people don’t actually know or understand all the technicalities of buying property, and the issues you can face when those technicalities trip you up.
We spoke to Jim Parke, the Managing Director of Parke Lawyers about the five most common legal issues homebuyers often encounter, and should be aware of. Jim gave us some handy information of what to look out for when it comes to legal technicalities of real estate, and what you can do to avoid them.
1. Failure to consider the Sunset Clause
“The Sunset Clauses usually affects off-the-plan property purchases but may sometimes affect existing properties. There are scenarios where developers have run over time with construction and the Sunset Clause has been triggered. Sometimes, developers cancel contracts and refund buyers’ deposits, only to then try and resell the properties at higher prices to new purchasers. While you will get your deposit back, the market may have moved on in the meantime and property values may have risen beyond the purchaser’s means. It is important for a prospective purchaser to do their research on the developer and builder and confirm the reliability of the developer and builder in delivering projects on schedule.”
2. Failure to make council enquires
“A prospective property purchaser should always check with the local council that the property they’re interested in is not in a special area designated for things such as flooding, bush fire prone or significant snowfalls.”
“The home buyer should check with the council if there are any town planning permits allowing anyone in the area to do something which is not strictly in line with the zoning of the property you are buying; or if anyone has a private section 173 agreement with the council which allows/imposes certain requirements on the property or any properties in the area, which a purchaser would not normally be able to discover by just looking around the area.”
3. Failure to get loan documents in order
“Given the large sums of money required to purchase properties, the vast majority of people obtain finance from a bank or financial institution to help fund the purchase. Ensuring that finance is approved and the relevant loan documents are signed well in advance of the settlement date is therefore critical. In our experience, too many purchasers assume that engaging the services of a mortgage broker means that they do not need to do anything to obtain their loan; they take the view that the mortgage broker will “sort it out”. This is a dangerous mistake to make as unfortunately - all too often - we find that brokers, mobile lenders and home finance managers fail to ensure that mortgage documents are prepared and executed by clients correctly.”
“As an associated issue, purchasers always need to make sure that their contract is made “subject to finance” and comply with their obligations and the times for seeking approval, etc. in every case where they do not have finance in place before they sign.”
4. Failure to consider issues with tenants
“Many properties are bought as investments and are bought subject to the existing tenancies. Full details of the tenancies will be attached to the contract. By virtue of the law, on completion of the purchase the homebuyer automatically steps into the shoes of the vendor (landlord) and the lease becomes enforceable by the homebuyer. A discussion with tenants before the exchange will reveal any issues that might exist, that would otherwise remain undisclosed.”
5. Failure to consider settlement delays
“It’s important to note that delays to settlement are not uncommon. For example, if a settlement is scheduled for 2pm, it may only actually settle at 4pm or may be delayed until later in the day. If the purchaser books a moving van to arrive at their new property at 2pm, they bare the risk of having to make alternate arrangements should settlement be delayed. They may also have to make alternate arrangements for the collection of keys from the real estate agent.
Other issues Jim has seen homebuyers run into
- When the bank ends up valuing the property much lower than the sale price, which means the homebuyer ends up needing to come up with more shortfall funds than anticipated.
- Unexpected issues with the title, such as a caveat might be lodged over the property by the third party that claims to have an interest in the property, such as an ex-spouse or former domestic partner.
- Building and pest Inspections can reveal major issues with the property.Enquiries establish that the vendor did not get all necessary planning or building permit approval for past works on the property, such as renovations or extensions.
- Probate or other court orders not being granted in time for the sale. Sometimes, despite best efforts, the vendor won’t have the legal power to complete the sale. This is particularly important to be aware of if the vendor is a company or is selling property out of a deceased estate.
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