The top 5 questions First Time home buyers ask their solicitor
Buying your first house brings with it many emotions, excitement, nerves and confusion. It is a memorable time in your life and is one of the major decisions that you will ever make, not to mention your biggest investment. As you start to consider buying your first home, you may start to hear some terms being bandied around with your friends and family. We have prepared the following guide to assist you to help you understand the jargon and understand the process in purchasing your home.
What is the difference between Joint Tenants and Tenants in common if I am purchasing a property with someone else?
There are two types of co-ownership when you are purchasing a property with someone else.
Joint Tenants, as the name suggests, own the property jointly. This is usually the way property is owned by married and de facto couples. Joint tenants own equal shares of the property. If one was to pass away, the remaining share would automatically go to the other person.
Tenants in common can sell their share of the land or leave it to any person in a will. They can own in equal shares or any other basis. It is generally recommended that blended families sever a joint tenant arrangement and become tenants in common which make it easier to pass fairly in a will. Solicitors can arrange for Joint Tenancy to be made into Tenants in Common.
Can the vendor accept another offer after we have made a verbal offer of acceptance of a price and we are still obtaining finance and building and pest reports?
An example is you have found your dream first house, you have made an offer and it has been accepted by the vendor (the people selling the house). The building and pest inspection has been completed (which you have paid for), your formal finance is in the process of being approved and you have engaged a solicitor to act for you on the conveyance. The exchange of contracts is due to take place the following day when the real estate agent calls to tell you that the vendor has accepted a higher offer from another party. You are not in a position to make an offer at a higher price and you are stunned at this phone call. You had already measured for furniture and in the early stages of planning your house warming party.
Can the vendor accept the higher offer if contracts are about to be exchanged, and if they do, can the purchaser claim compensation for the costs they have incurred? If you find yourself in this situation, as a purchaser, you may be unsure where you stand legally.
In New South Wales a property sale is generally only binding when contracts have been exchanged between both parties. Exchange occurs when the two parties sign their copy of the Sale Contract and then exchange the signed contracts. It is usual at this time for the purchaser to pay a deposit.
The law requires agents to inform the vendor of all offers up until exchange of contracts and the vendor has the right to sell to whoever they want to. The vendor can change their mind at any time prior to the formal exchange of contracts.
As a purchaser if you have a verbal agreement with an agent or seller to buy a property at an agreed price but the property is ultimately not sold to you, then you have been ‘gazumped’. If you have been gazumped neither the agent nor the seller is obliged to compensate you for the costs you may have incurred (for building and pest reports etc). If you paid a deposit to demonstrate your commitment, then this must be refunded to you.
In order to ensure that this doesn’t happen to you, you should move as quickly as possible to ensure that you have your finance organised, arrange pest and building inspections and promptly seek advice from a solicitor or conveyancer so that you can exchange contracts as soon as possible.
What is exchange and is there a cooling off period?
In NSW, there is no formal agreement on the purchase of a particular property at a particular price until there is a formal exchange of written contracts. The exemption is property sold at auction.
The process of exchange and the ‘deal’ becomes legally binding occurs when the vendor and purchaser’s contracts have been signed, dated and ‘exchanged’ with one another. (the buyer’s contract issued to the vendor’s solicitor and vice versa) On some occasions the real estate agent can effect exchange of the contracts.
Once contracts have exchanged they become legally binding and there are penalties involved for breach of the contract by either side.
Once you have agreed upon a sale price, it will be arranged for the purchaser and vendor to ‘exchange contracts’
In NSW there is a five-day cooling off period that applies after the contracts are exchanged. The five days are five full business days. During this time the buyer can rescind the contract. However, if they do choose to not proceed during the cooling off period, they will forfeit 0.25% of the purchase price. The cooling off period does not apply to auctions.
Many vendors will require a waiver of cooling off certificate from the purchaser’s solicitor that they waive the right to a cooling off period and the contract will become legally binding immediately upon exchange.
A common question is what is the advantage of having a cooling off period? Some purchasers, for obvious reasons, will chose not to exchange until they have formal finance approval and they have completed a building and pest report. However, the six-week settlement period will not start until the contracts have exchanged. In addition, a Vendor can still accept offers from others until there has been an exchange of contracts. A cooling off period allows for the time to start to settlement and secures the purchase exclusive to others. This additional five days gives the purchaser time to arrange formal finance approval or obtain deposit bonds etc. The vendor has some certainty in that the purchaser will forfeit 0.25% of the agreed price if they rescind the contract during the five-day cooling off period and the purchaser can have extra time which is not in additional to the normal settlement time as well as having a less severe consequence (only forfeiting 0.25% if they pull out for whatever reason).
How much is Stamp Duty? When does it have to paid and how do I know if I am exempt or have a reduction.
Stamp duty is a “one off” tax you will be required to pay when you purchase land or property.
The duty is calculated on the property’s market value. Therefore, the more expensive the property, the higher the stamp duty rate you will have to pay. Please refer to the Office of State Revenue website for more information on how much stamp duty you will be required to pay www.osr.nsw.gov.au. This site also provides calculators to estimate the required stamp duty.
Stamp Duty is payable to the Office of State Revenue.
Stamp duty must be paid within 3 months of exchange of contracts or interest will accrue. However, if you are purchasing a residential unit off the plan, stamp duty should be paid within 15 months of the contracts being exchanged.
First Home Buyers in NSW are offered exemptions and concessions on stamp duty under the First Home Buyers Assistance scheme. As of 1 July 2017, first home buyers are exempt from Stamp Duty when purchasing both new and existing homes valued up to $650 000. Concessions are in place for those buying property between $650 000 and $800 000. If purchasing a vacant block of land on which to build a home, first home buyers will pay no stamp duty on land valued up to $350 000 and there are concessions if the land is valued between $350 000 and $450 000.
How long until I can get the keys and move in?!
You have signed and exchanged contracts, paid the deposit, and waited out the cooling off period, now when can I move in?
The short answer is that you are able to take possession of your property on the day of ‘settlement’. This is the day that the buyer pays the rest of the purchase price (usually using a home loan) and final legal documents are exchanged (title deeds, transfer etc). The buyer and vendor do not normally attend settlement. After settlement the buyer is the legal owner of the property. You will also have to start paying your mortgage!
The standard time for a completion of residential contract (settlement) in NSW is 42 days. However, this can be negotiated either a shorter or longer timeframe.
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