First Home Buyer
Buying your first home
Stage 6: Buy a house – Inspection, Offer and Acceptance
Before you buy, have the property inspected for faults to make sure that it isn't a dud. It is vital that you find out about any hidden issues like damp, shifting foundations, faulty wiring and plumbing and it’s good to know upfront what sort of maintenance and repairs you may be up for in the near future. Here’s some of what qualified building inspectors look for:
- Look for cracks in the wall, they may be hidden by wallpaper
- Check walls and floors for dampness
- Confirm ceilings are clear of mould or leak stains
- Check windows/blinds are in working order
- Check plumbing systems – look for leaks, check drainage is working including outside drains
- Test the electrical systems including all power points, air conditioning, heating, ceiling and extraction fans
- Find any rusting framework
- Check doors are functional
- Check the level of traffic noise
- Check phone lines and TV aerial points
- Check mobile phone reception
- Check the garden for poisonous plants
- Check for large trees close to the house as their roots could cause structural damage
- Look for any rotting timber on the outside
- Inspect external structures like pergolas and granny flats and confirm extensions are legal and council approved
- Keep an eye out for fire hazards such as external cables or power points
- Ensure external walls are straight
- Test water pressure of external taps
- Check the roofs condition including frames and tiles and gutters
- Check condition of gates and fences to ensure bases are sound
- Look for signs of pests. You may need a separate pest inspection if this is identified as an issue.
Once a report has been complied on the condition of the property, you can then make a knowledgeable decision based on the findings. Then you
can factor in the cost of repairs to the purchase price, decide to drop the deal altogether or use the information to negotiate on the
Make an offer and negotiate
When you find a property that you like, make an offer to the seller of how much you’re willing to pay for it.
Determining the amount to offer is a tricky business. To start with, work out the maximum amount you are willing to offer and remember that sometimes it is better to walk away rather than go above the budget you have set, as other opportunities will present themselves.
Once you have decided on the maximum amount you are willing to offer, you need to consider what your initial offer on the property will be. Offer too low and you risk alienating the seller or being outbid. Offer too high and you could end up paying too much for the property.
To determine your initial offer amount, it’s helpful to obtain as much information as you can about the house itself, the sellers and the prices other places in the area have sold for. As a starting point, compare the property with other properties in the same neighbourhood with the same characteristics - including number of bedrooms, age, and land size. A Google search of the property may turn up recent sales around the area. Your mortgage broker may also be able to help you get data. This gives you a good indication of a fair price for the property.
There are other factors that may affect the value of a property. You may like to ask the real estate agent:
- How long has the property been on the market?
- Why are the owners selling?
- Have the owners bought another property yet?
- When are the owners planning to move?
- What is and isn't included in the property?
- Have any offers been made? If so, why were they withdrawn or not accepted? If no offers have been made, why not?
Once you’ve gathered this information, you should have an idea of how much you would be comfortable to pay for the property.
It may be worth offering the asking price if you need to move quickly, the property meets all your needs and you're confident that it's fairly priced.
This is also true when you are making an offer in a competitive market. In this market, properties are snapped up quickly and buyers are regularly outbid. If a lot of other buyers are interested in the property, it can be worth offering the asking price or even slightly higher to avoid missing out. However, make sure you're not paying way above the market price. Do your market comparison and stick to the range you've identified.
When making an offer, it is also important to consider the advantages you offer as a buyer. Having a loan pre-approval gives a lot of certainty to the seller and gives you the ability to proceed with settlement as soon as your offer on the property is accepted. In addition, as a first home owner, you don’t have any property to sell, and so presumably you're able to move quickly. This will be looked upon favourably by any seller who has already purchased another property and is ready to move.
Put your offer in writing and send it to the real estate agent. The real estate agent will talk to the seller and decide whether it is satisfactory. They are likely to come back with a counter offer, that is a higher price, which the owner would accept. You can agree to this or make another offer of your own at a price that you think is reasonable. Sometimes the estate agent may give you an indication of the price the owner will accept. Remember the estate agent is working to try to get the highest price for the seller.
When you enter into a negotiation, keep in mind:
- Be coy about your finances. Revealing how much you’re willing to spend may prompt the agent to push the price to the top end of your price range.
- Play it cool, even if you fall in love with a property. Showing too much enthusiasm may make the agent think you’d be willing to pay any amount.
- Show you’re serious by having your loan pre-approval in place so the seller knows you’d be able to follow through on your offer.
- Don’t be overly influenced by ‘sweeteners’. Sometimes owners offer to throw in white goods, or other perks, to push up your offer. But usually these goods aren't worth the extra you'd pay on your mortgage.
- Think about what else you have to offer. Are you buying in cash or with a large deposit? Are you happy with a long – or short – settlement time? These sorts of things can be appealing to sellers and are worth emphasising in your offer.
- Take your time to consider your options. While the agent may push you to finalise the deal, think it over carefully before you make a higher bid.
While negotiating with the real estate agent the seller is free to take expressions of interest from other potential buyers, and even
exchange contracts with them. If there is another serious buyer, the real estate agent will probably ask you to increase your offer,
especially if the other buyer has made a higher offer.
Exchange and Sign Contracts
Once you’ve agreed on the purchase price, you’ll exchange and sign the contract of sale. It's important that you check the contract carefully to ensure that everything about the property is understood and that there will be no legal surprises after you have purchased it. Here are some tips that you may find useful during the exchange of contract stage:
This is the date on which all legal documentation is transferred from the seller's name into yours. The adjustment of rates and taxes are calculated, and the balance of the price of the property is paid to the seller. This is a complex legal process and it is strongly recommended that you engage a conveyancer or solicitor to represent you. After this date, you will be given the keys to your new property and you can take possession.
You can negotiate a settlement date with the seller. A 60 day settlement is most common. A shorter period may be possible if you already have loan pre-approval. However, you may want to consider a longer period – for example 90 days if you have not started the loan application process.
For a first home buyer, it is also important that you include conditions of sale in your contract. They help protect you in the event that the property does not meet your expectations or you are unable to obtain enough funds to complete the purchase. It’s important that you use a solicitor or licensed conveyancer who understands offer conditions when buying a home. Don’t rely on the agent to write the offer conditions for you. They’re acting in the seller’s best interests, not yours.
The three common conditions in sales contract are:
- Finance approval – that is, you are able to get the money to buy the property
- Valuation – the institution lending you the money to buy the property does an independent valuation of the property (at your expense) and agrees that the price you are paying is suitable
- Satisfactory building and pest inspections – after a thorough building and pest inspection you are satisfied with the condition of the property and willing to purchase it.
You may also include any other conditions for the sale in the contract although, if your conditions are too complicated, the seller could reject your offer.
Once you and the vendor have signed the contracts of sale, you are legally bound to proceed with the purchase of the property, unless one of the conditions listed in the terms and conditions of the contract is breached. You also need to pay a deposit – typically 5-10% of the purchase price – at the end of the cooling-off period, which in South Australia is two working days after the contracts are signed. If you are buying a property at auction you will be expected to pay the deposit as soon as the auction finishes.
Conveyancer or solicitor:
For first home buyer, I strongly encourage you to consider engaging the services of a conveyancer or solicitor to help you with this process. The key role of your conveyancer or solicitor is to prepare and certify the legal documents that will shift the title of the property from the vendor over to you. The earlier you speak to a conveyancer, the better they can help you look over the contracts and give you advice.
A conveyancer will communicate the terms and conditions of the purchase to you in plain English to help you understand exactly what's involved and what documentation you are signing. This includes:
- References to the zoning of the property
Any special conditions for the purchase. They can also help you add to the contract conditions if you need to.
- Purchase price and settlement date
- Deposit and payment date
- Matters relating to title (references to covenants, restrictions, easements and the like)
- Owners’ corporation matter
Cooling Off Period
A cooling-off period is the period of time in which a property buyer can change their mind and can walk away from a legal agreement to purchase a residential property. Details of a cooling-off period will be included in the sales contract. The rules vary between states and territories. In South Australia, the cooling off period is 2 working days. If you do change your mind and decide not to buy after all, you will pay a termination fee, but apart from that the rest of your deposit is usually refunded.
The person selling the property, however, is not entitled to a cooling-off period. Once they sign the sales contract, they are obliged to go through with the sale, subject to the conditions of the contract.
As a buyer you can waive your rights to cooling off period but before you do this make sure you seek professional advice from your conveyancer or solicitor.
We’re here to help you
Dealing with banks can be a stressful experience but rest assured that our mortgage broker based in Glenelg (but our mortgage broker services the entire Adelaide Metropolitan area) can help you make the right decision about your mortgage. We will guide you at every stage of your loan process.
Contact us on 08 8376 0455 or drop into our office at 593 Anzac Highway, Glenelg SA 5045.
Any advice contained in this article is of a general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regard to those matters. Information in this article is correct as of the date of publication and is subject to change.