Due Diligence
You have found the property you want to buy. You have inspected and it ticks all the boxes on your list (needs and wants).
Now it is time to dig deeper with more thorough checks and investigation, otherwise referred to as due diligence.
Please note that while the following steps are in the general sequence of the buying process, not all the steps have to happen sequentially. Some steps will be happening in parallel
- Engage Your Conveyancer
You first step is to contact your conveyancer (or solicitor) to review the contract of sale and provide guidance.
They will examine the details of the contract to ensure it aligns with your understanding of the agreement and complies with all legal requirements.
They will identify any clauses that may be unfavourable to you or need to be clarified. These clauses can be related to the deposit, cooling-off period or other specific conditions.
They will suggest amendments to the contract to ensure your interests are protected such as adding clauses for building and pest inspections and finance approval.
The conveyancer will communicate directly with the seller’s conveyancer to negotiate on your behalf.
And they will prepare and manage all the required documents to ensure a smooth transaction.
2. Secure Financing
Next step is to call your mortgage broker. You are already pre-approved, so you just need to let them know the property details, your offering price, and a copy contract if possible.
Your broker won’t necessarily need the final contract right away but they can review to ensure no issues from a lending perspective.
You should also let them know who your conveyancer is so they can speak directly. They will need to coordinate once your offer is approved to complete the transaction.
You broker can then commence the formal loan application process and align it with the specific property.
3. Negotiate Terms
The contract of sale you receive will have the seller’s terms but remember many of these may be negotiable.
Generally, the following are negotable terms:
i. Purchase price: You can propose a counteroffer based on your assessment of a fair market price.
ii. Deposit amount: This generally a standard percentage of the final price but you can negotiate.
iii. Inclusions and exclusions: Specify which appliances, fitting and fixtures are included or excluded in the sale.
iv. Settlement and possession dates: The dates when the sale is finalised, and you take possession of the property. For example, satisfactory building and pest report or finance approval.
Your conveyancer will negotiate for your interests on your behalf but you need to let them know what terms you are flexible on and what are deal breakers. Keep in mind that it is a two-way street. The seller may want have their own terms you may need to agree to. Not everything is about the final price, it is also about the parties being able to reach terms agreeable to both.
4. Organise Building and Pest Inspections
Many prospective buyers are loath to spending money on building and pest inspections when there are no guarantees they will secure the property. This is understandable but the cost of not getting these inspections done can be many multiple times higher.
These inspections are carried out by qualified professionals who will assess a property’s condition and provide you with a detailed report.
They can reveal as host of hidden problems such as pest infestations, structural damage and other issues that potentially require expensive repairs.
The inspections can help you assess whether to walk away or use the report findings to negotiate the seller repair or reduce the price.
Building and pest inspections should be conducted ideally before you sign the contract of sale. However, in a competitive market you may need to include a condition in the contract for inspections during the cooling-off period. Lenders and insurance companies may also require these reports.
With the above due diligence complete, you are ready to buy. Time to make an offer or wait for auction day.
Buying At Auction
It is likely you will be buying your property at auction, particularly if you are from Melbourne or Sydney where there is a strong auction culture.
While legislation and regulations vary from state to state, there is some preparation you need to do before auction day. Be sure to check what the auction rules are in your state as part of your due diligence.
Firstly, make sure you know the value of the property and what your maximum bid will be before the auction. Auctions by design are charged with emotion and foster competition. You will already know the property’s value from your research.
If you aren’t prepared, you can easily be drawn into intense bidding war, leading you to pay more than what a property is worth. While the property may be scarce and in high demand you need to know when to walk away.
Understand your reasons for wanting the property and how it aligns with your lifestyle. Stay focused on your own goals and do not be swayed by the actions of other buyers; they have different budgets, circumstances, and needs.
Secondly, all due diligence must be complete before auction day. This means you have the building and pest report, your finance is ready, and contract has been reviewed by your conveyancer.
Third, a deposit of 10% of the purchase price is required immediately after a successful bid. Be sure to have this ready for the day. If doing an online transfer, make sure you have set up your daily limit to allow the required amount to be deposited to the vendor’s account.
On the big day, make sure to arrive early and register to bid if required. You should have time to do a final inspection of the property and assess the competition.
Find yourself a good position to observe the auction and be seen by the auctioneer.
When the auction commences bid clearly and confidently, maintaining a calm demeanor. Be polite and professional in speaking with the agents and auctioneer.
Pay attention to the body language and bidding patterns of other bidders. They can provide clues about their level of interest and budget.
If the property does not sell at auction, it is “passed in”. This means the highest bid did not meet the reserve price and negotiations will continue in private away from the auction crowd. Usually, the highest bidder is given the first opportunity to negotiate with the seller immediately after the auction.
Buying by Private Treaty
In contrast to the auction process, private treaty sales offer more flexibility on price, conditions and settlement dates.
The seller lists the property with an asking price or price range via their real estate agent.
Potential buyers make offers and negotiations take place until agreement is reached on price and terms.
Private treaty sales typically include a cooling-off period, allowing the buyer to withdraw from the contract within a fixed timeframe. This will vary by state.
Once agreement is reached, contracts are exchanged, and the deposit is paid. The sale is finalised on the agreed-upon settlement date.
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