The eight steps a property buyertakes after an offer is acceptedBy C McEvoyWednesday, 20 June 2012Today I am writing with the intention of contradicting myself. Yes, I am encouraging people to spend timeon an element of the property investing process that I just recently advised people not to spend too muchtime on! Let me explain. While I did write about the “purchase” itself being the area where you actuallyinvest the least amount of your time in (compared with pre-purchase due diligence and post-purchaseongoing management, of course), Id like to take some time to address the actual purchase process itself,and give an overview of what to expect once youve done all your due diligence, crunched the holdingcost numbers, made an offer and had the offer accepted.Once your offer has been accepted, youll need to act very quickly to meet a lot of deadlines, which canbe very stressful, not because the work needed to reach them is hard, but because there are just somany little things to do, so many people to engage with (and sometimes chase up when they dont act)and little deadlines to meet, all before that “holy grail” of the process: final settlement.An acceptance of offer can be stressful for new investors because there are so many hard and fixeddeadlines to meet – yet there are “unknowns” that need to become “known” , ducks to get in line and newprocesses youll need to learn in order to achieve them. And all the while youll be questioning yourself.Questions like: “is it normal for a solicitor to ask for this form?” or “why does this part have to take solong?” are common, along with more stressful questions like “what am I getting myself into?”, or evenworse “I didnt budget for that cost and Ive maxed my borrowing capacity, but its too late to back out –what do I do?!”.So to best illustrate this I thought Id run you through the typical steps/actions/stages that I tend to gothrough my offer has been accepted on an investment property. I do not have all the answers, but I think Ican shed some light on some of the hoops youll need to jump through, some things to look out for, andwhy time really is your enemy during the process. Its a pretty specific part of the overall process and isactually one of the most stressful. 1) The first deposit. To secure your offer and prevent being gazumped, youll need to get to the agency very quickly, sign contracts, and put down a 0.25% deposit. Lets say your property purchase amount is $350,000. This means a deposit of $875 will need to be supplied to the
agency. You sign contracts (of course, assuming youve had your solicitor/conveyancer already review and discuss this with you) and are now entered in to a “cooling off period” of five to 10 business days. Please be wary that some states such as Tasmania have a completely different approach for offer acceptance, so you should Google your states policies on this. But the most populous states tend to follow this process. Additionally, if you didnt already do this at previous inspections of the property, ask to see it again, taking notes, pictures and videos, along with measurements where needed. It might not seem that relevant now (even if you dont have any renovation or works plans upon purchase), but once you get it tenanted at ownership, it is very difficult for you to get future access.2) Prevention of being gazumped Upon signing, my recommendation is that you ensure the agent agrees to label the property as being “under offer” in any online or print advertising immediately. This deters other enquiries and subsequent offers from coming in. You also reduce the risk of being gazumped (this is where someone places a higher offer than yours after youve entered into cooling-off period, and the vendor “rescinds the sale” with you in favour of the higher offer). Gazumping is frowned upon and measures have been taken in some states to prevent it occurring, however some agents still practise this – remember, they are motivated purely by the best possible selling price.3) Due diligence checks and cooling-off extension During the cooling-off period, you are obligated to do further due diligence. Triple-checking that your finance is all in order with your lender or mortgage representative is critical. If you back out of the sale during this stage, your $875 deposit is not refundable, and the property can be listed back on the market for sale. Also, if you find yourself on day eight or nine in a position where you are still awaiting much-needed information, you can extend your cooling-off period (in most states/territories). Dont think that you cant; your solicitor will help make this happen for you, if needed. Ensure the front page of the contract featuring the “included items” are ticked as per your inspection. For example, if you saw a dishwasher in the kitchen during inspection, make sure that box is ticked. Sounds small, but youd be surprised how many overlook these details.4) Full deposit payment On the last day of cooling off, you are now contractually obliged to buy the property. As such, youll be required to pay a 10% deposit of the property to the estate agency. But you deduct the 0.25% initial holding deposit, so the amount you pay is actually 9.75%. Oftentimes agencies wont accept personal cheques so you may need to get a bank cheque made out. Be aware of how many days this may take to clear and factor this in.5) Additional upfront payments Having done all of your due diligence already, youll know your precise amounts for other payments that are required at this point. These will include lenders mortgage insurance (only if you must pay it, depending on your loan-to-value ratio and also if it is rolled into your mortgage product or not) and apportioned strata, council, and water costs for the calendar quarter during which you purchase (for instance, if your settlement occurs in the middle of a three-month quarter, youll need to pay that six weeks worth of strata/council/water apportioned to the time youve started to own the property, during that quarter). Other fees like lender fees, account fees, etc, may become relevant.6) Final payments in the week prior to settlement. Most purchases have a 42-day (six-week) standard settlement period. This time allows for all other stakeholders (solicitors, councils, government departments and other stakeholders) to work behind the scenes to ensure all details are completed prior to payment. At this time youll need to pay any additional difference in sums, should your loan amount come to less than 90% of the value of the property. Youll be required to pay whatever this difference is, just before settlement. For example, If your loan is for 75% of the value of the home, youll need to pay $350,000 - 0.25% - 9.75% - 75% = 15% which equals $52,500. Again, a bank cheque will be required, not a personal cheque. You need to send this with enough time for the funds to clear, otherwise settlement date will be delayed until it clears.
7) Final inspection before settlement This should take place 24 to 48 hours before settlement date. The purpose of you inspecting the property again is to ensure it is in a reasonable condition similar to when you first exchanged contracts six weeks prior. Obvious things to look for are missing or suddenly damaged or missing items that werent in that condition when you first inspected. (sometimes air-conditioners, dishwashers, etc, magically “disappear” before settlement!), stains or damage on walls, etc, magically “appear”, and (more often in houses than units) rubbish may be present that was not there when you inspected. Especially with houses, check to any garages/sheds/under-house storage does not contain rubbish from previous tenants or owners. Its removal is the vendors’ responsibility, not yours. If refuse, you can delay settlement until they remove it. 8) Collection of keys on settlement day Most states dont “action” the settlement until about 2pm on the day of settlement. Confirm this with the managing agent. You dont want to assume youll have keys at 9am when it could be halfway through the day. It makes a big difference if youve booked a leasing agent to see the property for rental appraisal.Cameron is a NSW-based property investor and maintains a blog, Property Spectator.We hope the attached information is valuable to you in making any decision on the purchase, sale orlease of your property.Best regards,Linda Jane Debello LREA & Carlos Debellohttp://www.ljgrealestate.com.auhttp://VictoriaPtBunkerGillandRealEstate.comhttp://au.linkedin.com/in/lindajanedebellohttp://twitter.com/GillandDebelloWe, at LJ Gilland Real Estate Pty Ltd, take our role as Real Estate Agents with the utmost care and precision to provide objective,impartial, and unbiased opinions about the value of real property by providing assistance in those who own, manage, sell, & investin real estate. When conducting a property appraisal, we consider a series of facts, statistics, & other information regarding specificproperties; analyse this data; to develop an opinion of value. Each appraisal challenges our ability to put analytical skills intopractice, exercise sound judgement, and communicate effectively. We very much appreciate this challenge.Disclaimer: It must be understood that this is an appraisal only and is not a sworn valuation nor can it be relied upon as such.