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“Buy a house” – It’s a fairly simple phrase but it raises a lot of questions: who knew there were so many ways to buy a house?! So let’s start with the basics.
There are 3 common ways to purchase a property – buying at auction, through private sale, or off-plan. Each version has its own benefits and challenges and can suit different buyers at different times, but all ultimately end up with you purchasing that dream property.
Being clear about these different processes can give you the knowledge and confidence to consider a whole lot more options as you set out to find that exciting new property.
Buying at Auction
If you’re looking at a property that is going to be auctioned, it will, as you probably already know, be sold on a specified date through a bidding process.
There won’t be an asking price although there may be a guide price or price range provided. The guide price is based on the sale of similar properties and in no way indicates the vendor’s (seller’s) reserve price or the amount the property may actually go for on the day.
What’s a reserve price you ask? It’s simply the minimum amount the vendor is prepared to accept for the property. They are not required to sell if bids do not reach this amount and neither vendors or their agents are required to tell you the reserve price.
Sometimes the vendor may consider pre-auction bids. This is basically the same negotiation situation as a private sale.
Before the auction
If you decide that you want to bid on a property that’s up for auction you will need to register with the vendor’s agent (the selling agent). You can do this any time before the auction, including on the day. If you do choose to register on the day, make sure you turn up 30-45 minutes early so you have time.
Once registered the agent will give you a bidder’s number and bidder’s guide. If you pre-register you will need to check in with the agent on the day with your proof of identity.
Going to Auction
On the day, the auctioneer manages the bidding process, taking bids from potential buyers and monitoring the current bid price. There are certain steps he will, or may, take, all laid out in the bidder’s guide, so it pays to give it a read so you know what’s going on as bidding progresses.
As the bidding ends, the auctioneer will call for any final bids. Once there are no more bids, they will count down to the ‘fall of the hammer’. After the fall of the hammer, no more bids can be accepted and the highest bidder is legally required to sign the purchase contracts.
There are varying rules for auctions depending on which state you’re in. For example, if you’re successful at auction in NSW, you will be required to exchange signed contracts of sale and pay a deposit (usually 10%) on the spot, with no cooling off period. The rest of the purchase price is paid on a settlement date that will be listed in the exchanged contract.
Good to know
If bids do not meet the reserve price the property might be ‘passed in’ or removed from auction. The highest bidder gets first negotiating rights with the seller.
If you are the highest bidder but do not complete the sale you will lose your deposit and may be liable for damages to the vendor.
This process is why, when looking to purchase at auction, it’s a good idea to attend a few auctions beforehand and familiarise yourself with the environment. The fast pace and all or nothing outcome can become stressful and emotions that might naturally be involved in the purchase of a property can affect our reactions in the moment. Know your financial boundaries, set a maximum bid limit and stick to it to avoid overpaying or committing to a contract that is not in your best interests.
For more help, here are our five tips for buying at auction.
Buying through private sale
Properties sold by private sale will have an asking price and an open-ended sales campaign. Potential buyers are invited to make offers on the advertised property either to the vendor’s agent or to the vendor directly. Such sales can be a little more flexible for both the seller and buyer.
First steps
To purchase a property by private sale you would first ask the vendor/vendor’s agent for the contract of sale and have it reviewed by a licensed conveyancer or solicitor. If you don’t already have pre-approval organised but this is a property you’re really interested in, now is the time to get that sorted.
While this is happening, you might have an inspector conduct building, pest or strata reports, review any previous property reports the agent might have, and consider the impacts such reports might have on the purchasability of the property and their impact on your potential offer.
Making an offer
If the reports are favourable and your finances are ready, you can make an offer. This can happen in various ways depending on the agent and the vendor. It could be by an expression of interest form, email, or another form like SMS or contract of sale. Often real estate transactions use a conditional offer – these are offers that will stand only if certain conditions are met such as passing a home inspection.
You may need to pay a holding deposit at this stage. This will be refunded if your offer is not accepted.
When purchasing a listed property, buyers often have the opportunity to negotiate with the seller or their agent. This can include negotiating the sale price, terms, and conditions of the sale, and any potential repairs or improvements before closing the deal.
This negotiation process can provide additional flexibility for both parties involved and can be facilitated by your chosen property professionals. Keep in mind that it is not always transparent as you don’t know how many others are placing offers for the property.
Finalising the sale
If the offer is accepted, a contract of sale is exchanged and the deposit paid after a cooling off period has passed. This is usually around 2-5 days for residential properties – although some states do not require one – so, as always, be sure to know what you are agreeing to. Your broker, solicitor or conveyancer will help you with this process so don’t be afraid to ask questions!
The sale isn’t finalised until contracts are exchanged. Either the buyer or seller can pull out of the sale, or the seller may negotiate with other buyers for a higher offer.
There is usually a final inspection on the day of settlement, usually with a real estate agent, after which the remainder of the purchase price including stamp duty is transferred and you receive the title deed and keys. Settlement can be negotiated but is usually around 4 -6 six weeks. It’s a good idea to have insurance set up by this point as, from this date, the property is all yours!
Buying off Plan
Buying off plan refers to purchasing a property that hasn’t yet been built or developed. It can be more flexible and affordable than some other options but also has its own considerations.
How do I make the purchase?
As the property is yet to exist, you sign a contract of sale based on building plans and designs. It will have a fixed price although the vendor may consider negotiation in the early stages of sale.
It usually requires a 10 % deposit when you sign – as a bank guarantee or cash deposit. The full balance is paid at settlement which falls when the property is complete. You’ll receive your home loan on the settlement date. Keep in mind that this is months to years after signing the initial contract.
Do your research
This type of purchase has its flexibility and its risks.
Some of this comes from the time till settlement. You may have more time to save until you need to pay the rest of your balance, which can be significant for some buyers, however, the whole process can take several years and construction delays may further increase the time to settlement. This may increase costs, or, if your circumstances change during the course of construction, you may not be able to borrow the amount for which you were pre-approved.
Another concern is that, depending on the terms of your contract, your deposit may not be returned if the developer goes bankrupt.
It’s definitely an option with possibilities but it is important to do your research into the developer and the nature of the contract before you sign. You want to be sure of the risks involved and your financial ability to deal with any changes in your situation, the market, or with the developer as time goes on.
Now it’s time for the next step!
So now that you’ve got a clearer idea about the different ways you can purchase property it’s time to get ready for the next step! Whether that’s meeting with your mortgage broker or finance professional, or grabbing that coffee and really getting into those market listings, today’s the day to do the next thing to get you into the property market.
Just remember that each home buying process has its pros and cons, so take quality advice where you can get it, do your research and know your financial boundaries. Good luck!
