How To Buy a House in NSW [2020 Guide]
Your Guide to Buying Property
Buying a home or apartment is one of the most significant investments and biggest decisions of your life. Think about it, with property values gradually increasing (especially in Sydney with property prices going through the roof), you want to make sure you understand your legal rights before you start out.
Buying a new home is a huge commitment and you want to do your homework and cover all of the legal bases before you commit. Our guide will take you through the home buying negotiation process and what to expect in terms of home price.
- Your Guide to Buying Property
- Different Ways of Buying a Home
- The Buying Process
- Types of Ownership
- Cost of Property
- Settling Your Purchase
- Speak to Your Solicitor
Things to Know Before Buying a Sydney Home
Buying a property in the Sydney property market is a significant and important decision to make, and no doubt, it can become a complex and a stressful process if you do not have an experienced property lawyer to guide you and provide you the best conveyancing service along the way.
There are a few steps to think about before buying a property in NSW. We provide the following guide of some important aspects to know before buying a property:
Purchasers should ensure they speak to their mortgage broker or financial institution about borrowing capacity and finances available for the purchase a property.
Purchasers may be unaware of the potential value of the property and if so, a quick property valuation report could be conducted to provide a clearer idea of the market value.
3. Contract for Sale of Land
This is the agreement between the Vendor and the Purchaser. It sets out the rights and obligations of the parties, amongst other things. If you are unsure about what to do with the Contract for Sale of Land, you should seek assistance from a Property Lawyer.
4. Open Inspection
Once a property is found either online, in the newspaper or by other means, you should inspect the property on the open inspection date and determine if the property is right for you. You should contact the relevant Sydney Real Estate Agent to obtain the dates for building inspections.
5. Inspection of Property
Depending on the type of property being purchased, the Purchaser may wish to obtain a Strata Inspection Report, Community Title Inspection Report, Building Report, Pest Report, Building and Pest Report, Neighbourhood Report, Survey Report, Home Warranty Report, Structural Engineer Report and much more. This may help identify any issues with the property.
6. Stamp Duty
Purchasers should check the amount of stamp duty they may be required to pay on the Contract.
Purchasers should consider the amount of the deposit required to be paid upon the signing of the Contract for Sale of Land. If the deposit is to be held by the Sydney Real Estate Agent, you should contact the agent to determine how the deposit is to be paid.
8. Engage a Sydney Property Lawyer or Sydney Conveyancer
It is always a good idea to engage the services of a property lawyer or Sydney conveyancer who conduct and manage conveyancing day in and day out. A property lawyer or a Sydney conveyancer will assist you with all aspects of the Sydney conveyancing process.
Quite often in Sydney conveyancing matters, a legal argument arises or a legal document needs to be drafted which a Sydney conveyancer usually cannot assist with. If this occurs, you can rest assured that we have a team of solicitors at your disposal to deal with negotiations or drafting of legal documents.
9. Let the Buyer Beware
Caveat Emptor or “let the buyer beware” is a common law principle, which means that the purchaser buys the property at their own risk and should examine the property for any defects, pests or imperfections.
You should always keep this principle in mind as, under the strictest interpretation, Caveat Emptor prohibits a purchaser from recovering damages from a vendor for any defects in the property once the sale is complete.
While this principle has been amended somewhat in the UK, America and other common law countries, it still remains and should be a cautionary note for home buyers of New South Wales realty.
10. Cooling-off period
Purchasers generally have the benefit of a cooling-off period, which allows them 5 days after the contracts have been signed and exchanged to get their finance in order and conduct any inspections. The duration of the cooling-off period is often negotiable. During the cooling-off period, the purchaser has the assurance that the vendor cannot sell the property to another buyer.
When a purchaser is afforded a cooling-off period, it is important that they undertake any due diligence before the cooling-off period expires.
The cooling-off period can be waived by a section 66W certificate or where the property is sold at auction or by an option to purchase. At this point, the purchaser will be buying the property in its current condition at the date of exchange of contract and should they then choose to not go ahead with the purchase, then they would generally lose (or be liable to pay) 10% of the purchase price to the vendor.
If a cooling-off period is waived, the purchaser should perform all their due diligence prior to signing the contract. The cooling-off period was originally designed to stop vendors searching for a better offer while holding a purchaser to a contract, a practice known as “gazumping”.
11. Due Diligence
As a buyer, due diligence is the process of ‘investigating’ the property you are looking at purchasing to find out any material facts.
Depending on the property being purchased, the purchaser should generally undertake their own due diligence by conducting the following steps:
- apply for a building and/or pest report
- apply for a strata report
- review the entire contract for the sale of land thoroughly
- make any appropriate enquiries with the Council, neighbours, banks, strata managers, solicitors and other relevant parties
- ensure finances are in order
Remember, the cooling-off period provides time for the purchaser to conduct the above steps and make an informed decision about whether they wish to proceed with the purchase (or walk away from the contract and forfeit their initial deposit).
If the vendor is not willing to provide a cooling-off period, you should conduct the above steps before signing the contract.
Different Ways of Buying a Home
There are two main methods you can buy a home in NSW: either through a private treaty or at auction.
When you buy a property in NSW by private treaty, you buy it directly from the seller. Many sellers advertise their properties with specific prices that they would like to get for their property. These prices are negotiable, and in fact, most sellers expect their prospective buyers to negotiate.
Once you agree to buy a property from a seller, you have to exchange contracts to activate the contract for sale. This means that contracts have to be signed, dated and the deposit paid. The amount of the deposit is typically 10% of the agreed upon price of the property. However, the deposit amount may be negotiated with the seller.
Paying a deposit does not mean that the sale is finalised. Contracts for sale in NSW come with a 5-day “cooling off” period that allows you, the buyer, to ultimately change your mind and rescind the contract. Should you rescind the contract during the cooling-off period, you will lose 0.25% of your deposit already paid. However, some sellers insist that the sale of their property does not come with a cooling off period and if this is the case, then you will need to conduct all your due diligence before exchanging contracts. Then, if you wish to proceed, you will need to ask your solicitor to waive your cooling off rights by signing a certificate known as a section 66W certificate.
When you buy a property at auction, you are generally bound to buy it if you’re the highest bidder. This may sound daunting, but it really doesn’t have to be.
To minimise the risks of buying a home at auction, you should go through the Contract for Sale with your solicitor BEFORE the auction. This way, your solicitor can negotiate with the vendor’s solicitor about any terms that may seem unfair to you.
In addition to having your solicitor review the contract, you should arrange to do all your due diligence on the property BEFORE the auction. This includes obtaining building and pest reports, strata reports, valuation reports and any other relevant reports depending on the home you are looking to purchase. Your solicitor should recommend the type of reports that you should obtain before the Auction. Also, make sure that your finances are all ready and set to go before you attend the auction because if you win at auction, you want to make sure you will have enough money to pay for the property on or before settlement.
Once you know the Contract for Sale will be in your interest, you can go ahead and bid on the property.
Strata Title Property
When you buy an apartment or townhouse in NSW, you’re most likely buying a strata title property. In addition to buying the property, you also become a proud member of the owners’ corporation.
When you own a strata title property in NSW, you have to obey special rules known as by-laws. You also have to pay strata fees, known as strata levies, to keep cash flow for maintaining parts of the apartment complex that you own jointly with owners of the other units. For example, you have to pay for repair and maintenance that may not affect you directly.
Before you buy a strata title property, it is important to consult your Sydney solicitor and get the details of all activities of the owners’ corporation, such as the owner’s corporation financial position, as this may affect the appraised value of the property. To do this, you can ask your solicitor to arrange a strata report for you.
Housing developers in NSW often pre-sell properties they are going to build to raise capital. When you buy one of these properties, you’re buying it “off the plan”.
You usually pay a reduced price for an off the plan property. If the price of the property goes up by the time you settle, you make a capital gain. Also, in most cases, since the property has not been built yet, you have the flexibility to choose colours and materials according to your preference, in accordance with the contract.
However, there are also certain risks involved when buying off the plan properties. For instance, the property market can go down while your property is being built, and your property could be worth less than what you paid for by the time you settle. In addition, there’s a chance the completed property may not live up to your expectations.
It is critical that you have your solicitor review and advise you on the off the plan contract before you proceed with the purchase. Again, this way your solicitor can negotiate with the vendor’s solicitor about any terms or special conditions that may seem unfair to you.
Need financial help to buy a property? A mortgage agreement is a good option. In most cases, this agreement implies the conditional right of ownership on a property by its owner to a lender as collateral for a loan. The lender’s interest is documented in the register of title documents to make it public information and is voided when the loan is repaid in full.
Virtually any legally owned property can be mortgaged, although real property (land and buildings) are the most common. To pay, you have two options: fixed vs. variable payments. If you aim for a higher loanable amount, consider getting mortgage repayment. If you want an overview of how much you’re going to get, here’s a free mortgage calculator.
The Buying Process
So you’ve decided to buy a home in NSW. Congratulations! It’s time to ask the seller for a copy of the contract for sale. If you haven’t already found a conveyancer or solicitor, you should find one now.
Contract for Sale
The contract for sale is a very important legal document. It contains all the terms and conditions of the transaction. Regulations require a seller to disclose all information about a property and include all relevant documents and certificates in the contract for sale. Some common documents included are:
- special conditions
- the zoning certificate
- the property certificate
- the plan for the land
- the sewerage diagram
- documents showing restrictions and easements
- the strata plan, if it is a strata title property
Since the contract for sale is prepared on behalf of the seller, it may include terms that favour the seller but may seem unfair to the buyer. That’s why it’s critical for you to go through the contract with your solicitor in detail. Your solicitor will then negotiate with the seller’s solicitor to change clauses that are not in your interest.
Unless specified otherwise, fixtures in a property are automatically included in the sale. These fixtures include all items that can’t be removed easily. For example, appliances that are wired in are considered fixtures. It is to your best interest to include as much detail about the fixtures as possible in the contract for sale, by including specific special conditions relating to the fixtures before paying with earnest money.
To make the contract for sale a binding document, both you and the seller must each sign and date a copy of the contract and exchange them. At this point, you also need to pay a deposit on the property. This usually amounts to 10% of the home price.
When you buy a property, you’re expected to receive it “as you find it”. However, some defects may not be obvious to the untrained eyes. Therefore, it’s best for you to hire a professional home inspector to look over the property before you settle. If you’re buying a property at auction, the inspection should be done before the auction.
Your solicitor should also make sure that the contract for sale includes all the warranty certificates for any work done on the property, a building certificate, as well as a survey.
Types of Ownership
If you’re buying a property with other people, there are two types of ownership you can consider.
- Joint Tenants. Joint tenants mean that two people own the property and making monthly payment jointly. When one person dies, his or her ownership automatically transfers to the other person. This type of ownership is very common among married couples.
- Tenants in Common. Under this type of ownership, people who co-own a property each own a share of it. They can sell or pass on their ownership to anyone.
Cost of Property
A mortgage allows someone to borrow money against a property he or she owns or against a property they wish to purchase. The loanable amount depends on how high their household income and credit score will come to be. Credit score is determined from a number of factpricesors, including payment owed, length of credit history, amounts owed, and types of credit used such as retail accounts and credit card. It also gives the lender the right to the property when the borrower fails to pay back the money owed.
If you’re new to mortgage home loans, your solicitor will explain the rules and your obligations to you or refer you to a specialised mortgage broker before you rush in and deal with a mortgage lender.
When you buy a property in NSW, you have to pay a stamp duty on the property at settlement. This amount depends on the property price range that’s indicated in the tax returns. Here, you may need the help of a stamp duty calculator. However, sometimes you can waive this payment if you’re buying your first home or if you’re buying a newly constructed home. The laws for this are constantly changing, so it is important that you speak to your solicitor to obtain the relevant advice at the time you come to purchase a property.
In addition, if you’re buying a real estate property from a real estate agent for purposes other than residential uses, you may be subjected to other taxes including GST and Land Tax. It’s best for you to consult your solicitor to make sure that you’re not unfairly charged with the cost of these taxes.
Prior to Settlement
I often notice when clients arrive at my office excited about purchasing a property that they don’t consider the few crucial steps that need to be taken before the settlement can be completed.
One of those steps that needs a little more attention is performing searches to ensure that the property is not affected by any government authority.
In most conveyancing matters (after the exchange of contracts takes place), three mandatory searches are performed:
- Land Tax Certificate (Section 47 of the Land Tax Management Act 1956) from the Land Tax Division of the Office of State Revenue;
- Local Council Certificate (section 603 of the Local Government Act 1993); and
- Sydney Water Certificate (Section 66 of the Sydney Water Act 1994).
What is a Land Tax Certificate?
The title is a dead giveaway; a Land Tax Certificate shows if there is any land tax owing or levied on the property.
What is Local Council Certificate?
Not as obvious as the Land Tax Certificate, this certificate sets out a number of the annual rates and charges levied by the Local Council. It shows any outstanding rates and charges, any arrears and interests.
For Outer Sydney Metropolitan properties, Local Council Certificates can be obtained from Councils in the following:
- Hills Shire
- Shire of Hornsby
- Parramatta City
- Ryde City
- Auburn City
- Holroyd City
- Blacktown City
- Penrith City
- Fairfield City
- Bankstown City
- Liverpool City
- Campbelltown City
- Sutherland Shire
For Inner Sydney Metropolitan properties, Local Council Certificates can be obtained from Councils in the following:
- City of Botany Bay
- Burwood, City of Canada Bay
- Canterbury City
- Municipality of Hunters Hill
- Hurstville City, Kogarah City
- Lane Cove Municipal
- Leichhardt Municipal
- Mosman Municipal
- North Sydney
- Randwick City
- Strathfield Municipal
- City of Sydney
- Waverley Council
- Willoughby City
- Woollahra Municipal
What is a Sydney Water Certificate?
As Sydney Water Corporation services properties situated in Sydney Metropolitan areas, a water certificate is issued by it.
The Sydney Water Certificate should show the property details, service charges (for water and sewerage), water usage and last meter reading details and average daily usage.
There are many other searches that can be conducting for your property.
In addition to the mandatory searches, you may also like to request your solicitor or conveyancer to conduct searches with one of the following authorities:
- Department of Education and Communities (formerly Department of Education & Training)
- Roads and Maritime Services
- Rail Corporation NSW
- Minerals Resources
- Mine Subsidence Board
- AGL Gas Networks and the East Australian Pipeline
- Department of Planning, Heritage
- Ausgrid (formerly Energy Australia)
- Essential Energy (formerly Country Energy)
- Endeavour Energy (formerly Integral Energy)
- Jemena Gas Networks (formerly Alinta AGN)
- Forests NSW, Native Vegetation, Soil Conservation
- Department of Natural Resources
- Department of Defence
- NSW Trade and Investment
- East Australia Pipeline
- NSW Office of Water
- Livestock Health and Pest Authority (formerly Rural Lands Protection Board).
Settling Your Purchase
The contract for sale usually includes a date of settlement. On this day, you’ll need to pay all the money owed to settle your purchase. Besides the price of the property (minus the deposit), you also have to pay taxes, rates, and levies.
You don’t have to settle your purchase in person. Your solicitor will meet with the seller’s solicitor and settle on your behalf. A representative of your bank or lender may also be present if you have taken out a mortgage on the property.
After the settlement is complete, your name will appear on the Certificate of Title, and you become the official owner of the property. Your solicitor will also register the Certificate of Title at the Land Title Office.
If you can’t settle on the agreed upon settlement date, you’ll likely be charged with interest. The seller also has the right to cancel the sale, in which case you’ll also lose your down payment. If you don’t think you can make the settlement date, let your solicitor know right away so that he or she can negotiate with the seller’s solicitor.
Buying a house in NSW is both exciting and overwhelming. There are so many details you have to pay attention to. Here are some key things that you should consider before you buy a house in NSW.
Is It Within Your Budget?
Buying a house in NSW is one of the biggest financial commitments in your life. You will likely need to get a loan for the property, however before you do that, you need to look at your financial situation and determine how much you can afford to borrow.
It is important that you talk to a lender, including your financial institution, about various financing options such as:
● Home loan
● Short term credit
● Credit card
Is It What You Expect?
When you buy a house in NSW, you should visit the property to make sure that it matches the description given to you by the seller and/or agent. The seller is required by Australian law to disclose information, such as easements and restrictions, to you when you express interest in buying the property.
Before you sign a contract for sale, you should inspect the house to make sure that there are no major defects or structural damages, including leaking roof and cracked walls. It’s best to hire a professional inspector to perform the pre-purchase inspection and obtain either a building report or building and pest report of strata report (if you are purchasing a unit).
You should also check for things that aren’t usually covered in the property inspection report such as:
● Smoke detectors
● Air conditioning
● Swimming pools
● Electrical wiring and plumbing
● Inclusions marked on the front page of the Contract are all in working order.
A pest inspection is also a good idea because pests living within the structure of the property may not be obvious.
Making an Offer
Before you make an offer to the seller of the house, you should talk to a Sydney property lawyer or conveyancer. The contract for sale is a complicated legal document, and it’s important that you review it carefully with your lawyer before you sign it. During this time, your property lawyer or conveyancer can ask for amendments to be made to the Contract, so as to protect your interests.
Sometimes the seller may ask you to make a deposit when you show interest in a property. This doesn’t mean that the seller has to reserve the house for you. He or she can sell it to someone else and give you back your deposit. You can also change your mind and get a full refund of the deposit.
However, once you and the seller unconditionally exchange the contracts for sale, the seller can’t sell the property to other people, and you are obliged to continue with the purchase of the property.
Speak to Your Property Lawyer
The process of buying a house could be overwhelming, but your solicitor can help to guide you through it. The more you understand your legal rights and understand the process, the easier and less overwhelming it all is.
If you’re looking to buy a home, or still deciding whether to rent or buy, you should contact your property lawyer as soon as possible.