How to Avoid the Risks Involved in Buying a Home
Property | Podcast
When it comes to buying one of life’s biggest assets, it goes without saying that you need to minimise the risk of things going wrong. In this podcast, Lawyer Tim Neville discusses the risks involved in buying a home and how to avoid them.
Dan: When it comes to buying one of life’s biggest assets, it goes without saying that you need to minimise the risks of things going wrong, and today I’m talking with Tim Neville, lawyer from South Geldard Lawyers about the traps when buying a house. Tim, what do you need to know before you attend an open home, make an offer and signing the dotted line?
Tim: Yeah, thanks, Dan, thanks for having me. Look, it’s an interesting time we’ve got at the moment. The markets are going crazy and everyone’s out doing things and it’s with an unprecedented number of contracts coming through. And it’s just surprising how many people are going and signing on the dotted line without having even spoken to a solicitor or a broker or anything. There’s obviously a lot to be considered before you go and enter into contract and like we say here, our doors are always open for someone to come and have a five-minute, ten-minute chat before they do so because they really are kind of, I guess we put it as five key considerations that someone should know about before they sign on the dotted line.
The main things there are that… I guess we’re all going through the same process. We look on domain or realestate.com or something like that, we find a house and we go to the inspection and we’re probably pressured almost to sign on the dotted line on the day. So, one of the things I guess that everyone needs to know is that from 5:00 PM the next day, the property is at the risk of the buyer. What that means is they’ve got to go and take out insurance pretty much straight away if anything happens to the property. Obviously, there’s still a right to terminate under building and pest and finance, but the contract says that the risk is at the buyer from 5:00 PM the next business day after signing.
What that means is, I guess we’ve seen it in Rockhampton, if you’ve entered a contract and five, ten days later, a hailstorm comes through under the contract, you’re at risk. So you’re liable for that damage, and your insurer is the one who’s going to be relied upon to have that roof rectified. Now, obviously, common sense says a lot of sellers don’t terminate their insurance, but they’re not obliged to maintain it. So one of the first things to know is you have to take insurance out straight away. The next thing I guess you’re considering is you’re going to have a standard contract, you’re going to have a deposit that needs to be paid. You need to make sure obviously your names are correctly identified and the property is correctly identified.
You then need to make sure that you’ve got, I guess, sufficient time in that contract to arrange the two main things, and that being your financials and your due diligence. So from a financial perspective, we’re seeing banks are so busy that really what used to be 14 days for finance and 28 days for settlement has blown out to three, four, or five weeks. So you really need to, if you haven’t already started speaking to a broker or a bank, know what time frame is appropriate. We’re saying at least 21 days is probably a good benchmark. Obviously, if we’re acting for someone, we can seek extensions from the seller, but they’re under no obligation to give those extensions.
So, in the sake of making sure you lock yourself in and you give yourself the best chance to buy this house that you got your heart set on after you put your offer in, making sure that you’ve got a finance provision that gives you 21 or 28 days to go and get yourself sorted is really important. You then got, I guess, building and pests, you’re going to go and get an inspection done. Your problem with building and pest inspections is they seek to waive every bit of liability throughout the whole process, and they don’t cover everything. So as much as you’re building and pest inspection will be a certified inspector going to look at the house and identify any significant issues, they often don’t look at electrical.
If you’ve got solar on your roof, they don’t look at the solar panels, and if you’ve got a pool, whilst you get a pool safety certificate, they’re not going to look at actually the hardware that’s in that pool, whether it’s the filters, the pumps, the skimmers, and things like that. I know I’ve done it personally, you go and call someone like Clark Rubber or a pool maintenance guy, and you get him to go inspect it. You’re allowed to do that under your building and pest provision, and the amount of times we’ve seen someone buy a house within a month or two, all the filters or something are blown on the pool and they’re up for a couple of thousand dollars. It’s really something they probably should have identified in building and pests, but they’ve failed to.
The only other real thing is to make sure if you’ve got specific requirements, so if you’ve got, and we’re seeing this a lot in Rockhampton after the hailstorm, if you’ve got a condition that you are purchasing this contract, purchasing this house on that basis. So if the condition is that the roof is going to be replaced, you really need to make sure that the special condition is in order and protecting you adequately if you’re going to sign this contract. So a lot of guys, a lot of real estate agents will have a bank of clauses that they’re out there and they’ll roll out because they’ve seen them in previous contracts. But speaking to a solicitor for five minutes before you sign, like you say, the biggest deal of your life to make sure you’re adequately protected and you’re going to get a new roof as you intend to is probably one of the most important things.
Dan: Yeah, so true. Particularly, as you say, given there’s a lot of heat in the market, the inclination of buyers is potentially just to go out there and sign contracts.
Tim: Well, that’s it. It’s almost, and I’ve thought about it myself, in Rockhampton, all Queensland compared to, say, Victoria and New South Wales, the deposit percentage that we pay is typically something like $1,000 or $2,000, it’s a nominal amount. But down south, they’re entering what are essentially unconditional contracts.
They go and get their finance first, they sort out their building and pest before they enter the contract, and then their only really termination right is under cooling off, which will be the five business days after they sign the contract. Up here, you can go and sign a contract, pay a thousand dollar deposit. Essentially, you’ve locked yourself in as long as you ensure the property and mitigate that risk.
You could run around and have five houses on the go and pick which one you wanted, which one was the best. Like you say, the market is crazy. There’s a lot of pressure, I think you can go to a lot of these open houses, half of them are under contract already or three people want to make an offer already. So by the time you get to Saturday afternoon after the inspection, the agent’s telling you, I’ve got three offers and we’re doing multi-offer, and it has to be settled by 5:00 PM Sunday.
Well, that’s half your issue. How do you go and get the advice to deal with it? So being a little bit proactive and going and speaking to, I guess, a solicitor beforehand, and no one’s going to charge you really to give you the pre-contract advice if they’re going to do a conveyance afterwards. At the end of the day, we want to make sure as much as anyone that you’re not going to get dudded on a deal and if we know there’s a conveyance and a job after it, the five, ten-minute conversation is just what we do.
Dan: Yeah, so true. Tim, what happens during the contractual process between signing and settlement, just from a legal perspective?
Tim: Look, from a legal perspective, like we say, we’re ticking those boxes to make sure you’ve paid your deposit, you’ve taken out insurance. Obviously, the buyer is going to take away and go to their bank or their broker with the relevant documents and seek to get an unconditional finance approval. Obviously, sometimes there’s conditions that get attached to that finance approval.
Properties may need to be transferred or debts may need to be paid off, a credit card may need to be paid off. Sometimes we have to do credit repair matters and get things removed on someone’s credit file. But the finance side is particularly dealt with by a broker or a bank and at the end of the day, we get a letter from the bank or the broker that says unconditional approval. Obviously, we then check with the client, make sure they’re happy with it, because every finance approval is different.
Some will take out additional security over properties, so if you have more than one property, they may seek to take out additional security. Sometimes you’ve got to consider the rate that they’re charging, the interest rate and I guess there’s probably a few other financial implications in terms of knowing what insurance is going to cost you, what rates are going to cost you, what your land title, registration, and stamp duty fees are going to be.
So all those things are disclosed in that financial side before you go on unconditional with respect to finance. From a searchers and a due diligence or building and pest respect, we at South Geldard typically order five or six searches that maybe some other firms don’t because we want to be thorough.
The last thing we want is you coming back to us in two years’ time and saying, my shed is not approved and council wants to have it removed, or so and so wasn’t done through a proper builder. It was an unapproved, unimproved work, and now I’m up for basically getting it rectified, and the costs have to be borne by the buyer, not by the previous seller.
Things we’re looking at are town planning records, building and plumbing records, contaminated land, even main road search to identify if main roads wants to acquire your property within the next five years, which we’ve just started to see, obviously, between that passage between Yeppoon and Rocky, there’s some houses that obviously main roads has an interest in acquiring. You could go and purchase that property and, basically, if that public notice is there that that property is being acquired within five years, you could put all your heart and soul and effort into this house and done a renovation and all sorts of things. Mainroads just acquires it from you.
Dan: Yeah, well, that’s huge.
Tim: So as long as those things are taken into consideration and we give some valid consideration to your due diligence before you tick that box and say, I’m unconditional, after that it’s really just a numbers game. We’re looking at the rate search, we’re calculating what the seller has to adjust in terms of they may have paid their rates, we’ve got to refund them some. They may not have paid their rates, we’ve got to pay council the rates, and we’ve got to get some money back from that. So it’s really just adjusting it so that everyone’s fair under the contract. The adjustments are taking place and taken care of and then we’d attend settlement for someone. So obviously a lot of our settlements now are electronic, we’re settling through Pexa, but there’s still a fair few paper settlements that run around and obviously we’ve got to get checks, and go down to the bank and attend settlement with all the paper documents and get all those things signed. That’s what takes place during the process.
Dan: Tim, I’m assuming that the standard REIQ contract as well would probably be deficient in some circumstances. Do you find that?
Tim: Look, it does and that’s what I was saying about making sure you know what you want when you’re purchasing a house in terms of possibly having us draft special conditions for you, and I think the notion of due diligence, which is really just a term for any inquiry you want to make into a property, is really the clause that gives you an almost like a get out-of-jail card if you don’t want to buy this house for any reason you want.
What we’re looking at there is saying, I can go and make any inquiry with respect of building and so. Currently under the contract, I guess most people who enter it make their contract subject to building and pest and subject to finance. Your problem is if I go and find a search, and I can do as many searches as I want, I can go and look at QBCC records to see basically where the home warranty insurances exist. I can see whether the roof has had final inspections after it’s been replaced, or I can see if final inspections have been conducted on a minor renovation in a bathroom, whatever it is.
The issue is that if I don’t have a clause such as due diligence that deals with that issue, you can sometimes run into a situation where you can’t rely on that report you’re seeking to rely upon or that search to actually terminate your contract. In most instances, obviously, everyone’s pretty amicable about the situation, and you use it as a bit of a negotiation tool. So you may, under your building and pest, seek to say, In terms of us to satisfy it, we want X, Y, and Z to be completed. But in a similar vein, the sellers can be under no obligation to do it if you don’t have the correct clauses and things in place.
Dan: Yeah. Tim, you’d have to have rocks in your head to go this alone, wouldn’t you? I mean, it’s a major asset, and things do go wrong.
Tim: Oh, look, we see things go wrong. I guess the risks there are who you’re relying on. So obviously, you want to build a rapport with your banker and your financier. You want to build a rapport with your solicitor or a conveyancer, or a paralegal, whoever’s looking after it. But even when you’re going and doing searches or getting reports done, there’s a real lot of trust and reliance placed on your building and pest inspector.
So being able to pick up the phone and talk to them and have a discussion afterwards is often quite useful and I know a number of the building inspectors in Rockhampton, for example, will do that. They’ll give you a 10, 15-minute conversation after to discuss anything if you’re concerned. But you don’t have to go these things alone, that’s what we’re here for. That’s what all the professionals who are dealing with the transactional worker, therefore, they’re there to guide you because we see it all the time. Obviously, 95 % of matters go through without a hitch. Everything’s ticked nice and easily and everything’s sorted.
But it’s that one, two % is where there’s big issues, and you can’t come to an agreement that you really. Because people will still go at this alone. They’ll try and do the whole process by themselves. But you do run into some issues like having to stamp your contract prior to settlement. It’s quite difficult if you were to go it alone as a purchaser. You’d have to send your documents down to the Office of State Revenue to get those things sorted. For the cost of what, 99 % of the time is under a thousand dollars for legal fees, like you say, hundreds of thousand dollar purchase, it’s really a no brainer.
Dan: Yeah, so true and it also emphasises the point of people that may choose not to do it themselves, but they’ll go for the cheapest conveyancing they can find, and similarly, put a lot at risk. Now, at South Geldard, given the diverse nature of the practice, if things do go wrong in those one, two % of matters, you’ve got the support there of lawyers who have got a wealth of experience in terms of trying to resolve these type of issues as well, which a lot of these cheap conveyancing just simply don’t have.
Tim: And that’s a hundred % true. You look at us here, we’ve got four directors who between them have close to or more than 100 years of legal experience, and if I have a problem, whilst I might think I know the answer, it’s always useful that I can go and check it with someone like that, someone who’s done 201 conveyancers before me and seen this issue pop up before and knows exactly where to look, what questions to ask, and how best to deal with it and it’s something we do see and I get clients, and all they’re concerned about is the dollar figure and you look at it, and if that’s your main concern, I can tell you who’s the cheapest and who’s going to cost you the least to do this process, and you look, maybe there’s no issue at the end of the day, the whole thing goes through and they get a seamless process. But if something does pop up and you have someone who doesn’t necessarily have a legal background and understanding of the true implications of the REIQ contract and what you’ve entered into, you can really come unstuck.
Dan: Yeah, so true. Tim, if anybody’s got any questions, they can obviously reach out to you at South Geldard Lawyers.
Tim: Yeah, we’re always here for a chat. Anytime anyone’s to call 4936 9100. I’m happy to have a chat with anyone anytime.
Thank you for listening. If you have any questions, don’t hesitate calling South Geldard Lawyers on 07 4936 9100. Thanks.