Whether you’re buying or selling a home, it’s important you understand the essential terms and conditions of the contract of sale.
Engaging experienced, independent legal advice during the sale process is the best way to do this. A legal professional experienced in real estate and conveyancing matters can take you through the most important elements of the contract.
For a potential buyer, two conditions that generally need to be met before you can proceed to a settlement of the property are that you have finance approved and that a building and pest inspection has been conducted. This article looks at both of these in more detail.
Finance approval
The Real Estate Institute of Queensland’s model Contract of Sale, approved by the Queensland Law Society, is a good example of a typical real estate contract. Apart from essential details like the price you are offering for the property when you will pay your deposit, and the time and date of settlement, it includes a provision in the schedule for the contract to be “subject to finance”, and that a building inspection and/or a pest inspection is conducted if required.
Clause 3 of the REIQ contract provides that the contract is conditional on the buyer obtaining approval of a loan for the sale amount from the financier by the required date “on terms satisfactory to the buyer”.
The expression “on terms satisfactory” means a buyer must act honestly in deciding whether any finance offered suits their particular needs.
It is important to note that clause 3.1 specifies that a buyer must take “all reasonable steps” to obtain approval. A buyer is not able to escape contractual obligation simply by not applying for finance. A failure to apply for finance approval may constitute a breach of contract that would entitle the seller to both keep the deposit and recover damages if they can show they suffered a loss (not including the forfeited deposit).
When there is a failure to obtain the type of finance specified and that failure is not due to a fault of the buyer, the buyer has the right to terminate the contract and to receive all deposit monies back.
Buyers need to be careful before they advise that finance approval has been obtained. They and their legal representative should check the finance meets their needs and reflects the product they applied for. Approval subject to valuation, for example, means the finance approval remains conditional. Before advising of approval, a buyer needs to ensure it is unconditional because they could lose their deposit or be sued for any loss incurred by the seller if the financier then decides not to approve the finance.
If a buyer feels that any conditions may not be finalised by the applicable end date, they should seek legal advice from their legal representative as soon as possible. A request can be made of the seller for an extension to the condition date. It is the seller’s discretion whether or not to grant the extension.
Property inspections
A contract is conditional upon the buyer obtaining a written building and pest report from a licensed inspector on the property by the inspection date, on terms satisfactory to the buyer.
Building, pest and swimming pool inspections are the most common type of inspections. Ensure the inspector holds a current licence from the Queensland Building and Construction Commission. The cost of the inspections will vary between contractors, and you would be advised to seek quotes for the inspections before they are carried out.
A licensed inspector will be required to ensure a swimming pool meets safety regulations, including signs and fences, and relevant construction standards.
Building and Pest Inspections are typically done within 14 days from the date of the Contract. As a buyer, you can terminate the contract if, acting reasonably, the inspector’s report is unsatisfactory regarding the property. If requested by the seller, the buyer is required to provide the seller with a copy of each report (if more than one) without delay.
You need to have regard to the overall condition of the property when deciding if you are acting reasonably concerning the Building and Pest Report.
If you are not happy with the report, you will generally have 3 options under the standard Contract, namely:
- Terminate the Contract. Providing you have acted reasonably, the Seller must refund the Buyers Deposit and the Contract will be at an end;
- You can request that the Seller fix up the issues identified in the Building and Pest Report. It will be up to the Seller whether or not they agree to do any works. If the Seller decides not to do any works, the Buyer can terminate the Contract;
- The Buyer can request a reduction of the purchase price from the Seller on the basis that the Buyer will undertake the necessary works to fix the issues in the Building and Pest Report. Again, it will be up to the Sellers discretion whether or not to agree to this. If the seller does agree, the Buyer will also need to notify their financier of the reduction in the purchase price.
The cooling-off period
A cooling-off period of five days applies to contracts for residential property. A buyer can change their mind about the sale during this time. This does not apply if you buy at an auction.
The steps involved in buying a property can be stressful and time-consuming but the process can be made a lot smoother if you have experienced legal professionals like Big Law on your side. We have years of experience in property and conveyancing matters, including advising buyers on some of the issues around finance approval and property inspections we’ve touched on in this article.
Big Law can assist you in negotiating the Contract terms or act on your behalf if you have already signed a contract. Strict time limits apply to Contract Conditions so you should not delay in contacting our conveyancing team at Big Law.
If you have any questions about buying a property, contact us as soon as possible on (07) 3482 6999 or [email protected].
