Dan: When it comes to selling your property, there can be plenty of questions that can emerge and it can be helpful to slow down the process and consider it all as a range of various steps. Now in part two of this two-part series, we discussed the second aspect of the process, which is all about the contract. And to discuss it, I’m with Sylvia Lopez, a partner at Big Law. Sylvia, lots of things to consider in terms of contracts.
Sylvia Lopez: There is, Dan. So we’re now at the part where you’ve listed your property, it’s all gone great. You’ve got the asking price that you wanted and someone’s ready to put pen to paper with you to buy that property. So there is a standard contract that is traditionally used in Queensland by agents, and most agents will prepare that contract for you as the seller and provide it to the agents. So in this podcast, we’re covering what does that contract provide for, and are there circumstances when you may wish to include special conditions into the contract?
Dan: Okay, so at the outset, I’m assuming that the first thing that people have got on their mind is you know the building and pest because they’re the things that potentially might make a contract fall over. So let’s talk about those.
Sylvia Lopez: Okay. So there are three standard conditions in the standard contract that’s used. One of them, you’re quite right, is the building and pest conditions. So when you sell your property, a buyer may like to make the contract subject to a building and pest inspection being undertaken by a qualified contractor. So the idea behind that is the buyer can have their contractor come in, have a look at the property to identify any defects or any maintenance issues that may need to be attended to post-settlement just so that they know what they need to take care of as well as looking at any pest issues. So things like termites are the big-ticket items that are covered off.
So typically if a buyer wants to do that, the contract will be subject to building and pest, and it will allow them, usually, a 14-day period in which to go and get that building and pest inspection done. The contract then says if they’re happy, then that’s great. The contract then becomes unconditional with respect to that condition. If they’re not happy, they can either try to renegotiate the purchase price with the seller, who it’s completely up to them if they choose to agree to that or not, or alternatively, the buyer will choose to simply terminate the contract. Their deposit is then refunded to them providing that they’ve acted reasonably, and you start again to looking to find another buyer.
Dan: So what about what we hear about, generally when people are selling property is sunset clauses and cooling-off periods and all this type of stuff. What does all that mean?
Sylvia Lopez: Sure. So the other two standard conditions in a contract are your finance approval condition, which works very similarly to the building and pest condition. You’ve got a period of time in which to go and make an application to a bank to get a loan that is suitable for the purposes of buying the home to you. And if you get that approval, then you’re good to go and the contract can become unconditional in that regard.
The third standard condition is a cooling-off period that you’ve alluded to. So the legislation recognises that people might get excited, sign a contract, and then have second thoughts around that. So you’re able to, as a buyer, exercise your right to terminate that contract for no reason at all within five days of you signing that contract. Okay? Or the contract being fully signed by the seller. So if the contract’s signed today, I’ve got five [inaudible 00:03:48] today to change my mind and say, “No, I really have reconsidered this and I can’t go ahead with it.” The only thing to be aware of in that regard is that the termination under cooling-off carries a termination penalty of .025% of the purchase price. So if you do exercise that right, you will be up for that cost. So they’re typically the three things that contracts are subject to.
Aside from that, you may have as you referred to, a sunset clause included in your contracts. What that means then is for example, you put an offer to buy my house, but you’ve then got to sell your property to be able to fund the purchase of my house. So you make that contract subject to the sale of your home going through and I say, “Well that’s fine then, you go ahead and you market your property for sale.” But whilst you do that, I’m going to continue marketing my property and if I get a better offer, I didn’t have to come back to you and say, “Dan, I’ve got a better offer. Are you able to waive that condition or satisfy the conditions that you need to sell your property?” And if you can’t do that, I then have the right to terminate the contract and take up the offer with that other party. Now those conditions, the contract subject to the sale of your property in my continuing right to sell my home, they don’t apply in a standard contract unless we write a special condition into the contract to permit for those things to happen.
Dan: Now what happens at settlements? So we talk about contract [inaudible 00:05:26] settlement, what does that all mean?
Sylvia Lopez: Okay, so once all of the conditions, be they standard conditions or be they special conditions, have all been ticked off and the contract is unconditional, so no further conditions remained to be satisfied, we can then progress the settlement. So in terms of that, if you are selling your home and you have a mortgage, we would have asked you to contact your bank to discharge that mortgage so that they’re ready to provide the release of the mortgage at settlement, and that’s all settlement means. We turn up, your bank turns up, my bank turns up, and we exchange all the paperwork at a particularly agreed time on the day of settlement, and then we exchange the monies in the documents and settlement is then effected. Most people don’t get involved in that process because we take care of that for you. We make all the arrangements with your bank once you’ve given us authority to contact them, whether you’re borrowing money or whether you’re discharging the mortgage. So that’s what happens on the settlement date. Once that’s gone through you can then go and pick up the keys and move in.
Dan: What about, we hear that all these searches that you know the buyer has to do. At what point do they sort of intercept in this whole process? I’m assuming that’s prior to settlement.
Sylvia Lopez: Definitely. So typically there are two junctures in the contract where we can do your searches and we contact you as soon as we get your contract in to discuss the timing of these. So they’re only done by the buyers, and some buyers will choose to wait until they know that they have done the building and pest inspections and they’ve obtained a loan from the bank before that they go ahead and give us instructions to do the searches, and that’s okay so long as in there is enough time to get our searches back. Searches are the things that we do to make sure that everything is okay with the property. So we do things like the council search to make sure that all of the approvals for the home are in place and not just the home, but things like additions that have may have been undertaken by a seller prior to listing the property for sale. So think things like carports, decks, swimming pools, we make sure that they’re all ticked off with the council and have got their final approval in place.
So typically in the Morton Bay regional council, those searches take up to 10 days to come back. So we alert buyers with respect to that and get instructions to do them at that point in time to make sure they’re happy with them. Now I should say Dan, that unless the contract is subject to you being satisfied with your searches, if there’s a search that comes back that you’re not happy with, the standard contract does not allow you to terminate that contract unless there are specific requisitions issued by the council. So if you want to make sure you’re happy with your searches, have a chat to us before you sign the contract to make sure that we add a special condition that allows you to have that right.
Dan: It’s important to get this stuff right, isn’t it? Because I’m assuming that if you don’t take this stuff seriously, it may well come back to bite you at a later date.
Sylvia Lopez: Absolutely. I mean, once the contract’s unconditional, you’re bound by that contract to go ahead and settle. And if you don’t, they are significant damages rights in favour of the seller if you don’t go ahead and settle that contract. So here at Big Law, we will actually review your contract and have a chat to you before you sign it to make sure that everything that is important to you is covered off in that contract to protect you before you sign it. So do give us a call before you sign it. It’s all part of our conveyancing process and we’re happy to take the time to make sure that you’re adequately covered.
Dan: Sylvia, thanks for joining me.
Sylvia Lopez: Thanks, Dan.