Residential property law is a State specific area of law, which means that the process of conveyancing will also differ between States. It is important when buying a property in Victoria, that you look for information relevant to Victoria rather than any other States. This can be a little difficult to differentiate, especially if you are a first home buyer. Hence, it is important that you speak to a conveyancing lawyer that is practiced in many States so that they can guide you through the process.
What is a section 32 or vendor’s statement?
A section 32 is a document that the seller must provide all their prospective buyers, detailing information about the property as required by legislation. Therefore, it is also known as the vendor’s statement. The section 32 comes in two parts, the part that is completed and signed by the seller, and the second part is a combination of all the certificates that must be attached to the section 32. Depending on the conveyancer or law firm that prepared the section 32, it will come in different quality. It is important that you get your own conveyancing lawyer to read through the section 32 to make sure that all the required information is contained and that they are up to date.
If the section 32 is not properly drafted by the seller, it may allow you a way out of the contract, but it may cost you even more to attempt to get out because you would be forced to challenge the validity of the contract. Hence, it is always recommended that you avoid this problem by just taking the opportunity to read through the document and understand everything inside before you sign.
What is a deposit and how do I pay it?
The deposit is the down payment that you make when you first sign a contract to show that you are genuine about purchasing the property. It is the seller’s security that if you do not complete the contract on time by settlement date, that they can take steps to claim your deposit. Hence, before you sign the contract, you should ascertain that you really want to proceed with the purchase.
The deposit is often held by the seller’s real estate agent until settlement, after which it will be released to the seller. There are times when the deposit may be held by the seller’s conveyancers, usually because the seller’s real estate agent does not hold a trust account, or that the seller needs the deposit to be released at the same time as settlement. If neither the seller’s conveyancers nor real estate agent has a trust account, then the seller may ask that the buyer’s conveyancer hold the deposit in their trust account.
In any case, because trust accounts are heavily regulated by all the legislations governing it for all three professions involved: real estate agents, conveyancers and conveyancing lawyers, you should be reassured that your money is safe.
You can make the payment these days by electronic funds transfer (EFT) to the bank account of the relevant stakeholder. It is as simple as asking the real estate agent for their bank account details to make the payment upfront. Remember to always ask for a trust receipt for your records, you may need this as a part of your loan application.
How much generally is the deposit for a property purchase?
The deposit is an amount that is used as security for the seller, hence it is always in the seller’s best interest to ask for a larger amount, whereas the buyer may not want to put too much down upfront. Strictly speaking it is something that is up for negotiation between the parties. However, it is also quite normal to be asked to put down something like 5% or 10% of the purchase price as the deposit upfront.
If you do not have a large deposit and will be borrowing 90% or more of your purchase price from your bank to complete, then you may want to negotiate for a 5% deposit. It is important to bear in mind that the amount of deposit being paid upfront is a consideration that the seller may take when they are deciding which offer to accept.
What is a section 27 statement?
The section 27 statement is an instrument allowed by legislation for the seller to access their deposit prior to settlement if they are able to satisfy certain criteria. This statement is drafted by the seller’s conveyancer and served on the buyer’s conveyancer. If the buyer does not have reasonable grounds to object to the release, they can either sign for the release, or the notice will take effect 28 days after service. One of the main conditions of the section 27 is that the seller must provide proof that the mortgage they hold over the property is not more than 80% of the purchase price and that there is no caveats lodged against the property’s title. The mortgage details provided by the seller must also be supported by a section 27 information statement from their mortgagee.
If you have been provided with a section 27 statement and information by the agent, it is important that you bring it to the attention of your conveyancing lawyer for review before you sign it. Otherwise, if the deposit is released and the seller is otherwise unable to complete settlement, then you will have no avenue but to commence litigation against the seller to recover your deposit which could be a timely and costly exercise.
What is a title search?
A title search is an extract of information from Land Use Victoria on any real property. The title search will contain information on who the owner is, when it was last transferred, title reference details, restriction details, transactions on the property within the last 120 days, etc. The title search is an important search because it is a simple and quick, yet powerful tool to help you determine in the first instance whether the property is right for you.
It is important to order this title search at the beginning of a conveyance because you wouldn’t want to waste time and effort in having gone through the process, only to find out that the seller doesn’t actually own the property in their own name, or that there are restrictions on the property that prevent you from doing what you wanted to do. For example, a title search can reveal whether there is a caveat on the property lodged by a disgruntled seller’s ex-wife that you must contend with as a buyer. If you are buying a property with the intention of moving into the property within two months, finding out halfway through that there is pending litigation on the property that is going to delay your conveyance might be a tad bit frustrating. Hence, it is important that you engage your conveyancing lawyer to check on the title early on.
What are “searches”?
Searches or property searches are a series of certificates that your conveyancing lawyer can order for you to verify information disclosed to you by the seller, or to obtain further information that is not required by the seller to disclose. These searches are necessary to complete your due diligence of the property.
The same “searches” are also contained in the section 32, however, they are only current as of the date in which they are ordered. That is, if there are changes that occurred even a day after the certificate was produced, it would not be contained in the section 32. Hence, it is important for the buyer’s conveyancing lawyer to order these same searches to bring the information up to date prior to settlement.
Some searches will quote an expiry period to it between 2 – 3 months. The authorities issuing those certificates may provide updates to it if requested by your conveyancing lawyer prior to settlement, but these updates usually pertain only to the financial information, such as the rates that are charged and paid, for the purpose of making adjustments. If the authorities will not provide verbal updates, then it is necessary to order the searches again.
What happens if there is a tenant living in the property that I’m purchasing?
If you know that there is a tenant living in the property, then you should check the contract to ensure that you have been provided with a copy of the tenancy agreement. Depending on what you are intending to do with the property, you will need to ask different questions of the tenancy.
Purchasing to live in
If you are purchasing for the purpose of moving in, then you’ll need to work out what the lease term is and when it is going to end. A tenancy will not automatically come to an end at the lease term, notice will need to be served on the tenant for them to vacate. If you are looking to move in as soon as settlement has taken place, then you will need to negotiate a term in the contract that requires the seller to issue the notice to vacate on the tenant for you. Your conveyancing lawyer can help you draft the required special condition into the contract.
Purchasing as an investment property
If you are purchasing for the purpose of investment, then you’ll need to discuss with the property manager to understand the financial position of the property. You could look into the length of the tenancy and negotiate for the seller to renew the lease agreement for you prior to signing to secure your mortgage repayment for the first year. You could look into the intentions of the tenant to see if they have an intention to reside in the property long term or if they are about to move out.
If the tenant is looking to terminate the lease prior to settlement, then you may negotiate with the seller to allow for open for inspection clauses in the contract, so that you can bring forward the timing in your search for a suitable tenant. You cannot sign a lease with the tenant until you become the owner of the property, or you will have to involve the seller in the lease signing on your behalf. Speak with your conveyancing lawyer to understand your unique circumstances so that you can receive appropriate advice in relation to same.
What is stamp duty?
Stamp duty is a form of tax that you pay to the government for getting an interest in the land. In other words, it is a form of tax that you must pay if you are a buyer. The stamp duty is assessed based on the value of your land, the more expensive the purchase price, the higher the stamp duty. However, depending on your circumstance and the intended use of the property, you may be able to claim a concession or even exemption from paying the stamp duty. For example, if you are a first home buyer purchasing a home to live in as your principal place of residence, you may be able to claim an exemption if your purchase price is lower than a certain threshold.
You should refer to the state revenue office for further information. They also have a calculator that you can use to calculate your stamp duty.
When do I have to pay stamp duty?
Stamp duty is a form of tax that is determined by the state government so the rules will vary depending on which state that you are purchasing in.
In Victoria, the stamp duty is assessed and payable on settlement. You will have up to 30 days after the settlement date to pay for it. You just need to account for the correct amount to be available at settlement. However, in the electronic settlement platform, you will not be able to settle the property transaction without the stamp duty paid upfront at settlement.
If you do not have enough money out of your savings to pay for the stamp duty, you may consider adding this expense into your loan amount when you make your loan application. However, remember that the more you borrow, the higher your loan to value ratio will be. If your loan to value ratio is higher than a certain percentage (usually 90%), your lender may require you to purchase lenders mortgage insurance, which is an additional expense that you need to budget for.
What is registration fee?
Registration fee is a type of government charge passed onto the consumer by the land registry offices for the service in registering your interest over a property in their registers. Each State has their own land registry that administers their own land registers. Each land registry will have different fees for the registration of different interests, so it is important that you refer to the correct authority when you are looking to purchase. The cost of the registration fee also changes every year, usually around the end of a financial year.
In Victoria, the registration fee of the transfer will be proportional to the purchase price, that is, the higher the purchase price, the more expensive the transfer, but it is capped at a certain amount. For the 19/20 financial year, the maximum fee per transfer is capped at $3,609 for a paper settlement and $3,600 for an electronic settlement. If there are mortgages involved, you will also need to account for the registration fee for these. The registration fee for a mortgage is $119.70 for a paper settlement and $110.80 for an electronic settlement.
You can refer to the property and land titles website for further details on the costs of the registration fees. There are also calculators available to help you confirm the fees that are applicable to your transaction: https://www.propertyandlandtitles.vic.gov.au/forms-guides-and-fees/fees
What is a statement of adjustment?
A statement of adjustment is basically a statement that contains all the apportionment of outgoings and liabilities attached to the property and required by the contract to be adjusted. The items that are usually included in the statement of adjustments are mortgage discharge fees, rates, water charges, owners corporation levies, land tax liabilities, insurance, rent, etc. The information that is needed to prepare a statement of adjustment is collected by your conveyancing lawyer from the contract, searches, other professionals that are related to the transaction, such as the property manager.
The statement of adjustment will tell the buyer how much they need to pay the seller at settlement, which would then help the buyer determine how much they will need to prepare in their short fall account. The statement of adjustment is generally available to the parties to review about 5 days out from settlement.
It is important to understand though that the statement of adjustment is subject to change prior to settlement and is only a draft until settlement date. Hence, it is always important to make an allowance for this when you are preparing funds for settlement. It is always good to overestimate than to underestimate the funds needed for settlement.
What is a shortfall account or shortfall facilities?
When you are purchasing a property, you may have already saved up a decent amount of money to be used for your deposit, your stamp duty and fees, etc. That is, you are contributing to the settlement funds with your savings. The money will need to be collected for the purpose of making the payment at settlement. Your conveyancing lawyer can help you to make this payment.
Generally, you can ask the bank a simple question of whether they have shortfall facilities, if they reply “yes” then you just have to sign a form that allows the bank to debit from your savings account for settlement. Shortfall facilities is nothing more than the ability to debit a savings account that you hold with the same banking institution. The shortfall account really is just your savings account itself. All you have to do is to make sure that you have enough money in that savings account for settlement.
If your bank has offered to put a limit on the savings account, which is a security mechanism for you, you should ensure that the limit is higher than the amount that your conveyancer will need at settlement, or it may slow down the preparation process. In any case, lifting the limit applied to your savings account is as easy as placing a call to your broker or banker or the bank’s settlement hotline.
If your bank offers shortfall facilities but you do not have a savings account with the same bank that you are borrowing from, then you will either need to open up a new savings account with the same bank or you will need to put money into your conveyancing lawyer’s trust account. This is because your bank will not be able to access your savings account held and controlled by a different bank.
What is a trust account?
A law practice trust account is a bank account that is held by a law practice for the purpose of holding client’s money used for the purpose of delivering legal services. In a conveyancing practice, the money held is usually the deposit or the settlement funds.
A law practice’s trust account is heavily regulated and requires full-time administration to be compliant. It is also audited at least once a year by external examiners to ensure that the practice is properly maintaining their client records. If the law practice did not do so and comply with all of their reporting duties, the principal or legal directors of the law practice may lose their practicing certificate. Hence, your conveyancing lawyers will treat it with all due respect and diligence. Hence, if you are putting your money into a law practice’s trust account, you can be assured that the money will be properly accounted for.
In the electronic conveyancing world, a law practice’s trust account is often linked to the electronic settlement platforms for the purpose of disbursing funds. There are no more bank cheques that are exchanged at settlements in states like Victoria, New South Wales, Western Australia and South Australia.
What type of inspections are required in a property purchase?
When you are buying a property, you should understand that it is always “buyer beware”, which means that it is up to you to research into the property to satisfy yourself that the property is the right one for you. In other words, “what you see is what you get” or in the case of property purchase, “you get what you also cannot see” so it is important that you engage experts to make the necessary discoveries for you on top of what you can do for yourself.
Start with a thorough walk-through inspection
You would usually have done this as a part of your open house inspections, but you may not have done a very thorough job when you first walked through the house. Don’t worry, you can always ask for multiple walk-through inspections before you sign the contract. Depending on how desperate the seller is to sell the property, the real estate agent will usually do what they can for you. If you are serious about putting down an offer and signing right after, make sure that you go through the property thoroughly and take notes / photos of the condition of the property.
You should cast your eyes over everything, open every door, turn on every fixed appliance, test the hot water system, turn on the heater / air-conditioner and do not rely only on the seller real estate agents’ words. If there is a tenant or the seller is living at the property, understandably you may feel reluctant to go through the house thoroughly, but remember that if you do not then you may be doing yourself a disservice if there ever comes a time when you have to dispute the condition of the property.
Then order a building and pest inspection
Even the most thorough inspection by you may not be enough to protect you if you don’t know what you’re looking for. Hence, it is important to engage an expert to inspect the building for the structural integrity and any future risks that may develop. The best of the building and pest inspectors will be able to undertake a risk assessment for you and make recommendations on what needs to be done to ward the property against future risks or at least delay the inevitable. After all, you can’t really do much about fair wear and tear of an existing dwelling, you can only do what you can to maintain it.
You also have to understand that depending on the condition that you’ve written into the contract, you may not be able to walk away just because there is a problem disclosed in the building and pest inspection report after you have signed the contract. If the contract is subject to a report, it will only protect you if there is a major structural defect or major pest infestation. That is, if the problem disclosed is not serious enough at the time, you may still have to purchase the property.
Lastly, make sure you always undertake a pre-settlement inspection
As a buyer, you will have the right to a pre-settlement inspection. The purpose of this inspection is to allow you to do a final check of the condition of the property prior to handing over your money on settlement. You can generally choose to do this at any time over the 7 days leading up to settlement (for Victorian purchases). If you discover that the condition of the property has changed or deteriorated more than what would be considered to be fair wear and tear, then you may be entitled to require the seller to rectify the issue prior to settlement. You will have to have proof of the condition of the property prior to contract though.
This is where most buyers trip up. They call their conveyancer to let them know that the hot water system wasn’t working the day before settlement, but then can provide no proof that the hot water system was in fact working prior to contract. That’s why it is always very important to go through the property with a notepad and a checklist prior to signing.
You should also contact the real estate agent to make a booking to do your pre-settlement inspection early and ask that the seller do not disconnect the power prior to your inspection. There has been circumstances in the past when appliances can’t be checked because the power was off at the time. In such circumstances, it may be easier for you to ask that the power remain or to ask to be allowed to connect electricity to the property prior to settlement for the purpose of inspection.
What happens at settlement?
Settlement is an event that happens at the end of the contract to give effect to the major term of the contract, which is the transfer of title in exchange of money. In the traditional paper settlement, the seller’s conveyancer would bring all of their title and signed transfer documents for the buyer’s conveyancer to inspect, if the buyer’s conveyancer is satisfied with the documents then they would give the seller’s conveyancer the bank cheques that they have asked for prior to that date.
If the seller has a mortgage on the property that is to be discharged at settlement, then their mortgagee’s representative would also be present to handover the discharge documents. If the buyer has an incoming lender that they’re getting finance from, then their representative would also be present to deliver the bank cheques requested. Only when all the parties to a transaction is satisfied with the documents and money on the table will they confirm that settlement has occurred.
If any one of the parties are not satisfied, then settlement will fail, and the parties will have to try again at a later point once the issue has been rectified. Settlement delays can be costly and impactful because parties will often have made plans surrounding the occurrence of settlement on the appointed date. Beyond that, the party that fails to complete settlement on time may also be up for penalty charged by the other party. Hence, it is important that you engage a conveyancing lawyer that can ensure a timely settlement.
What happens after settlement?
Once a settlement is complete, the next steps are for the buyer’s conveyancing lawyer to attend the land registry office to lodge the title and transfer documents to put the buyer’s name on title. If the buyer has an incoming mortgagee, then this task is for their representative to complete because they hold a vested interest in the title, transfer and mortgage documents to be lodged and registered properly. As the proud new owner of your property, you should diarise to check that this task is properly complete. You can do this by asking for a copy of the certificate of title or order a title search from the land registry directly.
If you have purchased the property in cash, without the involving of an incoming lender, then you can ask for the original certificate of title in your name to be sent to you. If you do not want to keep your certificate of title as an original document, you can also ask for it to be turned into an electronic certificate of title (eCT). Not all states will issue an eCT at this time, but it is becoming increasingly more common.