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 selling 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 this is the first time you are selling a property. 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 are my disclosure obligations as a seller?
When you are selling your property, you will need to understand your obligations to disclose sufficient information to your buyers, so that they are kept informed. If you do not fulfil your disclosure obligations, then you will be giving your buyers an opportunity to walk away from the contract even after they have signed it. Your disclosure obligations are largely written down in section 32 of the Sale of Land Act, which is why your vendor’s statement is also known as a “section 32”.
This document is drafted for you by your conveyancing lawyers. It is important that you answer all of their questions as fully as you can remember as a reasonable person so that the document can be properly drafted. If you have any concerns about whether you should disclose a certain fact about the property, you should discuss it with your conveyancing lawyer, but it is always recommended that you err on the side of caution and make the required disclosure. However, you should always consider this in context of your commercial realities. You may want to speak with both your conveyancing lawyers and your real estate agents to find a happy medium between the two advisers.
What must be included in the section 32?
The information that needs to be disclosed in the section 32 includes:
- financial details of the property such as the total amount of outgoings and liabilities that comes with the property ownership
- details of whether the property is owner-built and relevant insurance details
- details on the planning schemes and zonings that applies to the property
- details on whether the property is affected by designated bushfire zones
- details on the title and relevant restrictions on land use
Surprisingly not all owners of land would know all the information about the property, depending on how they have been using the property. For example, if you have only ever purchased the property to live in and have not made any renovations or additions to the property, you may not have looked into the planning regulations in your area. Yet this is the type of information that you have to disclose to your buyers. However, the good thing is that you do not actually have to know this information because your conveyancing lawyer can find out for you by ordering the required searches to put into the statement.
You will have to let your conveyancing lawyer know if you have done anything to the property that may not appear on the public records though. E.g.: if you have renovated the kitchen recently, no one is going to know unless you tell your conveyancer. They can then ask you a series of prompting questions to help determine whether it is a disclosable event or not.
It is also important to ensure that you sign and date the section 32 statement before giving to your real estate agent to pass onto the buyers. Otherwise, the contract will become voidable at the option of the buyer, which means that they can walk away from the contract.
What is a certificate of title?
A certificate of title is an original document that is issued to the owner of a real property that confirms their ownership of the property. You will need to have in your possession this document for any proposed dealings with the title to the property, such as to mortgage or transfer your title. If you still have a mortgage over your property, it is likely that you do not have possession to your certificate of title and will need to invite your mortgagee to the settlement to provide this document. It is held by mortgagees as security over their loan to you.
If you have paid off your loan already and still do not have possession of the original certificate of title, then you should contact your previous lender to obtain this document prior to settlement. You will need to provide the original certificate of title to your conveyancing lawyer as a part of settlement preparation or they will not be able to finalise your settlement.
How much deposit should I ask for?
It is up to you how much deposit you want to ask for but generally it will not be higher than 10% of the purchase price. However, you should still ask for a deposit from the buyer to be paid upfront as security over the sale. If the buyer signed the contract, paid the deposit, but is otherwise unable or unwilling to complete afterwards, you will be able to claim the deposit paid.
You should discuss with your real estate agent on what is the appropriate amount to ask for on a case by case basis. Remember that whilst the deposit is a consideration, it is not the only consideration on whether your proposed buyer is genuine about their offer to you.
What is a bank guarantee?
If your buyer does not have the cashflow for the purpose of making a cash deposit payment upfront, they may offer to give you a bank guarantee as security for the full deposit amount. A bank guarantee is basically a document provided by the buyer’s bank to confirm that they have the requisite amount of money in one of the accounts held in the buyer’s name and can provide the funds to the seller if it is claimed by the seller under the bank guarantee. Once given to you, the buyer will not be able to access the funds secured under the bank guarantee. However, you should get your conveyancing lawyer to check the conditions of the bank guarantee before accepting. If the standard contract used does not provide for the deposit by bank guarantee, you’ll need your conveyancing lawyer to specifically write one into the contract as a special condition to govern the use of it.
What is a deposit bond?
A deposit bond is a document provided by a bond issuer, which the buyer can use in place of a cash deposit. It is a form of security over the contract of sale and acts as a guarantee. If the buyer is unable to complete settlement and the seller enforces their rights, they can present the original deposit bond to the bond issuer to claim for the amount secured by the bond. The amount that can be secured is usually an amount up to 10% of the purchase price.
If you have been presented with a deposit bond by a buyer as security for the contract, you should ask your conveyancing lawyer to review carefully the term of the deposit bond to ensure that it is sufficient to protect your interest. In particular, note that deposit bonds often come with an expiration date. You should note this date down to ensure that you ask for a replacement before it expires.
A deposit bond can also be known as a deposit guarantee, so if you come across that term, review the document properly to confirm that it has the same effect as a deposit bond.
What are general conditions and special conditions?
General conditions are the conditions that you will see most frequently on all standard contracts. They are the terms that are contained in the standard Real Estate Institute of Victoria (REIV) contracts and will generally be sufficient to cover for all standard residential sales. However, you should also ask your conveyancing lawyer what special conditions can be included in the contract to protect your interest.
Special conditions are “special” because it is technically unique to your transaction. You can ask your conveyancing lawyer to draft any special condition to cover for your situation, you just have to tell them what it is that you are trying to cover for. If you don’t know what to ask for, then speak to your conveyancing lawyer about what your concerns are, and they will be able to make appropriate suggestions for you. One good way to approach it is to try and step into the shoes of your buyers and ask the question of “what would my buyers want to know about this property?”.
What is a section 27 statement to sellers?
A section 27 statement is a method of obtaining your deposit release before settlement. Your real estate agent will generally recommend that you ask for one from your conveyancing lawyer. If you do require access to the buyer’s deposit prior to settlement, then you can request for this document to be prepared for you. If you do not need the deposit prior to then this is an optional step.
To get your deposit released early, you will need to satisfy the criteria for it:
- you will need to confirm that your mortgage over the property is less than 80% of the purchase price; and
- you do not have any caveats registered on the title of the property
If you are not able to satisfy the criteria, your buyer is not obligated to agree to the release of the deposit. In fact, they will probably be advised by their conveyancers not to agree to the release.
What is a section 27 information from your mortgagee?
A section 27 statement by you must be support by the section 27 information statement from your mortgagee. Your buyers will not sign for the release of the section 27 information statement without being provided with supporting information. If they have signed, then their conveyancer may still recommend and actually object to the release prior to it being affected.
If you need to access the deposit almost as soon as it is paid, you should ask your conveyancing lawyer to prepare the statement 27 for you early and you should contact your bank to ask for a copy of the statement 27 information as soon as possible. It can take 5 – 14 days for this document to be produced depending on the complexity of your loan arrangements.
The section 27 information statement will disclose the status of your loan including:
- your original loan amount and the amount outstanding
- your interest rates applicable to the loan
- whether you have been in default under the loan
- the expected end date of your loan based on the regular payment cycle you have agreed to
What is a discharge of mortgage?
A discharge of mortgage is a document that your mortgagee will bring to settlement with the original certificate of title to handover to the buyer’s conveyancers at settlement. It will allow the buyer to register their interest over the property after your mortgage has been removed from the title. To notify your bank that you have sold your property and start to prepare for the discharge of the loan, you will need to ask your banker for a “discharge authority” to complete and submitted directly to the branch. They will then send it to their settlements team to prepare. It can take up to 14 – 21 days to discharge a mortgage so you should submit the discharge authority as soon as possible.
If you are attempting a partial discharge of your mortgage with the bank, because you have more than one property used to secure your loan repayment, then you should start the process even sooner. A partial discharge can take more than a month to complete, particularly if the bank has to order multiple valuations for the rest of the securities to recalculate their risks before they will confirm the discharge.
If you are attempting a partial discharge, make sure that you keep your conveyancing lawyer informed of your dealings with the bank so that they can prepare for settlement accordingly.
How many days does it take to prepare for settlement as a seller?
The general settlement period for a property sale in Victoria is 30 days after the contract date. This is generally enough time for the seller to prepare for the sale to be completed. This timeframe is also to allow the buyer sufficient time to prepare for settling, including to complete their due diligence and loan processing prior to funds being made available. If you want to speed up the timeframe for settlement, you should contact your discharging bank to check on the usual turnaround time for a discharge to be processed. If the buyer is also ready for settlement, then you can also ask for a quicker turnaround time. In any case, before you ask for a shorter period, please also check with your conveyancing lawyer to ensure that your request can be accommodated.
What happens if I want to sell my furniture with the property?
Furnitures are generally not sold with the property because they are considered goods. If you want to sell the furniture or has been offered to purchase your furniture along with the real property, you can do so as a part of the same contract for sale of the property. All you have to do is to include the consideration for the furniture into the calculation for the purchase price and include a schedule of all the goods that are to be sold with the land.
It if the responsibility of the parties to make appropriate disclosures of the value of the property under the contract. This amount is then used to calculate the relevant tax liabilities triggered by the sale on both ends. Hence, it is important that you also seek tax advice in relation to your property sale and any ancillary sales.
What are fixtures and goods under the contract?
The Victorian contract provides that all fixtures and fittings are sold with the real property, whereas the parties will need to specifically list out any goods (also known as chattels) that are to be sold with the land. In the absence of a detailed list of goods included in the sale, the buyer is only entitled to any items that are fixed in place and cannot be easily removed. In order to prevent an argument over items that are sold closer to the settlement date, it is important that you list down exactly what it is that you would like to keep, so that those same items can be specifically excluded from the sale.
If you are uncertain of what items would constitute a fixture or goods, you should discuss with your conveyancing lawyer so that they can help you with the assessment. Generally anything that can be easily removed and is not intended to be permanently installed in the property would be considered goods and can be removed prior to settlement.
What is an owner-built property and am I an owner builder?
An owner-built property is a property that is either fully or partially built by the owner of the property itself. The owner does not have to be a registered builder to be an owner-builder. There are additional disclosure requirements applicable if you are an owner builder. Hence it is very important that you tell your conveyancing lawyer whether you have renovated or built any part of the property. You may be considered an owner builder even if you have engaged private contractors to do the work but have coordinated the build or renovation yourself.
If you are considered to be an owner builder, you will need to provide any applicable insurance over the works as well as an owner builder defects inspection report to the buyer. The report must be dated no earlier than 6 months prior to the contract date. If the report is not provided to the buyer, they may have the right to walk away from the contract.
For further information on what it means to sell an owner-built property, refer to Consumer Affairs Victoria for further information: https://www.consumer.vic.gov.au/housing/building-and-renovating/owner-builders
What is the difference between a sale by private treaty to a sale by auction?
A sale by private treaty is no different to asking for and accepting private offers to purchase the property. It is a common form of sale where any potential buyers can make offers to you at any time, you can consider each as they are made and determine if you have obtained the best offer. If you accepted an offer under private treaty and have followed through to sign the contract, you will not be able to walk away from the contract once it is fully formed. If you have allowed the buyer to negotiate conditional clauses into the contract (e.g.: conditional on finance), only the buyer would be able to walk away from the contract on those conditional clauses. You will not be able to exit unless the buyer chooses to end the contract.
A sale by auction is another common method of selling a property, where your agent will advertise to as many potential buyers as possible and ask that they attend the auction to bid for the property. The property will be sold to the highest bidder at the auction, if their bid is higher than the reserve price that you have set. When determine whether to sell your property by private offer or by auction, you will have to consider the market trend and the general interest in your area. If there are many interested buyers in the area, then it may be advantageous to opt for sale by auction. You should discuss with your real estate agent for further advice.
What is the reserve price in an auction sale?
The reserve price is a price that you set and inform the auctioneer. The auction will not be successful unless the bidders have given bids that are higher than the reserve price. Hence, it is important that you set a reasonable reserve price taking into consideration that if it is too low, you may not be getting the right price for the property, and that if it is too high, your efforts in advertising the property for sale at auction could be wasted.
What happens when the property is passed in?
However, if the reserve price is not met and the auction sale is passed in, you can also negotiate with the next highest bidder to come to a mutually agreeable purchase price. If your property is sold to the next highest bidder, then the contract would still be an unconditional one and not subject to the cooling off right. If you do not come to an agreeable price with the next highest bidder, then the auction would have failed, and you’ll have to continue advertising the property for sale via other means. You should discuss with your real estate agent the real prospect of the sale. Depending on the market trend at the time, you can also consider withdrawing the property from the market temporarily until you are able to sell it at your preferred sale price.
What happens if I am not able to sign the contract myself?
If you are not available to sign the contract, because you are travelling for work or is otherwise predisposed, you can nominate another person to sign the contract on your behalf. You can consider creating a power of attorney document that allows your representative to sign the contract on your behalf. If you choose this option, you should discuss with your conveyancing lawyer to come to an appropriate arrangement, they may also be able to draft for you a general non-enduring power of attorney for your convenience.
However, it is very important when creating such an instrument that you nominate the appropriate person to exercise your right. Once the contract is signed by your duly appointed attorney, it will be as if you have signed the contract yourself and you will generally not be able to back out of it.
It is always recommended that you reserve the task of signing the contract to yourself and the power of attorney should only be used as a last resort. This is particularly true in context of the modern age where contracts can often be signed on the go with technologies that allow for e-signing.
Do I have to clean the property for the buyer before settlement?
As the seller of the property, you are obligated to provide to the buyer the property in the same condition as it was on the contract date. This means that if your property was clean and tidy when the contract was formed, then it also has to be delivered to the buyer in a reasonably clean state. This doesn’t necessarily mean that you need to arrange for professional cleaning of the property, unless you have specifically contracted to do so under a special condition of the contract.
In any case, to avoid a dispute with the buyer closer towards settlement date, you should try to clear the property at least the day before settlement and allow them to inspect the property. At least then you will have time to rectify any issues with the buyer prior to settlement. During your move out, you should also do what you can to avoid damage to the property, as damages caused during a move out is unlikely to be classified as fair wear and tear.
What happens if the buyer cannot settle on time?
Like any contracts, once signed, both parties have an obligation to settle the contract by the appointed date. If the buyer is not able to do so, then generally you as the seller can enforce your rights against the buyer. This means that you would be able to claim penalty interest and damages caused by the buyer due to the delay. You can only claim reasonably foreseeable loss and have an obligation to mitigate loss when making a claim.
In any case, noting that settlement date is practically an important to the parties because they are likely to have shaped the few weeks of their lives around the settlement date, it is important to also consider the practical impacts of a delayed settlement and do what is required to put it back on track. This may involve some investigation on the delay to understand the root cause. If you are uncertain on what to do during this type of scenario, you should consider engaging a conveyancing lawyer to help you through the situation. Better yet, make sure you engage a conveyancing lawyer who can help to reduce the chances of a delay to settlement by pre-empting problems before they become one.