Episode 5 – ‘A first home buyers guide’ by Amanda Clinton-Gohdes
A few weeks into our search we found a house we love! It has the 3 bedrooms we wanted, the cute 1950s character we like, and it’s in a great location. Best of all – there were no offers on it, and we decided make one.
So how do we put an offer in and what should it look like?
Because this is a standard offer – we’re the only ones putting an offer in – we could afford to submit an offer that wasn’t the best best offer we could make, because the vendor could come back and negotiate.
There are different types of offer processes though, and if yours isn’t the standard process you’ll want to take that into account. If you want to learn more about different types of offer have a look at our jargon breakdown.
Drawing up an offer and deciding on conditions
When you’re drawing up an offer, you’ll need to decide on a few different things:
– Purchase price
– Deposit (the money that you need to pay to the real estate agency when the agreement for sale and purchase becomes unconditional)
– Settlement date (this is the day you pay the rest of the money and get the keys – woohoo!)
– What conditions you want to put in the offer
When you make an offer, it can be unconditional or conditional.
Unconditional: This is when an offer or contract does not have any conditions in it – if the vendor signs your offer, then you’ve agreed to buy the house no matter what. It is not very common for first home buyers to be able to make an unconditional offer.
Conditional: This is when an offer has conditions in it. If a condition isn’t met, you can pull out of the agreement. If all the conditions are met, you are then unconditional and you’re definitely buying the house. The most common conditions are:
– Building report condition
– LIM condition
– Finance condition
– Solicitors approval condition
Our jargon breakdown explains in more detail what these conditions really mean.
At this point it’s really important to speak to a lawyer. There are lots of things in an offer that will be individual to your circumstances and a lawyer can help you to navigate the labyrinth. At Legal Solutions, you get the committment of an experienced and dedicated team to help you make sense of these clauses and to ensure you put the right ones in depending on your situation and the property.
We did it, we made an offer!
Once we decided to put an offer in, we contacted the agent and let them know. They drew up an offer with our names on it, but we asked them to leave all the other areas blank because we wanted to take a bit of time to think about it. We ended up submitting an offer with a price lower than the asking price, with a building report condition, a LIM condition, and a finance condition. After the agent took the offer to the vendor, there was a bit of negotiating about the price, and we eventually came to an agreement and everyone signed their lives away.
OPEN HOME JARGON
Vendor: The person or people selling the property
Offer: A legal document that a purchaser gives to the vendor, which proposes an agreement to purchase the property.
Agreement (for Sale and Purchase): When an offer is signed by both the Purchaser and the Vendor, it becomes an Agreement, also known as a Contract. This is an Agreement about who will do what and when in relation to the house purchase/sale.
RV: Rateable Value. This is the value that the Council gives to a property. This value is used to determine the rates payable on the property. Rateable Value used to be called Government Valuation (GV). RV is different to a current market valuation – the RV is usually lower that the market value.
Title: A Title is the legal description of a property, contained in a few pages. The first page looks a bit like a weird certificate, followed by a diagram of the piece of land. It describes the land itself, and any legal rights to the land. The most common things you might see listed on a title are an easement, a mortgage, a building line restriction, a consent notice, and a covenant.
Easement: The right to use someone else’s property for a specific purpose e.g. the right to drive over someone else’s land = a right of way.
Mortgage: When the bank loans you money, in exchange they register a mortgage over your property. A mortgage is a set of legal rights over the property, and it’s what gives the bank the right to sell your property if you’re not able to pay back the loan.
Building Line Restriction: This is a document which stops you from building on a certain part of the property – usually the front part.
Consent Notice: This is a notice issued by council with restricts what you can do with the property e.g. stops you from subdividing the land.
Covenant: This is also a document which restricts what you can/can’t do with the property. Covenants are most common in new developments, where the developers want the neighbourhood to stay neat and tidy.
TYPES OF OFFERS
Note that there are different types of offer processes, and you’ll likely want to change your offer depending on what kind of offer process it is.
Standard offer: This is where you are the only party putting an offer in on the property. If your price is lower that the vendor wants, or you have more conditions than they like, they can come back to you and negotiate.
Multi offer: This is where more than one party is putting an offer in. There will be a deadline for when the offers are due. The Agent will present all the offers to the vendor at the same time and the vendor will choose which offer they like the best. There are no promises that the vendor will come back and negotiate with you, so it’s really important to put in the best offer you can.
Back-up offer: This is where the property is already under contract, but the contract is conditional. You’re basically making an offer to be the runner-up if the first contract falls over.
Cash out offer: This is where the property is already under contract, and the contract is conditional, but it contains a ‘cash-out clause,’ also known as an ‘escape clause’. A cash-out clause allows the vendor to accept other offers which are better than the current one. You’re trying to be that better offer.
Tender: A tender is kind of like a multi-offer, but usually with a longer time frame. This allows you to do more due diligence before the tenders are due.
Auction: Auctions are a different kettle of fish altogether. When you buy at an auction, you are entering into an unconditional agreement to purchase. It basically means that once the hammer comes down, it’s your house.
PUTTING IN AN OFFER
Unconditional: This is when an offer or contract does not have any conditions in it – if the vendor signs your offer, then you’ve agreed to buy the house no matter what.
Conditional: This is when an offer has conditions in it. If a condition isn’t met, you can pull out of the agreement. The most common conditions are:
- Building report condition: This is when you can arrange to get a qualified building inspector (your builder friend/uncle doesn’t count) to go through the house and identify any issues with the property. The inspector will issue a comprehensive report. If there are significant issues with the house, you may be able to withdraw from the contract and therefore not buy the house.
- LIM condition: A LIM (or Land Information Memorandum) is a report issued by the local council which gives you all information that the Council holds on records for the property. This includes any information about the land e.g. flooding or contamination, as well as all the files the relate to the building e.g. consents, leaky home. Again, if any issues are identified in the LIM, you may have the right to pull out of the agreement.
- Finance condition: Putting in a finance condition allows you to make sure that you have the money required to buy the house before you unconditionally agree to buy it.
- Solicitors approval condition: This allows for your lawyer to look over the title of the property and make sure there are no issues. If there are significant issues, you may be able to withdraw from the contract.
Now we wait with bated breath!