Andrew Pine – Guide to buying your first home in Queenstown (Part 2)
Contracts – protecting yourself
You have saved a sizeable deposit and are aware of how to minimise your entry costs. Perhaps it’s time to commence embarking on that great adventure towards owning your first home! You start by attending dozens of open homes and eventually find one you like. You put a competitive offer in on one and the Seller gratefully accepts! Then out of nowhere the Agent whips out a Contract and makes you sign a legally binding document on the spot before you even have a chance to discuss the significant ramifications of doing so with a solicitor.
Always have your Contract looked over by a lawyer before you sign.
Despite this word of caution, it is an industry standard for Contracts to be signed by Buyers before they even engage their solicitor. Agents often attempt to make the process feel time sensitive, as if your delay by having the Contract reviewed by a lawyer could be the difference between you buying your first home or it slipping away to a competitor Buyer. The reality is very often not the case. In addition, losing out on buying your dream home because you elected to have your contract reviewed puts you in a far better position than you unwittingly buying a house with nightmares having signed a contract with inadequate legal protection because you did not have it reviewed at the proper instance.
In Queensland there is a standard Contract which is almost always used and offers you some protection if completed correctly. This is known as the REIQ Contract. This standard Contract offers you a cooling-off period, a Finance Condition (if selected) and a Building & Pest Condition (also, if selected). It is advised that you have your solicitor review the Contract to ensure all three conditions have been adequately marked on the Contract and that you are suitably protected by all of them (a word of note – you are always protected by the cooling-off provision). Your solicitor may also wish to discuss with you other conditions which should be inserted into the Contract due to your personal circumstances, the characteristics of the Property or the area in which the Property is situated.
Ever wake up thinking about something in a different perspective than you did the night before? As human beings we are prone to changing our minds – it’s who we are. A cooling-off period therefore applies from the date the last person signs the contract and sends it to the first person. So how does this work in practice?
In Queensland it is common for the Buyer to sign the Contract first (under pressure from the Agent as noted above). The Agent then takes the Contract to the Seller for them to sign. The Contract is then either sent back to the Buyer or instead to the Buyer’s Solicitor. Upon receipt of the Contract, the Buyer then has a 5 Business Days (including the day they or their solicitor receives the fully signed Contract) to change their mind – for absolutely no reason. The only penalty is that the Seller may deduct 0.25% of the Price from any deposit you have paid. So on a $500,000.00 price, the Seller may deduct $1,250.00 from any deposit you have paid before returning the rest of the deposit paid to you.
Terminating under the cooling-off period does come at a cost, but this is the price you pay for changing your mind.
Buyers often sign Contracts without first ensuring that they have a bank willing to lend them the requisite funds they need to borrow. Sounds a bit back to front doesn’t it.
A standard condition of the REIQ Contract is therefore that you have a period of time (often 14 or 21 days after the Contract is signed by all parties) for you to approach banks and receive a confirmation from at least one bank that they will lend you the required funds to purchase. This is known as finance approval.
If you are unable to find a bank willing to lend you within the requisite time period, you are then able to terminate the Contract immediately, with all deposit funds you have paid being immediately refunded.
Your solicitor should review the Contract before you sign to ensure the Finance Condition adequately protects you. Your solicitor can also advise you of your legal rights to terminate, as well as your obligations requiring that you genuinely attempt to obtain finance.
Building & Pest
Are you a building expert? No? So how do you know whether you are buying a lemon? You don’t. There are a plethora of things that can go wrong with dwellings in Queensland. Structural defects, termite problems and dwellings without necessary council consents to name a few.
A standard condition of the REIQ Contract is therefore that you have a period of time (often 14 or 21 days after the Contract is signed by all parties) for a builder and/or a pest inspector to inspect the property to ensure there are no hidden surprises. A builder will inspect the structural integrity of the dwelling, while a pest inspector will ensure you will not be living in a house which has some unenjoyable and costly flat-mates. Termites are an especially significant issue in Queensland, so your pest inspector will investigate whether any are present, as well as whether the dwelling’s barrier is adequate to keep any future termites from entering.
Your solicitor should review the Contract before you sign to ensure the Building & Pest Condition adequately protects you for your personal situation and the characteristics of the dwelling. Your solicitor can also advise you of your legal rights to terminate, as well as your obligations in regard to ensuring you obtain a building and pest report(s), along with your limited rights to terminate in certain circumstances.
As you will have noticed in this article, the general theme is that your solicitor should review the Contract before you sign to ensure the Finance Condition and Building & Pest Conditions are correctly completed. Your lawyer will also consider whether these conditions adequately protect you for your circumstances, along with the Property’s characteristics. Your solicitor can then also advise you on your legal rights and obligations in respect of both.
Your lawyer may however consider that these conditions do not go far enough in protecting you from certain circumstances they can foresee arising. This is where the experience of a legally minded professional who has seen your situation countless times before is priceless. They may consider that an additional clause or clauses are needed in order to protect you from these foreseeable circumstances and can write these conditions into the Contract before your sign.
As you don’t know what you don’t know, it is best to have a discussion with your solicitor first, before you sign the Contract. Before you are too late.
Related Articles – Property Investment Insights by Andrew Pine – Part 1
Disclaimer: Andrew Pine is a property solicitor practising in Queensland. Andrew is not qualified to give accounting or financial advice. This article is written solely as an opinion of the writer. This article should not be relied upon for legal, accounting or financial advice. You should always seek advice which is tailored to your individual circumstances.