Legal Essentials when Buying Real Estate
What you Need to Know
Understanding the process of buying real estate & avoiding the common traps
Legal Essentials when Buying Real Estate. Real estate can be a good investment but it pays to do your homework. As recent times have shown, it is just as easy to lose money as to make money in owning real estate. There are lots of things that can go wrong when purchasing real estate. And it is when you are purchasing that you make your money in real estate. In real estate you make your money when you buy, not when you sell. If you pay too much upfront or buy the wrong property, you will not make money on or even lose money. Real estate is a relatively large and expensive transaction compared to buying appliances or a car. Because of the big dollars involved, any serious mistakes have the potential to be catastrophic.
Taking the right steps can help you avoid the most common traps. This guide will take you through what you need to know, and answers most of the questions commonly asked by purchasers. Before we get into that, I have included a list of the common terminology below.
Legal Essentials when Buying Real Estate
Buying Real Estate – Legal Essentials
What’s the worst that can happen?
In a real estate transaction it’s the purchaser that has to take care about the property they are buying. The purchaser has to check everything to make sure all is in order. In practice it’s the purchaser’s solicitor who takes care of this for the purchaser, so it pays to get a good one.
Some of the things that can go wrong are:
· You lose your entire deposit.
· You end up with the wrong property, or no property at all.
· You pay outlandish penalties, interest, and the vendor’s unpaid taxes and council rates.
· You discover after you bought a property that you cannot use in the way to intended.
· You discover something seriously wrong with the property after you have become the owner and it’s too late to do anything about it.
Having a good lawyer acting for you and making all the necessary inquiries means that these disastrous scenarios can be avoided.
Surely there’s a law against it!
Many people believe that there is some system vaguely referred to as ‘consumer protection laws’ that protect them from rip-offs or being hoodwinked in a real estate transaction. Or better yet, a system for compensating them for when they buy a dud property. This is not so. The over-riding consideration in all real estate transactions is the old and estabished legal principle of caveat emptor –translated as ‘let the buyer beware’. In law, you know it’s an important principle when there’s a latin word for it like ‘caveat emptor’. In other words, the law requires that the purchaser make prudent enquiries of a property (or engage an experienced solicitor to do so on their behalf). This must be done before buying the property. You are stuck with the deal once you’ve made it.
I’ve found a property! What do I do?
Legal Essentials when Buying Real Estate
1. Get a copy of the contract.
The law requires that before real estate can be offered for sale, there must be a contract prepared and made available for any interested purchaser. Most contracts are available as an email attachment. Have the contract emailed to you. This will make it easy for you to forward the email to your solicitor for advice.
2. Have your solicitor check it.
Your solicitor can advise you about
unfavourable terms. In my experience every contract has some terms that favour the vendor at the expense of the purchaser. This is
because it is the vendor’s solicitor who drafted the contract. It is the
purchaser’s solicitor’s job to find out which of these terms are a ‘try on’ and ask for them to be removed.
3. Has your offer been accepted?
If you cannot agree on a selling price with the vendor, there is no point in doing anything further. Look at more properties and make more offers in the meantime. When your offer has been accepted, the real estate agent will send a ‘sales advice’ to your solicitor.
4. Call your mortgage broker
Can you afford to buy the property? (i.e.can you get finance)? If you do not have a broker, your solicitor should be able to put you on to a good one.
5. Conduct a building and pest inspection
(for a house) or commission a strata report (for a unit). This is something your solicitor can arrange.
6. Once you have the information from your searches, finance approved and your solicitor has negotiated the terms of the contract, you are ready to sign.
7. Make an appointment with your solicitor to sign the contract and
provide a cheque for the deposit.
Legal Essentials when Buying Real Estate
What happens next?
What is a conveyance?
How does it work?
An overview
Exchange of contracts
A conveyance begins by each party signing a contract. Two copies
are made of the one contract and the vendor gets one and the
purchaser gets one. Each signs their own copy and the copies are
exchanged. Each party ends up with a counterpart signed by the
other party. This is called ‘exchange’. Exchange kicks the whole
thing off, and creates a binding contract with the purchaser and
vendor that usually lasts about six weeks. The deposit is handed
over by the purchaser on exchange and is usually (but not always)
held by the real estate agent as ‘stakeholder’ until settlement.
For access to documents for your own conveyancing go to CONVEYANCING at Precedents Online which is our legal document shop.
After exchange / before settlement
There is a period of time, usually six weeks, from exchange until
settlement. The purchaser’s solicitor uses this time to arrange or
finalise finance, and the purchaser’s solicitor will run various checks
on the property to ensure all is in order.
Your solicitor will check that the contract correctly discloses all the
important facts about the property (if the contract does not do this
the purchaser may be able to get out of the contract).
The vendor’s solicitor prepares the necessary documentation to
hand over ownership to the purchaser.
This is the time in which your lender will send you loan documents
to sign, which you should do in front of your solicitor. Your solicitor
can explain the terms for you, check the contract for nasty surprises
and make sure the loan is appropriate for your needs.
Settlement
The final stage. The balance of the purchase price is paid, title
documents are handed over to the purchaser and ownership of the
property is officially transferred to the purchaser.
This occurs at a meeting, usually held at a venue nominated by the
vendor’s solicitor, and is attended by the purchaser’s solicitor, the
vendor’s solicitor, and representatives of any banks that are lending
the money secured by the property.
What does it all cost?
The legal cost is related so some extent to the property itself. Having said that, after having a look at the contract for sale, and learning a bit about the property itself, a good lawyer can give you an accurate estimate.
A word of caution; do not fall into the trap of looking for the cheapest rate. It pays to have a good lawyer working for you and good lawyers seldom charge the cheapest rate. Pay for expertise.
Good lawyers know what others are charging in the marketplace and also know not to overcharge if they want to stay in business. By all means raise the issue of costs, and seek an estimate, but penny-pinching on your legal representation can potentially cost you a fortune further down the track if the job is not done right.
Three things to remember when dealing with vendor’s real estate agents
1. The agent works for the vendor, not the purchaser. The agent is
paid a commission from the purchase price by the vendor when the
property is sold. No matter how friendly the agent may seem, it
pays to remember the agent is trying to sell you the vendor’s
property, not assist you to buy the right property for you.
2. A vendor’s agent is not accountable for anything they say. Almost
all Contracts for the Sale of Land contain a clause that says the
purchaser cannot rely on anything the agent or anyone else has
said to them to induce them to buy the property. This gives the
agent free ‘poetic license’ to say anything they want! Be careful to
get your solicitor to check all the facts about the property before
you sign.
3. The agent will get their commission when the property sells, (even
if they could have got a higher price for the vendor). I have seen
canny clients exploit this fact, and induced a hungry agent to sell a
property to them for less than they could have sold it. A bird in the
hand is worth two in the bush, so the saying goes…… What this
means is that you should direct some of your negotiation tactics to
appeal to the agent’s desire to ‘close the deal’.
Do I really need a lawyer?
Sometimes people ask if they can do a conveyance themselves. “Doing it yourself” can be a productive and satisfying hobby if you want to build a bird house in your back yard or plant a herb garden. Not if you require legal advice or representation. Everybody is free to have a go at it, but getting it wrong can mean catastrophic consequences for you. If you do it yourself you have no one to blame when you get it wrong. And no insurance.
A word on licensed conveyancers
Licensed conveyancers are not lawyers. A lawyer has undergone rigorous training at university and knows all sorts of law. A licensed conveyancer does not have this training. Licensed conveyancers have completed a course that allows them to do conveyancing work only. They are not allowed to do other types of legal work. Nor are they allowed to call themselves solicitors, legal practitioners or lawyers.
Lawyers are taught competency in property law, contract law, business law and all other laws relating to real estate and commerce before they are allowed to Contract law is relevant to real estate transactions because every piece of real estate that is sold in Australia is done using a contract that stretches to some 30 – 50 pages long. Expertise in contract law is therefore essential.
Over the years we have found that after a brief period of popularity, people are turning away from licensed conveyancers and back to lawyers. Why? Because the cost of your legal representation is not the most important consideration when buying real estate. Getting the job done right is the most important outcome for just about all purchasers of real estate. It pays to buy good expertise.
Weigh up the cost
To purchase real estate in Sydney these days you need to spend hundreds of thousands, sometimes millions of dollars. Legal costs represent a small fraction of this transaction.
This is the not the place to try and save a few bucks by using cheap
representation.
What else do I need?
Tax Advice
Your accountant is probably the best person to advise you on tax.
Purchasing real estate usually means that tax issues need to be considered. Most real estate transactions have implications for Income Tax, Capital Gains Tax, GST and Duty. It pays to ensure that some or all of these taxes are minimised when you are buying. The time to consider these issues is at the time you are buying the property. Your solicitor should be able to refer you to a good
accountant if you do no have one already.
Update your will
Acquiring an asset like real estate means that you should consider updating your will. If you don’t have one, you should arrange to have one drawn up. At Kalde & Associates we offer special rates, discounts and package deals for creating wills and other personal documents for clients who are buying real estate with us.
You can go to our legal document shop Precedents Online to download Wills documents.
Keep looking
Although not strictly a legal point, I feel compelled to share one more important lesson I have learned from my years in acting for successful purchasers. I define the term ‘successful purchasers’ as meaning those happy individuals who find the property they are looking for at a price they are happy with.
One key ingredient is common to them all. They keep looking until they find the property they are looking for. Persistence is the key. Quite often the right property is found just when a person is just about to give up looking. The important thing is to keep at it, keep looking at the next property until you find the right one.
What next?
Now that you have the basics, you are ready to find the home of your dreams, or your ideal investment property. Our numbers appear below. Call us when you are ready.
In the meantime you may wish to visit our website for further useful information
www.kaldelegal.com.au .
You may also wish subscribe to our free email newsletter to stay informed.
We trust this information is useful to you.
Good luck in your search.
Eric Kalde
Kalde & Associates
Commerical Lawyers
133 Alexander Street,
Crows Nest NSW 2065
Tel: (02) 9439 1139
Eric Kalde,
Principal solicitor
Kalde & Associates Commercial Lawyers
Buying Real Estate – Legal Essentials
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Buying Real Estate – Legal Essentials
Disclaimer
The material contained in this report is general and is not intended as legal advice. The author expressly disclaims all and any liability to any persons whatsoever in respect of anything done by any such person in reliance, whether in whole or in part, on this publication. Please take appropriate legal advice before acting on any information in this publication.
Kalde & Associates Commercial Lawyers
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