One thing I learnt during my years at a top tier law firm was how to balance commercial and legal needs. When buying property, this means that if you object to every clause, the house of your dreams can slip through your fingers. At the same time, you don’t want to commit to a contract that you can’t fulfil. The trick is to pick your battles. Contracts are often biased in favour of the vendor, so let your solicitor guide you on how to negotiate a property purchase successfully.
Step 1: evaluate your acceptable level of risk
In negotiations, you need to assess the strength of your desire for the property versus your acceptable level of risk. You are competing against purchasers who may be willing to take more risks, or who are more desperate to buy.
For some people, this means not bidding at auctions. Auctions are riskier than private sales because there is no cooling off period and the contract is unconditional. You must already have done your due diligence, for example, by obtaining a building and pest inspection. Many people are not wiling to waste money on an inspection if their offer may not succeed. Similarly, you must be satisfied that you have sufficient funds or pre-approval. Importantly, pre-approval does not guarantee unconditional approval, especially following the banking royal commission.
If you are not willing to take these risks, then you will need to negotiate a private offer.
Step 2: negotiating a conditional offer
An unconditional contract becomes legally binding immediately as there are no conditions left to satisfy. They are therefore more favourable than offers made subject to conditions, even if the price is lower. This is because the vendor has to wait until the conditions are satisfied before knowing whether the sale will proceed. There are 2 common conditions that are often requested: that the contract be subject to loan approval and subject to building and pest inspection.
Subject to loan
When asking for this condition, consider the amount you need to finance the property, and the date by which finance is likely to be approved. If you require more than 80-90% of the purchase price, then the vendor will assume that you require lenders mortgage insurance (LMI), which may impact the timing and success of your approval. If you can’t obtain finance by the relevant date then you may terminate the contract and recover your deposit.
Subject to building and pest inspection
It would be best if you could get this done before signing so that you can factor any costs into your offer. Otherwise, you can request that the contract be subject to a satisfactory building and pest inspection, so that you can terminate if you are not subjectively satisfied, and recover your deposit. However, the vendor may fear that you will use this as an excuse to back out of the contract over small issues.
They are more likely to accept that you can only terminate if the report shows a major structural defect or major pest infestation. This means that you won’t have any recourse against minor issues that still cost a lot to rectify. A middle ground may be to negotiate another threshold (e.g. if the cost of rectification exceeds a specific amount of money). Even if your inspection identifies a major issue, such clauses only give you a right to terminate, not to negotiate a reduced price (although you can threaten to terminate if the price is not reduced).
Step 3: negotiating the contract
The final step is to consider whether any other clauses in the contract should be amended. Most obvious are the commercial terms, including price, deposit and settlement date. You might also want to change the time by which the vendor must accept your offer, the date by which the deposit is paid, the goods that are sold with the land and the penalty interest that will apply for breaching the contract.
There are many other issues that your solicitor can help you identify. Do you want access to the property before settlement? Do you need assurance that certain goods will be in working order, or that goods will be removed from the property? Are the vendor’s special conditions particularly onerous or unusual?
And while you are considering these issues, is Arya going to sneak past you and kill the Night King first?? Get your solicitor involved early to avoid being left in the cold!
Aliza Taubman is the Principal Solicitor at Prime Property Lawyers
Thinking of buying or selling a property in VIC? Contact us for more information. Buyers get 2 standard contacts and section 32s reviewed for FREE!