Buying a house isn’t something you do everyday. If you’ve never done it before it can be difficult to know where to start, or even what is involved. It’s a complex, overwhelming and often frustrating process, and one of the biggest (if not the biggest) financial commitments you can make. So it is crucial to make informed decisions, do as much research as possible, and get expert advice to guide you through the process.
This guide can help signpost the way through your house-buying journey. It’s definitely not a replacement for one-on-one advice, but it may point you in the right direction and give you an idea of where to turn to take your first steps towards home ownership!
1. Create A Budget
Firstly, it is important to determine your budget from the outset before you place any offers. This will help avoid issues like offering too much for a home you can’t afford or taking on a mortgage you are unable to service. If you’re a first home buyer, it’s always beneficial to research whether any government grants may apply to you.
In the current Australian property market, a minimum deposit on a house can cost anywhere from 5% to 20% of the sale price. You will also need to factor in additional fees such as legal costs, building reports and Stamp Duty. Additional costs will vary from buyer to buyer, so it is best to consult with a property lawyer or conveyancer, and your accountant or financial advisor.
Stamp Duty is the tax associated with buying property in Australia. You can use a Stamp Duty Calculator to estimate how much you may need to pay on each property you’re looking at. Depending on if you’re a first home buyer, what sort of property you’re looking at and if it’s bought off-the-plan, you may be eligible for Stamp Duty subsidies.
If you’re not sure where to start when it comes to setting a budget, it’s helpful to look at what houses are currently on the market and how much they cost. Look at recent sales prices, not just the asking price. Focus on homes in similar in areas that you’d like to purchase in, that are a similar size and style to what you’re looking for. You can even attend some auctions and get a feel for the market and how everything works.
This is where you may decide that you need spend some more time saving before actually buying a house, which is completely okay, and will give you a goal to work towards.
Once you’ve got a budget in mind, if you’re going to require a home loan then you’ll need to decide whether you would like to opt for a fixed or variable rate loan.
A fixed rate is where the interest rate remains stable for a certain period of time. This can provide you with more certainty and enable you to set up an automatic payment to make weekly or monthly payments of the fixed rate.
However, a variable rate means that as interest rates fluctuate, so does your repayment rate. This option is more unpredictable, with the potential for your rate to increase or decrease depending on the market.
There are also two ways you may be able to pay your loan:
- Principal + interest loan: This type of loan will mean you are paying both the principal (the amount you borrowed to purchase the property) and interest at the same time.
- Interest-only loan: Interest-only loans can reduce the amount you pay weekly, but keep in mind you will only be paying the interest, without contributing towards the principal.
If you are unsure which repayment type suits you, it could pay to seek the help of an accountant or financial advisor.
You may also choose to apply for home loan pre-approval, which is a useful way to understand how much you are eligible to borrow from a lender and should give you more confidence when submitting offers or attending auctions.
2. Do Your Due Diligence
Due diligence is the research required prior to placing an offer to check whether the property is a good investment for you.
Due diligence is undertaken throughout many stages of the house-buying process. But before you make an offer, it can help you to determine if the property has been constructed to a high standard, using safe and healthy building materials – as well as a tool for deciding what the property may be worth. There are a number of things to look out for, and some of the key due diligence research can include:
- When considering buying an off-the-plan property, investigate the track records of developers by running a background check online and reading news articles. You could also consult property industry experts to ask for honest opinions of the quality of work produced by the developer. Or another option is to talk to buyers of the developer’s previous developments to discuss whether they’re happy with their home and if it was completed on time.
- Research the suburb where the property is located. You can check crime rates, public transport options, planned infrastructure, property value fluctuations over time and zoning for local schools.
- Research the architect and builder responsible for the home. Consider their credibility and visit their completed developments to assess whether you’re happy with the quality of their work.
- Acquire all supporting documents for the property you’re interested in and read through them with a fine-tooth comb. A conveyancer can be a huge help during this process.
- Look at the minutes from past strata or body corporate meetings and find out what will be required from you time-wise and financially as a resident if buying into an owner’s corporation*. You can also talk to neighbours who are covered by the same owners corporation.
- Find out whether the property has any heritage restrictions on what renovations and modifications you are allowed to make to the property or the land.
- A buyer’s agent can also assist with due diligence processes.
*An owner’s corporation applies to shared residences where financial decisions need to be made for collective maintenance projects.
When you’re ready to place an offer:
- Consult with a conveyancing lawyer who will outline your rights and obligations.
- Find out how the sunset clause* could be enacted in your state and whether you’re protected against loss of finances and/or the off-the-plan property you’re purchasing
- Find out what your rights are if your off-the-plan property is not delivered on time
- Ask how you will connect your property to utility services
- Consider engaging a Buyer’s Agent, or a having your offer contract drawn up by a conveyancing lawyer (see below).
*The Sunset Clause is essentially the ‘expiry date’ of an off-the-plan development which gives both the developer and buyer the opportunity to dissolve a contract if the building has not been completed on time.
Getting your offer contract drawn up by a conveyancing lawyer:
An offer placed on a property is a legally binding contract, so by engaging a lawyer throughout the house-buying process will help to translate technical jargon and mitigate any miscommunication within the agreement. It’s not mandatory, but may help protect your interests.
A specialised conveyancing lawyer can also help you negotiate the best deal. For example, your lawyer may suggest including a clause which highlights that you will not proceed with the sale should the property fail any inspections undertaken by a master builder or surveyor. This could include issues surrounding soil contamination, asbestos, structural issues and more.
3. Get familiar with the sales methods
A tender is often considered a silent auction where prospective buyers will submit an expression of interest offer in writing to the real estate agent, at a value they believe the property is worth. There is no suggested sale price apart from a capital value* to work from, but this is a good way for the vendor to assess how much the market is prepared to pay for their home – to which they can accept, provide a counter offer or decline.
*A capital value or CV is the recommended house and land value provided by a property valuer. If the valuation has been carried out over a year ago, it is worth engaging in a re-evaluation as the property market is constantly shifting, and house prices fluctuate.
SALE BY NEGOTIATION/PRIVATE TREATY
Sale by negotiation or a private treaty is where the vendor sets the price, and prospective buyers will either make an offer or provide a counter offer. If a subsequent counter offer is provided by the vendor, the buyer may engage in a negotiation process so both parties reach a sale price and agreement that they are both happy with.
This sale type is often a longer process due to there being no set sale date, giving the vendor more time to settle on an offer they are comfortable accepting.
The auction process is simple – prospective buyers bid in a competitive environment, with the highest bidder often winning the property on the day if the reserve price is met. In some instances, interested buyers may place an early offer before auction day in an effort to secure the property before it goes to auction. In Australia, auction clearance rates are high, meaning many properties will sell on auction day, rather than progress to a tender.
If there is high demand for an off-the-plan apartment, a waitlist ballot could be created. Interested buyers can enter the ballot, and if their name is chosen at random, then they will be given the opportunity to purchase an apartment at a fixed price.
What do all three sale types have in common? Offers are made via a written contract
A contract offer can either be prepared by the buyer or the buyer’s lawyer. Paperwork to submit an offer is often supplied by the seller’s Real Estate agent. This is a legal document which states the amount the buyer is prepared to pay for the property and includes any conditions that need to be delivered in order for the sale to be finalised (e.g. subject to finance or building inspection).
It is encouraged that all offers are drafted with the help of a legal professional in order to help protect you against any unforeseen problems such as any hidden fees, unknown building rectification costs or any other issues that could arise between placing your offer to settlement and beyond.
4. Decide on an Unconditional vs Conditional offer
Generally, when you make an offer, you can choose whether your offer is conditional or unconditional. This will generally depend on your circumstances and the property you are purchasing. Sometimes unconditional offers can be a more desirable option for vendors as they can result in a quicker, more seamless sale, however conditional sales can give the buyer the chance to negotiate a better deal.
A Conditional Sale is a sale with conditions attached – as the name suggests.
These conditions could include (but not limited to):
- Buyer’s finance is subject to approval
- Building/pest inspections still to be conducted
- The sale of buyer’s current home to be completed without any complications
- A certain fixture or fitting needs replacing
- The house needs to be professionally cleaned
|Pros of conditional sale:||Cons of conditional sale:|
|If there are aspects of the home which need fixing, changing or even upgrading, buyers may include this in the conditions of sale. If the offer is accepted the vendor must honour these conditions before the buyer takes ownership of the property.|
Less risk involved if the buyer wishes to withdraw their offer, as a clause can be written to provide 14 to 21 days to finalise their decision about the purchase.
|A conditional sale can span across a longer period of time while the buyer secures finance, which could result in the vendor accepting an unconditional offer if they’re looking for a quick transaction|
Unrealistic demands in your conditions may lead vendor to accept another offer
An Unconditional Sale means that you’re buying the house or property in its current state. You can sometimes secure the home for a lower price point because of this. The buyer will have already secured approval for a home loan and has the deposit ready for immediate finalisation of the sale.
It is a good idea to consult with a conveyancing lawyer and a registered builder/building inspector before opting for an unconditional sale, as there may be unforeseen issues with the property that might outweigh the savings you made from the sale. While it is imperative that the vendor’s agent discloses all issues present within the building – it is also important to do your own due diligence.
|Pros of unconditional sale:||Cons of unconditional sale:|
|An unconditional offer provides security for the vendor. and therefore is more likely to be chosen preferentially over a conditional offer of a similar value.|
Since finance is already secured, buyers are able to place their highest bid with confidence.
|No longer able to back out of a contract.|
The buyer may overvalue the property if making a hasty offer and won’t be able to change it.
If home loan finance is not approved, the buyer may have to forfeit their deposit.
5. Make an offer
Making an offer is the final step in the process (and the actual “buying a house” part). All the prep-work you’ve done leads up to you putting your best foot forward and your best offer on the table.
- Decide how much to offer
You’ve got your budget in mind, you’ve accounted for additional upfront costs, now it’s time to decide whether you can comfortably service your mortgage. A great way to figure out your weekly or monthly repayments is by using a comprehensive mortgage calculator (available on most lender’s websites). This will factor in your deposit paid, interest, and home loan rate.
It’s worth noting that some houses you might intentionally choose to offer less than your maximum budget. They may not be as close to amenities, or have less bedrooms or bathrooms, and it’s important to not pay more than what you think the house is worth (in your informed and well-researched opinion).
2. Know your budget before auction day
Auctions are generally a high-pressure environment and it can be easily to get swept up in the moment. This can lead some buyers to spend more than they initially intended. Attending an auction with a clear budget in mind (an exact maximum dollar amount) is the best way to ensure you don’t exceed your spending capacity – and make sure to calculate your stamp duty into that budget too!
Some people find it beneficial to physically walk away from the auction as soon as that threshold is passed to avoid making any offers above your budget. You can also bring along family or friends for moral support, who can also hold you accountable to your budget.
3. Seek loan pre-approval
By securing your home loan before making an offer, your bid will have a stronger chance of being accepted as this provides more certainty to the vendor that you will be able to access the funds. It is also peace of mind for you.
4. Get a contingency clause written up (optional)
Worried you’ll get cold feet about the purchase? You can have your conveyancing lawyer write up a contingency clause, which is a legal document which generally accompanies your offer and is personalised to your requirements. For example, it might allow you 14 days to view the property again before the contract becomes binding. This will give you time to confirm your decision.
5. Triple check your conditions of sale
If you’re asking the landlord to fix a window, but also want the property for $10,000 lower than the asking price – you might want to reassess your priorities. Consider the cost of your conditions versus the price you’re offering as the more conditions you can address yourself (and the shorter your list of requests) the more likely the vendor will be to take your offer over someone else’s.
6. Include a personal letter (optional)
Finally, you may like to include a personal letter to the vendor, sharing some background information about yourself and why you have chosen their property. There can be a lot of emotional attachment for both parties when negotiating the sale of a house, so it can be helpful if the vendor is reassured that the property will be going to someone who will appreciate it.
You may have to repeat the steps in this house-buying journey many times over. Unfortunately buying a house isn’t normally a “one-and-done” process. It can be frustrating, and heartbreaking, to have offers rejected, or lose out an auction, or even walk into houses you love but know you can’t afford.
If you’re finding that your wants and needs don’t align with your budget, or you’re not seeing any houses that are sparking your interest, it is completely okay to take a break and come back to it. Either to keep saving in the meantime so you have a bigger deposit behind you, or to wait until houses that suit your needs come on the market. It’s important to not feel pressured into making a purchase you cannot afford, or do not feel comfortable with. Buying a house is an enormous financial commitment. It’s certainly not a decision to be pressured into.
We always recommend you seek expert advice before buying a house. And advice that is tailored to your individual circumstances. If you’re looking for experts to help guide you through this process, get in touch. We have lots of professionals in our network who can assist you!