Getting Finance, Pre-Approval and Shopping Around
One of the first things you should do when looking at buying property is to first determine your maximum loan amount, as this will dictate the kind of buying power you have. Gaining pre-approval for a loan amount also allows you to investigate recent sales to determine areas that might be out of your price-bracket. It’s important to shop around and find the best mortgage for your needs, to this end it is always wise to consult a mortgage broker, as they usually have a more intimate knowledge of the banks and other lenders, and are able to help you secure the loan that best suits your circumstances.
Locations Hunting, Suburb Growth
Once you determine the purpose the property is fulfilling, the next step is finding a location that can support other needs. These other needs might be something like close to work, schools, shops or public transport, or maybe even close to friends or family. These needs vary in importance depending on what purpose the property is fulfilling. An investor does not have the same needs a home maker for instance, they don’t need to worry about being close to family or friends, as it is impossible for them to predict who will tenant their property.
Determining Your Property Needs
What purpose is the potential property fulfilling? Is it a stepping stone to break out of the rental cycle? Is it somewhere you want to make into a home? Is it a source of income, ready to be tenanted? Is it a long term investment that you intend to occupy? Determining your property needs is the only way to be sure to be satisfied with your purchase. It will usually save you money as well. Ask yourself how long you intend to stay at the property, as if you are using the property as a stepping stone, you don’t want to get emotionally invested in the property, and make the wrong decision when it comes time to sell. If you are looking at purchasing an investment property, consult with property managers who know the area to find a property with the greatest rental return. If you are looking to settle down, trying to find your dream-home, it is easy to over capitalise and fall in love with a property. To avoid this, treat all property transactions as purely business and avoid attaching emotion to a property until you own it. Contacting an agent to act on your behalf is also a great idea, it costs you nothing, yet you gain the experience of someone from the industry, as well as the benefit of distancing yourself from the sale. This is known as a conjunction, which is basically an agreement between two agents to split the commission from the sale, the commission as always is paid by the seller.
When inspecting the property there are a few key things to remember. Look for signs of neglect, if there are maintenance problems in plain sight, there are likely to be further problems hidden where you can’t see them. Previous repairs can also be a source of grief, as there is no telling if a repair has been done to an acceptable standard, or if a patch or ‘band-aid’ job has been employed. Check wet areas like showers and baths for signs of failed waterproofing, often this will be indicated by a wet patch or stain or even corrosion to the wall backing onto these areas. The cupboards and surrounds to water basins should also be checked, as prior leaking will often mark or warp the wood. Check the walls and ceilings for cracks, hairline cracks can be caused by the house settling, but larger cracks can be more sinister, possibly indicating a moving slab. Mould is another red-flag, especially black mould. Any areas with poor ventilation should be thoroughly checked for dampness as, these are prime conditions for mould to grow. On the exterior of the house, be sure to check all of the weep-holes and make sure none are covered up, and also that no garden beds are attached to the house, as this is prime termite territory. Most houses in Queensland will have termites, it’s not a case of if, but sadly when. If they aren’t in the house, they will be in the yard, or maybe even the neighbour’s yard.
Once you are satisfied with the initial physical inspection, the next step is putting an offer to the owner. You are welcome to offer any amount, as well as a specific deposit amount, however keeping an offer within reason is advisable. There are a few different approaches you can take when negotiating; how effective they are will vary vendor to vendor, as everyone’s situation is different. If the advertised price exceeds your finance amount, you can offer the finance amount and hope the vendor is willing to come down. If your finance exceeds the advertised price, you can offer whatever you like, although it is always advisable to come in slightly under the advertised price, as many vendors will slightly over inflate their price to account for negotiations. If you have offered over the advertised price and the agent has told you there is a competing offer, and given you the opportunity to come up, I would advise you to rethink your offer. If the agent disclosed a price, I would advise you to walk away. Continuing with your offer in this situation will negate your buying power. This is called many different things depending on where you come from. Some call it a Dutch auction, although the actual definition is very different, some refer to it as a silent auction although again, the actual definition is different. They both refer to the practice of playing buyers off each other, disclosing competing offers to interested parties in order to secure the highest possible price for their vendor. Whilst not technically illegal, it is certainly unethical, and you should avoid any agent who engages in the practice. Telling you there is a higher offer is considered the best approach in that regard, however it is up to you to decide whether you believe them, and you can still request for them to take your offer to the vendor in writing. Once you have reached a price that both parties have agreed upon, a contract is drawn up
Before you do anything, have a solicitor look over the contract on your behalf. If the terms are reasonable and you are satisfied, then you can sign it, but once it is signed for all intents and purposes it is a legally binding contract. In truth it becomes legally binding when the vendor’s counterpart is signed, but once it leaves your hands you should consider it binding. It is advisable for you to have a building and pest clause and a finance clause written into the contract, to cover yourself in the event the property has structural damage or termites, or in the event your finance is not approved.
Building & Pest
Inspections should be booked as soon as you receive a signed copy of the contract. A building and pest inspection is done to ensure the property is structurally sound, free from termites or other damaging creepy crawlies and to give you a better understanding of your potential new investment. If there are non-structural faults uncovered in the building and pest, you are able to pull out of the contract, or negotiate with the vendor for compensation. It is possible to not have a building and pest, but in almost all cases it is advisable to organise one. One of the few cases it would be prudent not to, would be if you were demolishing the existing house to make room for a new one.
Finance is a very unpredictable side of real estate, you should always allow 2-3 weeks minimum for finance approval, as the date can be extended several times before being accepted. This is not uncommon, in fact most sales experience it. It is nothing to be alarmed at, in most cases it simply means the lender hasn’t assessed your application yet. Your solicitor should handle all of the relevant documentation, usually only requiring a dated signature and initial of any changes.
When a property goes unconditional, any remaining deposit money has to be paid, and all parties are to be informed that it has gone unconditional. It is important to note, from this point forward you cannot pull out of the contract, other than at the pre-settlement inspection.
Some buyers opt for a pre-settlement inspection, to ensure the property is in the promised condition, and that any agreed upon compensations have been actioned.
Come settlement day, your real estate agent will await confirmation from the solicitor of both buyer and vendor, only after receiving both confirmations will the agent inform and congratulate you on the purchase of your property. From there you can arrange a time to pick up the keys and any other relevant documentation from your agent.