13 Feb Some legal advice for first time home buyers
In today’s show, legal eagle Rob Balanda has some good advice for first time buyers.
Kevin: I received some very good advice recently from a good friend of mine, a man who I always take notice of, and that is Rob Balanda from MBI Lawyers.
Good day, Rob.
Rob: Good day there, Kevin.
Kevin: Would you like to know what that piece of advice was?
Rob: What was that? Always borrow money from a pessimist because they never expect to get it back? Was that it?
Kevin: Something like that. It was to do with buying property, of course. It was about first-home buyers and how, when you are going through the process, it’s quite daunting, but it can become a lot easier if you put a team together.
Let’s talk about that, Rob. Who would you see on the team, and what would be their function?
Rob: You need people who will hold your hand as a beginner. The process is one you’ve never encountered before, so you need to engage with people who personally commit to helping you through it. This starts with the real estate agent. Everyone has to have more patience than most. Once you’ve done this once, then you’re well on your way, and then next time, you won’t have to.
The agents start with sending a draft of the contract to your solicitor or your conveyancer. The solicitor will make sure that it’s got the usual protections for you and then very importantly, it’s got pest and building clauses in it that genuinely allow you – as the buyer or the first-home owner – to pull out if you’re not happy with the pest and building.
Kevin: Finance is a big thing, too?
Rob: Yes. Make sure you get pre-approval of finance so you can be asking the seller for the minimum time possible for approval of finance. The shorter the better. The next big thing is the deposit. Make sure that you only pay a token deposit. I suggest $1000 or $2000 initially until you go unconditional. You just don’t want sellers holding some of your money until you’re actually genuinely unconditional. Have a clause that says the balance up to 5% or whatever it might be is payable within, say, two working days of signing off on finance.
Kevin: You said 5% there, but sometimes agents will ask you for 10%?
Rob: Yes. The ideal is to get 10% from a buyer as an agent, but often first-home owners won’t have that much. They’ll be on a real budget.
Kevin: Normally the agents take their commission when the property settles out of that deposit, so they would want to make sure that they’ve got between 2% and 3%, because that’s basically what the commissions are around Australia?
Rob: Yes, that’s right. People forget that the deposit is also a security for the agent’s commission, so without being undiplomatic about it, they’ll usually round it off to the nearest thousand.
Kevin: Once we’ve done that and we’ve gone through this building and pest and finance, then normally about 14 days. Is that about right?
Rob: Yes, 14 days if you’ve got pre-approval for finance. Make sure that you don’t sign off on finance until you get something more than that congratulations letter that often come out of lenders or brokers – the three-liner that says “Congratulations, the loan is approved.” A loan approval has many pages of conditions, and you need to make sure that you have that full letter before you sign off.
Kevin: Once you go through those conditions, then the settlement takes place. Is it normally about 30 days?
Rob: You need to allow a minimum of 30 days as a first-timer. I like to put in 35. Sellers don’t usually balk at that, especially if the settlement is going fall over the Christmas/New Year period when you’ll lose a few working days because of holidays.
Kevin: When that day for settlement comes around, what does the buyer have to do? I know the answer to this, but I think it doesn’t hurt for first-time buyers to find out what happens at settlement.
Rob: The solicitors handle the settlement. You just need to make sure that you’ve been in to see your friendly solicitor and they have all the documents and all the papers and all the monies needed to effect settlement in the coming days. You make sure that there is nothing more they want from you and that all you’re waiting for then, is that phone call to say, “Congratulations, the property is now yours.”
Kevin: Now, what if I, as a buyer, want to go in and have another inspection on the property just before it settles to make sure that nothing has been missing that I thought was going to be in there. Is that in order?
Rob: That’s usually in the standard contracts, and it’s a good idea to ask for that as a first-timer, say about a week out. Then if you got a seller who’s thinking about doing the old switcheroo – swapping the chintz curtains or those crystal chandeliers for some cheap substitute – that will put them on notice that you’re coming through, and they’ll have second thoughts about doing that thing. It does keep everyone honest. I like the idea.
Kevin: Then I as the buyer can’t get the keys, I can’t take possession, until there’s been formal notice from both sides that the property has actually settled?
Rob: Yes, that’s how it works.
Kevin: I’d be given the keys, and then, of course, it’s all mine and I can move in?
Kevin: What about if I want move some furniture in before the settlement?
Rob: Usually sellers will indulge you there, but the thing to understand there is that when you put furniture in, it’s at your risk. Make sure that garage is locked up, because if someone breaks in, if the seller has moved out, then the risk is yours. If it’s stolen, that’s your worry, not the seller’s.
Ditto with pool equipment. If you are buying a house with a pool and the seller has moved out a couple of days before settlement, make sure the agent has got the Kreepy Krauly and the Barracuda in the garage locked away, because what happens is it goes missing. That’s what I find.
Kevin: Rob, it’s great talking to you. Thank you very much for your time. Some great tips and pieces of advice there. Rob Balanda is from MBI Lawyers, and we would suggest you give him a call.
Thanks for your time, mate.
Rob: Good day to you, Kevin.