The First Home Owner Deposit Trap
http://www.kakadirectory.com/articles/11306/1/The-First-Home-Owner-Deposit-Trap/Page1.html
John Hacking
For more information about Australian property investment, talk to The Investor's Club. The Investors Club was created by Kevin Young, an Australian property investor. By John Hacking
Published on 11/8/2008
There are some traps for first-time home buyers need to be aware of in order to avoid them
A Blogger named Grant, looking for his first home, asked for some pointers so he understands how the process works
There are some traps for first-time home buyers need to be aware of in order to avoid them.
A Blogger named Grant, looking for his first home, asked for some pointers so he understands how the process works. "I know about the first home owner grant, that I should organise my finances upfront and about the extra costs," writes Grant. "What I am unsure about is at what point of the process do I reach the point of no return? That is, where I will lose my deposit if I do not proceed with a purchase? This has made me scared of even making on offer."
Well Grant, the good news is there is no way an offer is binding unless you make it at auction and it is the winning bid. Generally if you see a home you want you can make an offer with no obligation. You are not at the point of no return until you sign a contract to buy at a specified price.
Some first-time buyers think they have bought when they haven't. In a competitive market it's easy to be gazumped by someone prepared to pay more. Even if the vendor has verbally accepted your offer, and you have signed a contract, there is no deal until the vendor also signs and contracts are exchanged.
I sold my previous home in a hot market - my solicitor received three signed contracts from potential buyers. Only when I decided which contract to sign was the deal done. Note that all three potential buyers were locked in the moment they delivered a signed contract to my lawyer, but two did not proceed only because I did not sell my home to them.
So when you find the house of your dreams it's wise to move fast, but do not neglect to make sure it is a sound building and does not have excessive pest problems.
You can get both building and pest inspections undertaken by the same company. Archicentre, the building advisory service of the Royal Institute of Architects, does both in all states.
The cost varies from about $615 for a one-bedroom unit to $1190 for a six-bedroom home and comes with a $10,000 12-month structural guarantee. You can find a range of other businesses that provide these services on the net and in the phone book.
If your dream home is going to auction you need these reports before that date because if a property is knocked down to you, or sold to you on the day of the auction, there is no cooling-off period.
This means if you do not proceed with the purchase you will lose your 10% deposit. Alternatively, if you buy by "private treaty" most states allow a cooling-off period of five business days.
Changing your mind in this time will mean you only lose a fraction of your deposit. For example, in Queensland it's 0.25% of the purchase price, equating to $625 on a $250,000 house, much less than the $25,000 deposit. Be aware that vendors often try to have the cooling-off period eliminated from the contract.
You pay the balance of the purchase price on settlement, which is usually several weeks after exchange. Again either the buyer or the seller can seek to have this varied in the contract, so make sure the settlement date suits you and that your finances will be available.
A Blogger named Grant, looking for his first home, asked for some pointers so he understands how the process works. "I know about the first home owner grant, that I should organise my finances upfront and about the extra costs," writes Grant. "What I am unsure about is at what point of the process do I reach the point of no return? That is, where I will lose my deposit if I do not proceed with a purchase? This has made me scared of even making on offer."
Well Grant, the good news is there is no way an offer is binding unless you make it at auction and it is the winning bid. Generally if you see a home you want you can make an offer with no obligation. You are not at the point of no return until you sign a contract to buy at a specified price.
Some first-time buyers think they have bought when they haven't. In a competitive market it's easy to be gazumped by someone prepared to pay more. Even if the vendor has verbally accepted your offer, and you have signed a contract, there is no deal until the vendor also signs and contracts are exchanged.
I sold my previous home in a hot market - my solicitor received three signed contracts from potential buyers. Only when I decided which contract to sign was the deal done. Note that all three potential buyers were locked in the moment they delivered a signed contract to my lawyer, but two did not proceed only because I did not sell my home to them.
So when you find the house of your dreams it's wise to move fast, but do not neglect to make sure it is a sound building and does not have excessive pest problems.
You can get both building and pest inspections undertaken by the same company. Archicentre, the building advisory service of the Royal Institute of Architects, does both in all states.
The cost varies from about $615 for a one-bedroom unit to $1190 for a six-bedroom home and comes with a $10,000 12-month structural guarantee. You can find a range of other businesses that provide these services on the net and in the phone book.
If your dream home is going to auction you need these reports before that date because if a property is knocked down to you, or sold to you on the day of the auction, there is no cooling-off period.
This means if you do not proceed with the purchase you will lose your 10% deposit. Alternatively, if you buy by "private treaty" most states allow a cooling-off period of five business days.
Changing your mind in this time will mean you only lose a fraction of your deposit. For example, in Queensland it's 0.25% of the purchase price, equating to $625 on a $250,000 house, much less than the $25,000 deposit. Be aware that vendors often try to have the cooling-off period eliminated from the contract.
You pay the balance of the purchase price on settlement, which is usually several weeks after exchange. Again either the buyer or the seller can seek to have this varied in the contract, so make sure the settlement date suits you and that your finances will be available.