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Worst Case Scenario: What Happens If I Can’t Get Finance?

Published: 30 September 2019
Written by burstonline
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Categories: Buying, Off the Plan

In this edition of Worst Case Scenario, we take a look at what happens if you can’t get finance. This situation happened earlier in the year when a client received notice that their off the plan property was ready to settle.

WHAT CAN WE LEARN FROM THIS WORST CASE SCENARIO?

  1. Recognise changes in the property market that might change the new valuation of your property.
  2. Recognise changes in your personal circumstances that might impact your finance.
  3. Work with your mortgage professional to secure alternate sources of funding and valuation.
  4. Keep track of your finances during the settlement period.

Let’s take a detailed look at what happened and how we can learn from it.

TELL ME WHAT HAPPENED

In 2016 a first home buyer purchased an off the plan apartment in inner city Melbourne. They put down a $75,000 deposit which represented 10% of the purchase price. The development was a medium-large scale site with about 30 apartments across 5 levels. The vendor’s representative provided updates on the progress of construction.

With the Plan of Subdivision due to be registered in a couple of weeks, the purchaser contacted their mortgage professional who re-applied for finance on her behalf. She was offered a mortgage $70,000 less than she needed to settle the property.

WHY WAS THERE A DIFFERENCE BETWEEN THE TWO OFFERS

There was a difference between the two finance offers for two reasons. One, the value of the property had slightly lowered during the construction period and two, the earning capacity of the borrower had changed in the two years.

We cover this issue with a mortgage professional in our video series which you can watch here.

WHAT HAPPENED FROM A LEGAL PERSPECTIVE

Big developers are very difficult to talk to directly. This is simply because they are settling hundreds of properties a year and as a result they don’t have time to deal with them on an individual basis. This makes it almost impossible to appeal to them personally. The Vendor’s lawyers are also dealing with hundreds of settlements a year and can’t be lenient with one of them to the exclusion of another so they apply the general rule of being lenient to none of them.

CAN YOU GET INTO TROUBLE FOR NOT SETTLING YOUR PROPERTY

There was one email which really shook the purchaser to the core. The Vendor’s solicitor mentioned that there was a chance that bankruptcy action would be taken against them. In hindsight this was included in a generic paragraph and we don’t believe that the Vendor had any intention of going down this path. It’s simply not a good look.

The Vendor already has the full deposit which would offset any costs they would incur in selling the property again…and then of course they are able to sell the property on the market for it’s full value. So whilst we must always assess these matters on a case by case basis, we haven’t heard of a situation where a vendor has continued to pursue the purchaser AFTER they have taken the deposit. That is damage enough.

FOR COMMONLY ASKED ‘OFF THE PLAN’ QUESTIONS, CLICK HERE OR HERE.

5 People You Will Meet At An Auction…And How To Beat Them!

Published: 26 September 2019
Written by burstonline
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Categories: Buying, First Home

When it comes to an auction you better know the character you are playing. That’s right, it’s not enough to turn up and hope for the best. If you want to be the highest bidder when the final hammer falls you need to understand who you are bidding against.

3 Tips Before Heading to Open For Inspections

Published: 20 September 2019
Written by burstonline
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Categories: Buying, First Home

We’ve been there before. It’s Saturday morning, you’re at an open for inspection eyeing off every other person looking at the property you’re quickly falling in love with.

The real estate agent tells you that there is ‘plenty of interest in this one’ and that they ‘have a couple of people interested but no one has signed a contract yet’. Are you prepared to make an offer on the spot?

How do you prepare yourself before heading to an open for inspection? Your Property Australia shows you how.

Print out your YPA Inspection Form

This is the biggest single financial investment of your life, so you best be getting serious about it.

Start off by downloading the Your Property Australia Inspection Form. Chances are you will be looking at 5-6 properties on a weekend. This will allow you to write down key information about your favourite properties to review at the end of the day.

The YPA Inspection Form is an interactive PDF meaning you can insert information before you go (if you are super organised) or fill it in when you arrive. At the end of the day you will have a list of the properties you’ve visited, what you liked and what you didn’t.

Download here.

Broken toilet. Let’s get a plumber. Busted air conditioner. Let’s get it fixed before settlement. You can then hand this list across to your YPA lawyer who can use it to understand your purchase and any special conditions that might need to be drafted.

Get on the phone to Your Property Australia. Now.

If you think that this property is too good to be true then call Your Property Australia straight away. A Contract Review can usually be completed within a handful of hours, allowing you to have the confidence to put in an offer before the weekend is finished.

Make sure you have your finance sorted BEFORE you sign a Contract of Sale

‘Subject to Finance’ is the Shania Twain of Contracts of Sale. As our favourite country singer used to say ‘that don’t impress me much’. No one is getting excited about a conditional offer. Real estate agents aren’t getting paid their commission to bring vendors conditional offers. They want to seal the deal. Now.

Make sure you have your finance sorted BEFORE you sign a Contract of Sale so that you can make an offer with confidence and without the purchase being ‘subject to finance’.

The Importance of Special Conditions

Published: 20 September 2019
Written by burstonline
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Categories: Buying

Like the Spice Girls, both buyers and sellers of property need to tell the other party what they ‘really really want’ in a Contract of Sale. If you don’t put what you really really want in a Special Condition then don’t expect it to happen at the settlement of the purchase or sale of that property.

What is a Special Condition? 

A Special Condition can add to the current conditions in your Contract of Sale or amend or replace one of the General Conditions in your Contract of Sale. They can be one of the most important aspects of a property sale because they reflect the personal circumstances of the transaction.

TIP: If it’s not in the Contract of Sale then don’t expect the Vendor or Purchaser to do it.

It sounds harsh but people promise things during the negotiation of a property that if they aren’t compelled to do by the Contract of Sale, they simply won’t do. No amount of your real estate agent telling you ‘this Vendor is a really good person’ and ‘dont make the Contract of Sale complicated’ will make any difference.

What can a Special Condition include?


As a rule of thumb, a Special Condition should capture any action that is external to what is in the Contract of Sale. If you want anything to be included that isn’t secured to the property or the Vendor to perform in a certain way before settlement then make sure it is included.

What are some examples of Special Conditions?

  • Repairs that the purchaser would like made before settlement of the property.
  • Furniture or large items that the Vendor doesn’t want to move with them can be included in the purchase.
  • In the case of an investment property, access to the property before settlement so that the Purchaser can show prospective tenants who are looking to move in.
  • Subject to building inspection or pest inspection clauses. We talk more about these clauses in this article.

My Contract doesn’t have any Special Conditions…should I be concerned?

If your Contract of Sale doesn’t have any Special Conditions then you need to ask yourself if you expect the Vendor to do absolutely anything except for handing over the property in its’ current condition. 


Help! My Contract has a million Special Conditions! They are longer than the General Conditions.

Oh no! Bigger law firms in Australia will include their own Special Conditions which will rip apart the General Conditions and often impose onerous requirements on the Purchaser before settlement.

One common culprit is if you are purchasing an off the plan property. Have a read of our article on understanding Off the Plan Contracts of Sale to better understand why they are so long.

There are also certain technical Special Conditions that are important to include and lawyers would expect to see in Contracts of Sale. So if there are absolutely zero special conditions then you should double check you’ve got the full copy of the Contract of Sale with your lawyer.

3 Ways To Help Your Children Into Their First Home

Published: 18 September 2019
Written by burstonline
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Categories: First Home

If you thought that your pre-retirement years were going to be filled with more golf and long lunches then think again!

Current property prices in Melbourne are out of the financial reach of many young homebuyers. Parents are increasingly having to step in to help their children afford their first home.

We take a look at three ways to help your children into their first home, whilst also protecting your own financial security.

PROVIDE A LOAN

Whilst not every family is in the position to offer straight cash towards a first home purchase, it is crucial to ensure that the parties understand the terms upon which the money is being given.

  • Is it a gift or is the purchaser expected to repay the money in the future?
  • Will interest be charged on the money borrowed?
  • What happens if the property is sold in the future? 

A carefully drafted loan agreement between parents and the borrower(s) will ensure that at the outset both parties know what they are getting into and help to guide them if there are disputes in the future. 

ACT AS A GUARANTOR

A parent may be in a position to act as a guarantor; agreeing to fulfill the obligations of the borrower if they are unable to make their repayments.

This ‘ties’ the parent to the transaction. It is an area that requires good communication between the borrower and guarantor because there is a huge burden on the parent if the borrower defaults.

Some of the common causes of tension that we see are guarantors objecting to the way borrowers are handling their day-to-day finances. When parents have ‘skin in the game’ all of a sudden they have a very real interest in making sure that there is money to pay the mortgage. 

If you are going to have a parent guarantor then the parties need to be clear how they are going to make their repayments.

In this situation spending habits become more scrutinised with things like overseas holidays, frivolous spending or even changes of career causing fights between the parties. The guarantor can be left feeling like the potential financial failure of the borrower leaves them in the firing line.

USE THEIR ASSETS AS SECURITY

Many parents have been able to pay off the family home before their child enters the property market. Particularly as first home buyers are now older because they need to save more for a home deposit.

An unencumbered title (usually a certificate of title that does not have a mortgage on it) can be used as a security for the mortgage taken out by their child.

Some parents are reluctant to put their family home on the line as a default by the borrower may result in the mortgagee ‘calling’ the security and selling it to recoup their money.

Whilst your here take a look at “Common mistakes when borrowing from your parents”. Click here to read more.

Contact the experienced lawyers at Your Property Australia to discuss how we can protect your security in retirement whilst getting your children into their first home.

Common Mistakes When Borrowing Money From Your Parents.

Published: 16 August 2019
Written by burstonline
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Categories: Buying, First Home

Family comes first. If your family has offered you money to purchase a property then keep reading to understand how to make sure it doesn’t cause huge problems in the future.

One of the biggest worries for first home buyers entering the market is finding a property that fits within their budget. It can be particularly difficult when purchasers want to stay near their family as the suburb they have been living in for decades has almost certainly skyrocketed in value.

Homebuyers find themselves priced out of the market and understandably stressed out. 

There are of course plenty of inner city options and new suburbs opening up on the outskirts of Melbourne, but for those who are lucky enough to have been offered some assistance from their family our concern is always ensuring that the help doesn’t cause tension between the family in the future. You might say ‘don’t be silly it will be fine’ but when money is involved tension inevitably follows. 

TALK ABOUT MONEY NOW. AVOID PROBLEMS LATER.

“She’ll be right” is not a solid foundation for loaning someone money. Tension and fighting is usually caused by miscommunication. One party doesn’t understand their role and their responsibilities in the property transaction.

WHO IS REALLY DREAMING OF OWNING PROPERTY?

Understanding the spending habits of the home buyer is essential for avoiding problems in the future. Remember that above all the ambition to own a home must be the home buyer themselves and not their parents.

If it’s the parents’ dream that their child own their own home but they want to go overseas for a year on holiday then there will be big problems.

Talk openly about the future with your children; they may have completely different ideas for their life. Of course there are always ways to make it work, including renting the house to help cover the mortgage before they are ready to settle down.

BUDGET.

Whether you’re a guarantor, loaning money or using the family home as security, once the property has settled you have a vested financial interest in its’ success.

Working through a budget with your children sounds so simple, but it will give you clarity on whether they can comfortably met their repayments in the future.

For more information on family and property, have a read of our recent article “3 ways to help your children into their first home”.

Click here for more.

Why You Need To Secure Your Finance Before Auction.

Published: 16 August 2019
Written by burstonline
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Categories: Buying

Auctions are unpredictable at the best of times. One minute you’re looking through the property and the next you are in the middle of a life and death battle to win the auction, throwing your hands into the air as the crowd watches you in action!

Auctions can be a particularly stressful time for first home buyers. The pressure of staying within their budget whilst actively competing against other (in some cases more experienced purchasers) is enough to put many people off the idea of buying at an auction altogether.

Case Study: Making a crucial mistake at auction

I had one particularly difficult situation a few weeks ago where a young couple had purchased a property at auction! So far so good you say! Nothing about that seems difficult! 

Subject to finance?

The catch was that whilst they had employed a conveyancer to complete their legal work and had conducted a review of the Section 32 Vendor Statement they had chosen to bid without the safety of ‘subject to finance’ protection which is unavailable at an auction.

Valuation of the property

Having signed the Contract of Sale and paying the deposit (over $100,000) they heard back from their broker the next week only to be informed that the major banks had offered them nearly $120,000 less than they had anticipated. They now had a giant gap between the purchase price and what the bank was willing to lend them.

What is the lesson here? These purchaser’s were a very smart young couple, they had done the right thing by having the Vendor Statement reviewed by their conveyancer but came to me when the matter became more complicated.

Despite contacting multiple brokers and exploring all sorts of options involving using their parents as guarantors or their assets as security we were still unable to secure the additional funding.

Default

The consequences of default are enormous for any buyer, let alone a first home buyer. Instead of choosing to default we were able to set up private funding with a third party lender to cover the gap.

Despite having to pay a slightly higher rate of interest at least we had minimised the damage and enabled them to settle the property

HOW TO AVOID THIS MISTAKE:

  1. Work with your broker to ensure that if you are purchasing at auction that you have approval and access to the ‘ceiling’ amount you are going to bid.
  2. If you need subject to finance protection under the Contract of Sale, an auction is the wrong place for you. A pre-auction offer may have been accepted by the Vendor and would have allowed the purchase to be subject to finance. Of course it would have to be an attractive offer for the Vendor to accept a ‘conditional’ sale over an auction.

Remember to take a look at our article “6 Things You Need To Know Before Bidding At Auction” to give you confidence before you make your first bid! Click here to read more.

The Difference Between Joint Proprietors and Tenants In Common

Published: 14 August 2019
Written by burstonline
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Categories: Buying, First Home
  1. If the whole property is held equally between two parties then they are Joint Proprietors.
  2. When one of the Joint Proprietors dies, their share in the property passes to the other person.
  3. If the property is held in equal divisible shares then they are Tenants in Common in Equal Shares.
  4. If the property is held in different divisible shares then they are Tenants in Common in Unequal Shares.
  5. When one of the Tenants in Common dies, their share in the property is directed according to their will.

Every week we get questions from couples who simply have no idea how they will ‘own’ the property they are planning to purchase.

Most people assume that they are splitting ownership 50-50 and whilst that is usually the case, it is HOW that is represented on the certificate of title that can have a massive impact on your future.

Principal Lawyer and Founder of Your Property Australia, Matthew Woods takes a look at the different types of property ownership.

JOINT PROPRIETORS

Joint Proprietors is the most common choice for most couples. With a vision to the future, purchasing a home together is one of the biggest financial decisions that a person can make.

The intention of the parties is that if something was to happen to them (in other words if they die) their partner would become the sole proprietor of the property. 

The best way to think of Joint Proprietors is that you both own the property jointly but your interest isn’t divisible. It isn’t a simple process to sell it off. You both own the whole property together. 

Now wait a second! I’ve only been with my partner for a couple of years and I want my share of the property to go to my family. How can I make that happen?

TENANTS IN COMMON IN EQUAL SHARES

Obviously not every property transaction involves a couple or a family and there are many situations where it would completely inappropriate to have the other party take full ownership of the property when the other party dies. 

Tenants in common in equal shares is a smart choice for new couples who would like some security surrounding their purchase. Unlike joint proprietors, tenants in common in equal shares is treated by the law as the purchasers having clear, divisible interests. In this case each party owns a 1 of 2 share or 50%. It can be sold and is easily transferred.

TENANTS IN COMMON IN UNEQUAL SHARES

Not everyone wants to split the ownership of their property evenly. If you have contributed an equal share of the deposit and will both contribute evenly to the mortgage repayments then an equal share of the property is usually the way to go. 

There may be situations where it is appropriate for the contribution of both parties to the purchase price to be represented in the overall ownership of the property.

Understanding how you own your property with your partner is vitally important for any prospective homeowner. Of course this article is also applicable to family or friends purchasing together. 

Click here to read the Your Property Australia list of questions you should be asking before purchasing with another person.

What Is The Difference Between A Lawyer And A Conveyancer?

Published: 14 August 2019
Written by burstonline
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Categories: Buying
 AFFORDABLE EXPERT SERVICE TIME
Conveyancer✓XX
LawyerX✓X
Your Property Australia ✓✓✓

Let’s take a look at the real differences between a conveyancer and a lawyer (not the boring ones that most conveyancing businesses and law firms will tell you!)

WHO IS HANDLING YOUR FILE?

The most important thing to know is who will be handling your file. If you are using a large law firm, chances are that a lawyer won’t be doing the actual work. They will be supervising a paralegal or conveyancer.

If you’re using a conveyancer then you save money by being one of the many files they will be handling at the same time.

At Your Property Australia we are the sweet spot between the big city law firm and overworked conveyancer.

We offer an affordable, quality legal service where you will have the same point of contact throughout the file.

HOW MUCH DO THEY CHARGE?

Conveyancers traditionally charge less than a lawyer. They are usually priced a couple of hundred dollars less and are ‘licenced’ by their own authority. The reality is conveyancers need the file to go smoothly to make a profit. 

Lawyers are officers of the court, and have a duty that extends beyond their employment contract to uphold the law. At a minimum they have completed a law degree and practical legal training to be admitted to practice.

EVERYONE LOVES TO SAVE MONEY. BUT YOU NEED TO PUT IT INTO PERSPECTIVE.

If you have just purchased a new home for $650,000 then the difference in price between a lawyer and a conveyancer is approximately 0.03% of the total purchase price.

Click here to get in contact with a Your Property Australia lawyer who can help you with your property transaction.

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What is a Contract of Sale?

Published: 14 August 2019
Written by burstonline
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Categories: Buying
  1. The Contract of Sale is split into the Contract and the Vendor Statement.
  2. The Contract is broken up into the Particulars of the sale, the General Conditions and the Special Conditions.
  3. The Vendor Statement is all of the information that the Vendor is legally required to disclose to the purchaser about the property.

Let’s take a look at the basic structure of a Contract of Sale for residential property and see if we can break it down to make it easier to understand

CONTRACT OF SALE AND VENDOR STATEMENT

Firstly the Contract of Sale as a whole is split up into two main sections. If you are reading this with a potential purchase contract nearby you should be able to roughly split it up the middle. To help you find the ‘middle’, there will be a Vendor Statement cover page which the Vendor should have signed.

Together they are known as the ‘Contract of Sale’. More accurately they are called the Contract of Sale and Vendor Statement.

UNDERSTANDING YOUR CONTRACT OF SALE

The Contract of Sale is broken up into three sections, the ‘particulars’ which is usually the front few pages that includes the signing clauses, the details of each party, the price, settlement date and whether the contract is subject to lease or finance. This is different for every transaction.

GENERAL CONDITIONS

Next we have the ‘General Conditions‘ which are included in 99% of contracts that we review. They are a set of standard conditions that are prescribed by a governing body like the Law Institute of Victoria (LIV) or the Real Estate Institute of Victoria (REIV).

The benefit of having a set of General Conditions is that if you include them you aren’t allowed to change the words around. They are a ‘standard’ set of conditions that guide the property transaction.

SPECIAL CONDITIONS

The next part is where your lawyer earns their money. The “Special Conditions” are in addition to the General Conditions. They are included to compliment the General Conditions adding additional clauses, obligations and responsibilities to the parties or most importantly remove or edit a specific General Condition to change the wording. 

CHANGING A GENERAL CONDITION: PENALTY INTEREST

For example a Special Condition may add an additional amount of penalty interest to the amount prescribed in the General Condition. The General Condition will usually say that the penalty interest rate is 2% plus the amount in the Penalty Interest Rate Act whereas a Special Condition may amend that to be 4% or even 6%.

To find out more about Penalty Interest click here 

To read more about the Vendor Statement click here