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Home , Real estate agent

Real estate A guide for buyers and sellers Disclaimer

Because this publication avoids the use of legal language, information about the law may have been expressed in general statements. This guide should not be relied upon as a substitute for the Estate Agents Act 1980, the Sale of Land Act 1962 or professional legal advice. © Copyright State of Victoria 2010 No part may be reproduced by any process except in accordance with the provisions of the Copyright Act 1968. For advice on how to reproduce any material from this publication contact Consumer Affairs Victoria.

Published by Consumer Affairs Victoria Department of Justice 121 Exhibition Street Melbourne Victoria 3000

Authorised by the Victorian Government 121 Exhibition Street Melbourne Victoria 3000 Printed by Print Dynamics 25 Lionel Road Mt Waverley 3149

ISBN: 0-9750813-7-3

Additional copies

This guide is available from Consumer Affairs Victoria, www.consumer.vic.gov.au or 1300 73 70 30. To order more than five copies fax a request to (03) 8684 6333 or write to: Consumer Affairs Victoria GPO Box 123 Melbourne Victoria 3001. Introduction i

Introduction

This guide provides an overview of the basic steps involved in a residential transaction, including laws that regulate the conduct of estate agents and the buying and selling of real estate in Victoria. These steps have been presented in the order in which you would normally experience them in the buying or selling process. Wherever possible, information is presented for both buyers and sellers. Information specific to one or the other is clearly identified in the form of a buyer’s or seller’s tip. A comprehensive glossary and list of useful contacts are provided for your reference. This edition also contains case studies and buyers’ and sellers’ checklists, at the back of this guide. These questions can be helpful prompts to ensure you don’t miss any important parts of the process.

Making the right choices • refuse to hurry into a decision

Buying or selling a home can be a • take your time complex and time-consuming process. • read everything before you sign Even before you make the ‘big decisions’ • ask questions. about which to buy, which home loan to select, or which estate Know what you want agent you engage to sell your home, Start by making a list of all the essential there are many other important features you require in your property. decisions you will need to make. Doing This will help you stay focused on your some homework can help you avoid requirements so you don’t get carried expensive mistakes. away and buy something that looks You are more likely to make the right great but doesn’t meet your needs. It’s choices if you: also a good idea to make a wish list of all the desired but non-essential features • know what you want you would like so this can be factored • are informed about your options into your decision making when you find • shop around for the best price and them in a property you can afford. service or product that meets your needs 1

Be informed It’s important to take the time to Learn as much as possible about every read and fully understand what you aspect of the property buying and selling are signing, before you sign it. process. Research as much as you can about the market value of property in your preferred areas by searching the This includes all terms, conditions and internet, attending auctions, speaking fine print. Make sure anything agreed with a variety of estate agents and to verbally is put in writing so you reading newspapers for auction results. know exactly what you are committing Shop around yourself to. Educate yourself about the products If something is unclear, ask for an and services offered by estate agents, explanation. If you are still uncertain, it solicitors, conveyancers and lenders. is better to wait and seek professional Websites are an excellent source of advice before signing. You should keep a information and shopping around will copy of all documents you have signed give peace of mind that you are getting as a record for your reference. value for money and your needs are Negotiate being met as fully as possible. Many terms and conditions are Don’t hurry negotiable between the parties. Never rush or be pressured into making Estate agents, lenders, solicitors and hasty decisions. There is a lot of money conveyancers, as well as buyers and at stake and many years will be spent sellers, want your business. paying off your mortgage. Make sure Definitions you are committing to the right property for you. For the purposes of this guide, unless otherwise specified the: If you take your time and do your homework you will feel more confident • vendor or person who owns the you are making an informed decision property being sold is referred to as when the right at the right price the seller with the right loan comes your way. • mortgagee is referred to as the lender Read before you sign • mortgagor is referred to as While buying or selling you may come the borrower across different types of contracts such • purchaser is referred to as the buyer. as loan contracts, authorities to sell and contracts of sale. Contents 2

Deciding on a method of sale ...... 35 Contents The reserve or asking price ...... 35 The sales campaign ...... 36 Introduction...... i The advertised price ...... 36 Making the right choices...... i 1 Finance...... 4 5 Locating and inspecting ...... 38 Lending criteria ...... 5 Locating properties for sale ...... 38 The deposit ...... 5 Open ...... 39 ...... 5 Inspections ...... 39 Types of loan ...... 8 Assessing the sustainability ...... Other considerations 12 of homes ...... 40 ...... Applying for a loan 13 Professional building inspections ...... 41 2 Dealing with an ...... 18 Pest inspections ...... 41 Licensed estate agents and Vacant land ...... 42 agents’ representatives ...... 18 Domestic building insurance ...... 43

Laws governing estate agents ...... 19 Owner-built properties ...... 43

The agent’s responsibilities Checking the vendor’s statement ...... 43 to the buyer ...... 19 6 Private sales...... 46 The agent-principal relationship ...... 19 The agent’s responsibilities Making an offer ...... 46 to the seller ...... 19 Contracts ...... 48

Selecting an agency ...... 20 Settlement period ...... 48

The authority to sell ...... 23 Cooling-off period ...... 49

Authority types ...... 24 When is it sold? ...... 49 What can be negotiated? ...... 24 7 Sale by auction...... 52 Unfair contract terms ...... 25 Pre-auction offers and inspections ...... 52 Selling without a ...... 26 Auction conduct ...... 53 3 The vendor’s statement, owners When is it sold? ...... 55 corporation and buying ‘Passed in’ ...... 55 off the plan...... 28 8 After the sale...... 60 Solicitors and conveyancers ...... 28 Before taking possession ...... 60 The vendor’s statement (section 32) ...... 29 Taking possession ...... 61 Do-it-yourself kits ...... 30 Disputes and complaints ...... 62 Property schemes ...... 30

Owners corporation ...... 31 Buyer’s checklist...... 63 Buying off the plan ...... 32 Seller’s checklist...... 64 4 Methods of sale and the sales Glossary...... 65 campaign...... 34 Useful contacts...... 71 3

Section 1 Finance Section 1: Finance 4

Buying a property is a significant and Section 1 ongoing financial commitment. As a buyer you should spend time working out Finance exactly what you need and can afford. It pays to be cautious when it comes to getting a home loan (or mortgage). Asking lots of questions about fees and charges and studying the fine print on contracts, brochures and printed material may save you time and money in the long term. Be cautious about receiving financial advice or referrals from a mortgage broker when dealing in a property transaction with them. It is illegal for estate agents to give financial advice. Assessing finances

As a borrower you should carefully assess your financial situation and desired standard of living, then calculate a loan amount based on what you can afford. You should take into account not only your current circumstances and financial commitments, but any changes that may occur in the future. For example, starting a family could mean a drop in income. It is also important to consider changes that cannot necessarily be predicted, such as rises in interest rates or the loss of a job.

You need to factor in additional purchase costs such as: • legal fees • loan establishment fees • government charges such as stamp duty and GST • building and pest inspection fees • moving costs • insurance (building and contents). 5

Lending criteria amount of the deposit came from the borrower’s own savings. Eligibility requirements vary between institutions but lenders generally use Deposit bonds two criteria to work out how much they A deposit bond, or guarantee, is an will lend: alternative to providing a deposit upon • the borrower’s income and signing the contract of sale. The use repayment capacity of a deposit bond requires the specific approval of the seller, and needs to be • the loan to value ratio. This is the written into the contract of sale. There percentage of the purchase price that may be risks for buyers and sellers lenders will agree to lend. where a deposit bond is used. Deposit The lender will calculate a maximum bonds should be used with caution as loan amount. This does not mean you the buyer is effectively borrowing up have to take this whole amount and, to 100 per cent of the purchase price as an informed borrower, you need to of the property, which must be paid in work out how much you can afford total on settlement. to borrow. Insurance As a general rule of thumb, aim to spend less than one third of your gross income on mortgage repayments. Mortgage insurance, or mortgage guarantee insurance, generally applies The deposit if you are borrowing more than 80 Depending on the lending institution per cent of the purchase price. This and type of loan, a deposit equal to is usually in the form of a one-off a certain percentage of the purchase premium paid at the time of settlement. price will be required. While most Mortgage insurance doesn’t protect minimum deposits are 10 per cent your interest. It protects the lender in of the purchase price, in some cases the event that you default on the loan an institution may lend 100 per cent and the amount still owed is greater of the purchase price, requiring no than what is received from the sale of deposit at all. If you are borrowing 80 the property. per cent or more of the purchase price, It is important to note that if you lenders generally require you to pay for default and the mortgage insurance is mortgage insurance, which means an paid out, the insurance company will additional upfront payment. pursue you to repay the debt. Some lenders require proof through bank statements that a certain Section 1: Finance 6

Under the Consumer Credit Code a Consumer Credit Code lender can require you to take out this To ensure fair dealing and to protect insurance though you can choose the the interests of consumers, all lenders specific insurer. are required to comply with the Consumer credit insurance Consumer Credit Code. The Code regulates home loans and other forms Consumer credit insurance is an option of consumer credit. for you to safeguard against losing your property if you default on the loan Under this Code, prior to contract, repayments. This will protect the loan if lenders must provide: repayments cannot be made because of • a statement outlining the borrower’s sickness, accident or unemployment. rights and obligations Carefully consider the costs of consumer • a precontractual statement setting credit insurance to determine if the out certain financial information, benefits are worth the outlay. Also, which must be included in the study the terms and conditions for any contract document restrictions or limitations, such as a three-month limit on coverage. • the contract setting out the loan. Under the Consumer Credit Code it is This protects borrowers, and helps against the law for a lender to require them to compare products and make you to take out this type of insurance. an informed choice. 7

Choosing a lender It usually takes some time to find the The main types of lenders are: right home. This gives buyers the • banks opportunity to organise their finances • credit unions and apply for a loan. Most lenders will • building societies approve a loan in principle, allowing a buyer to be confident of his or her • mortgage originators. spending limit when searching for a property. This approval is usually Lenders conduct their business through valid for 6 to 12 months and needs the internet, over the telephone and even to be renewed after this period. The by visiting you at home. loan is then formally approved once a purchase has been made. Comparison rate Choosing the right home loan is as Use the comparison rates in important as choosing the right home. advertisements to compare loans among Researching and understanding the different lenders. A comparison rate home loan market will help you to allows consumers to check the real cost of choose the most appropriate loan a home loan. It presents the comparison for you. rate as a single percentage figure, based on the interest rate plus any fees and There is intense competition among charges relating to the loan. For example, lenders who offer a variety of packages, the lender’s advertised interest rate may options and methods of payment. The be 6.30 per cent, but the comparison rate loan that appears to be the cheapest may be 6.95 per cent. because it has the lowest interest rate may not necessarily be the cheapest Mortgage brokers option in the longer term when fees, A mortgage broker can assist you in ongoing charges and penalties finding the right loan. Even if you use a are included. broker, it is best to do some research to The cheapest loan may also be less be sure that the recommended loan is the flexible and have fewer extras than right one for you. other loans. Section 1: Finance 8

Choosing a broker It is also important to note that before sourcing a loan for you, the broker must Before engaging the services of a provide a written contract specifying the: broker you should question the way their business is conducted. • amount of the loan to be obtained • Do they belong to a reputable • maximum interest rate you are association? willing to pay • Are they independent or do they • maximum valuation fees you are only deal with a particular lender? willing to pay • Do they have professional • any commissions payable to indemnity insurance? the broker • Are they a lender AND a • fee to be charged for the broker, as this may affect their broker’s services recommendations? • duration of the broker’s • Do they offer a wide range of loans appointment. from a variety of independent lenders? Types of loan • Establish if an upfront fee is charged. It is important to note that a broker There are a variety of home loan types cannot require payment unless offering different rates and features. they have entered into a written A loan can usually be tailored to suit agreement with you individual requirements. Lenders will advise on the types of loan they • Ensure your broker discloses all fees have available. and commissions prior to signing With many packages on offer, it can • Ask them to justify their often be difficult to work out the recommendations differences, benefits and disadvantages. • Ask to see a copy of the application Make sure you read all documentation and any financial details they send to and understand exactly what you the lender on your behalf are signing. • For further information go to the Choosing the right loan Australian Securities and Investment You should try to obtain as much Commission website at information as possible and ask lenders www.asic.gov.au. to explain terms and conditions of loan packages in writing. 9

Most lenders have computer software Variable loans (a mortgage simulator) to create a A variable rate home loan is a model of a mortgage. A where the interest rate varies simulator shows variables such as the throughout the life of the loan. The amount and duration of the loan and lender will adjust the rate according to the frequency of repayments (weekly, the economic climate and the cash rate fortnightly or monthly). By entering set by the Reserve Bank. Competition these details into the software, you will among lenders may also affect the rate. see a graph of how much will be paid off the loan each year, depending on the variables. Mortgage simulators are usually available on lenders’ websites. Fluctuation of 1 per When choosing a loan, repayment cent may not sound options and switching costs should be like much but it can taken into account. For example: • a flexible repayment option may be translate to as much as beneficial if you are planning to start $170 a month on a family. A loan with a fixed term rate will not allow you to vary the amount a $200,000 loan. of your repayments without incurring substantial fees Most lenders will offer several types • substantial costs may be incurred of variable loan, with different rates for ending or switching from certain and added extras. Generally, the loans loans. Check your contract for with the lower interest rates have less references to deferred establishment flexibility in conditions and fewer or no fee, termination fee and legal fees. added extras. These are the most common items Those with higher rates may offer used by lenders in calculating the extras such as a redraw facility, which cancellation fee. allows you to draw on money already paid into the loan. They will also have more flexible conditions such as no The two basic home loan restrictions on making extra payments types are: or paying off the loan early. • variable loans • fixed loans. Section 1: Finance 10

Fixed loans Honeymoon loans These loans are set at a fixed rate for a This type of loan has rates that are certain period, generally between one lower for the first 6 to 12 months. and five years. This type of loan allows After this period, the loan reverts you to organise your finances and to a standard variable rate and the repayments without having to worry repayments increase. At the end of about fluctuating interest rates. the honeymoon period there may be ‘switch costs’ depending upon the By locking in the rate, you will not type of loan chosen. benefit if interests rates drop, but will also not lose out if interest rates rise. Offset loans Significant break fees may apply for This loan is essentially a revolving line breaking the loan contract or paying off of credit where all salary or wages are the loan early. paid into the loan account. Interest Most fixed loans have a restriction on on the loan is usually set at a higher extra repayments and limited extra variable rate than the standard rate. features. Fees and charges may also be higher. Split loans A credit card can be used to pay for day-to-day running expenses, which Many lenders will allow you the option can then be paid off once a month via of splitting a loan between a fixed the loan account. rate and a variable rate at whatever percentage you choose, such as an The advantage of this loan is that your 80 per cent fixed rate with a 20 per salary paid into the account is being used cent variable rate. This allows you to to pay off the loan. This means the loan customise the loan and combine the may be paid off faster and more cheaply. security of the fixed loan with some of The downside is the temptation for you the flexibility of the variable loan. to overuse the credit card facility. If you Capped rate loans overspend the loan will not be paid off as quickly. Some loans may also have These are loans with rates that cannot penalty rates if the credit limit exceed an agreed percentage for a is exceeded. fixed period of time, but may decrease during the fixed period. 11

Bridging loans Before entering into a vendor terms contract the buyer should: Timing can be a crucial issue when selling one property and buying • ensure the loan is affordable another. Sometimes if the right • seek independent legal advice property becomes available, it is not always possible to wait until the current • be clear about will happen if one is sold or negotiate convenient repayments are missed settlement terms. A bridging loan can • get an independent valuation be used to cover the financial gap when of the property. buying one property before the existing one is sold. There is a nominated time Solicitor lending period, usually 6 to 12 months, in Solicitor lending or solicitor nominee which the existing property must be lending is another alternative means sold. A bridging loan can be secured by of obtaining a home loan. The loans both the existing and new properties. are usually ‘interest only’ and require Bridging finance is often much more payment of the principal after a expensive than an ordinary home loan. relatively short period of time. Vendor terms financing Make sure you understand the loan terms and conditions before signing. Under a vendor terms contract, the The comprehensive disclosure required loan is supplied by the seller, rather under the Consumer Credit Code may than by an established lender. The seller not be provided in such loans. provides the loan to you at a higher interest rate than mainstream interest It is advisable to obtain independent rates – from 2 per cent to legal advice before entering this type 10 per cent higher. of loan arrangement. Be very cautious about entering into this type of contract. The penalties for default can be severe. If you fall behind in your repayments, you may lose: • your house • any repayments already paid • any government grants such as the First Home Owner Grant • your credit rating. Section 1: Finance 12

Other considerations The break fee will depend on the size of the loan, the date the fixed period Early repayments commenced and the gap between fixed Making lump sum payments or higher and variable rates. loan repayments will help you pay off Mortgage offset your loan sooner. It is also possible to shorten the term of the loan by making This allows interest on savings held more frequent payments, for example, by you to be credited against interest weekly or fortnightly payments instead charges on the mortgage. This in turn of monthly payments. While the term helps reduce the term of the loan by (or repayment period) of many home paying off the interest earlier. loans is 25 years, the trend recently has Carefully check the terms and been towards shortening the term to conditions, as hidden fees and charges around 15 years. may apply. Depending on the type of loan, First Home Owner Grant there may be restrictions on making The First Home Owner Grant scheme unscheduled payments or increasing provides eligible first home owners with the number of repayments. a non-means-tested one-off payment, Interest rate rises regardless of the purchase price of In calculating the size of the loan and the property. repayments, you should include a Some lenders will help to arrange the margin to allow for potential rises in First Home Owner Grant application for interest rates. you. Eligibility criteria and application Break fees forms are available from the State Revenue Office website at Break fees are charged by lenders www.sro.vic.gov.au. to discourage borrowers with either a fixed term or variable rate from ‘loan hopping’ and to another mortgage contract with more competitive rates. Should you wish to prematurely end a fixed term or variable rate contract to refinance at a lower rate, the lender will calculate its losses over the remainder of the contract period and charge a break fee. In some cases, this may add up to many thousands of dollars. 13

Applying for a loan The loan contract

When you apply for a loan, the lender Do not sign the loan contract without should ask a number of questions to reading it carefully first and fully fully assess your borrowing capacity. understanding its contents. It is If you have any questions for the lender, advisable to give yourself at least three prepare a list so you don’t forget to days to look over it. Ask any questions ask anything. you may have before you sign the document. Your application needs to be accompanied by: Each loan contract and precontractual statement must include: • photocopies of current bank account statements • amount of the loan to be provided • proof of shareholdings and • annual percentage rate/s other assets • how the interest will be calculated • details of any second income, and when it will be charged bonuses, allowances or benefits • total amount of interest if the loan • payslips or a letter from your does not exceed seven years employer demonstrating how long • loan fees and charges you have been employed and • how changes in the contract will your salary be advised • a photocopy of the front page of the • any default rate of interest and contract of sale, if you have already how it will be calculated decided on a property • frequency of account statements • a copy of the contract or a solicitor’s letter confirming a firm buyer, if you • relevant commission charges are also selling a home • details of loan-related insurance • a letter from your current lender financed under the contract stating the amount owing and • repayment amount and frequency proof of past repayments, if you are of repayments paying out an existing mortgage and starting a new home loan • possible enforcement expenses that may apply if you breach the contract • tax agent income statements and income tax returns, if self-employed • a statement confirming you are taking the mortgage or guarantee • profit and loss statements certified by a registered accountant, if self- • a description of the property. employed. Section 1: Finance 14

After the contract is signed, the lender • minimum payments owed and the is required to provide a copy of the due date signed contract to you. • insurance payments made, the Regular account statements should be name of the insurer and any provided by the lender including: commission paid • all fees and charges • any corrections to previous accounts. • the amount of the loan provided If you are unsure about any part of during the statement period the contract, ask for clarification from the lender or seek independent advice • interest charges, including when they from your solicitor, financial adviser or were charged mortgage broker. • the annual percentage rate, including any changes during the statement period For information about loans and other credit, contact • the opening and balances Australian Securities and • the date the statement period begins Investment Commission and ends ☎ 1300 300 630 • payment transfers to and from  www.asic.gov.au other accounts 15

Case study #1 First home buyers

While searching for their first home, Max They received the vendor’s statement and and Jessica found a two bedroom flat draft contract one week before the auction in a subdivided Victorian-era mansion and immediately engaged a solicitor to with a ‘for sale by auction’ notice. They review the documentation and give them inspected the flat and found it had almost advice on the sale. all the features they wanted in their They also looked at the information in the new home. vendor’s statement and attached Owners Max and Jessica felt they had a good idea Corporation Certificate. The certificate of the market value of the flat. They had had information about owners corporation looked at properties in the area over the fees, proposed expenditure that could last six months, thoroughly researched affect them after the sale and common prices and attended a number of auctions. property rules. Using the information in As their mortgage had been pre-approved, the vendor’s statement and the certificate, they knew their estimate of the sale price they did some calculations and determined of the flat was within their budget. Based they could easily afford the mortgage on their research and financial position, repayments, owners corporation fees, rates they decided to bid for the flat at the and taxes even if Jessica was not working. forthcoming auction. The building inspection report found no Max and Jessica wanted a building structural problems with the flat. While inspection conducted as auction sales are there were some minor problems that usually unconditional. When they spoke needed rectifying, they were not urgent to the agent to make arrangements for and Max and Jessica had some ideas of the inspection, they also asked for a copy renovating the flat at a later date so the of the vendor’s statement and a draft of repairs could be performed then. the contract of sale. While waiting for Their solicitor had no issues with the these documents to be prepared, they documentation so Max and Jessica made a contacted the local council and asked final inspection of the property and tested whether any proposed developments the taps, toilet, hot water service, ceiling could impact on the ; for fans and heaters. example, whether the view of the city could be affected by proposed development. Section 1: Finance 16

Max and Jessica had predetermined a at $680,000. No further bids were maximum price they would bid and forthcoming and the property was knocked not exceed and agreed that Max would down to Max. perform the bidding. They arranged for a Max and Jessica were thrilled they were the bank cheque for the 10 per cent deposit successful bidders and immediately signed they needed to pay if they were the the contract of sale and paid the deposit. successful bidders. They then contacted their lender and At the auction the bidding opened at solicitor to advise them of their purchase. $600,000 and rose by $10,000 increments Max and Jessica’s extensive research prior to $630,000. The auctioneer would not to the sale reassured them they paid what accept lower increments and at this point they wanted to pay for a property that met Max made his first bid of $640,000. their standards and requirements. Max and another bidder were against each other until Max held the last bid 17

Section 2 Dealing with an estate agent Section 2: Dealing with an estate agent 18

If you use an estate agent, there are Section 2 several important things to know about their role and responsibilities and the Dealing with an rules that govern their conduct.

When buying or selling property, most people will deal estate agent with an estate agent. A property transaction can also be undertaken directly between buyer and seller without the services of an estate agent. There are laws governing the licensing and conduct of estate agents. These laws prohibit unethical practices such as misrepresentations about property including the price, location, size and dummy bidding at auctions. Licensed estate agents and agents’ representatives

Anyone in the business of buying, selling or leasing property on behalf of another person must hold an estate agent’s licence or be employed by a licensed estate agent as an agent’s representative. An agent’s representative needs written authority to act on behalf of their employer before commencing work, and the licensed estate agent is responsible for the employee’s professional conduct.

Only deal with a licensed estate agent or an authorised agent’s representative. You can check if someone is a licensed estate agent or an agent’s representative by contacting the Victorian Business Licensing Authority on 1300 13 54 52 or by searching the public register of licensed estate agents at www.bla.vic.gov.au. 19

Laws governing estate agents and an approximate price range. The agent can then contact them when By law, estate agents must: suitable properties become available. • advise a seller that all commissions A buyer can expect an agent to: and other outgoings are negotiable • take their details and provide advice • disclose any bid made by the seller about relevant properties for sale (if auction rules allow vendor bids) to advance the price of the property • answer questions about listed at auction properties • communicate all offers to buy, unless • arrange inspections instructed otherwise by the seller • provide a copy of the vendor’s • state an estimated selling price in the statement authority to sell. • communicate genuine offers By law, estate agents must not: to the seller • mislead or deceive any party • organise the signing of the contract. • make or accept dummy bids The agent-principal relationship • retain advertising or other rebates The relationship a seller has with • charge a seller more for outgoings an estate agent is different to the than was paid by the agent relationship the estate agent has with a • charge more than was authorised by buyer. Estate agents are obliged to act the seller in writing responsibly and ethically when dealing • accept any late bids after the fall of with both buyers and sellers. However, the hammer at an auction. the agent’s responsibility is to the seller, unless they are acting as a buyer’s The agent’s responsibilities advocate (also known as a buyer’s to the buyer agent). It is important for a buyer to be aware of this whenever they are A buyer will usually not pay for the dealing with an agent. services of an agent, unless specifically employing a buyer’s advocate. Buyers The agent’s responsibilities will generally deal with several agents, to the seller depending on who is handling the sale of the properties they are interested in. A seller who lists their property with an They may also leave their details with agent is engaging the agent to help one or a number of agents indicating sell their property. The agent is bound the type of property they are seeking by professional conduct regulations Section 2: Dealing with an estate agent 20

to always act in the best interests of • arrange the signing of the contract the seller, to follow the seller’s lawful • collect and hold the full deposit. instructions and to engage in good estate agency practice. Selecting an agency

The agent will charge a fee for this service, For the seller, choosing an agency is usually in the form of a commission. an important part of the selling process. The commission is negotiable and can There are several ways to help you either be a percentage, a fixed fee or a make this decision such as: combination of both. • checking the internet and local A seller can expect the agent to give an papers to find agencies, the services estimated selling price of the property they offer and sale price information and to communicate all offers unless otherwise instructed by the seller. • speaking to friends and acquaintances about their experiences A seller can expect the agent to: • reading promotional material from • advise on a method of sale a range of agencies including local • advertise and market the property, agents who are more likely to be and provide a marketing plan familiar with the local market • give an estimated selling price that • talking to several agents and does not misrepresent the price at arranging to meet them. which they genuinely believe the property may be sold • advertise an up-to-date price for the Buyer’s tip #1 property reflecting rejected offers. If you use a buyer’s advocate, make However, it is not compulsory for a sure they are a licensed estate price to be advertised agent. A buyer’s advocate may be • communicate all verbal and written engaged to source properties, bid at offers to the seller from prospective auction and generally represent you buyers, unless instructed in writing throughout the buying process. You not to do so will usually pay a fee or commission for this service. • organise and attend open house and other inspections • attract prospective buyers • organise and conduct an auction 21

Ask the agent to provide any quotes in writing. Do not sign anything, including an authority, unless you are prepared to engage the services of that agent.

The marketing plan should include Points to discuss advertising methods and costs, and the When meeting with agents, price or range at which the property important points to discuss are: will be advertised. • their knowledge of the market The estimated selling price in the area This is the price the estate agent • comparable sales in the area estimates a property is likely to • their marketing plan for the attract, based on their experience and property knowledge of the market. It must be • their estimated selling price of recorded in the authority to sell as the property either a single amount or a price range. • their commission, or how much If recorded as a range, the difference they will charge between the top and the bottom • the cost of advertising and figures must not exceed 10 per cent other outgoings. of the bottom figure. For example, a quoted range of $400,000 to $440,000 is $400,000 plus 10 per cent. This price is not a sworn valuation or Marketing your property a guaranteed selling price. One of the most important factors when The agent’s estimated selling price does choosing an agency is how they plan to not have to be the same as the seller’s market your property. Sellers should ask reserve price. for a comprehensive, written marketing Price misrepresentation plan. This will be based on the agent’s experience, the nature of the property The practice of deliberately overstating and any specific wishes of the seller. the estimated selling price to encourage Section 2: Dealing with an estate agent 22

a seller to appoint a particular agent is For example, the agent’s commission known as overquoting. may be 3.3 per cent (including GST) on a scale up to $500,000 and 3.85 It is illegal for an agent to mislead a per cent (including GST) if the price seller or prospective seller about the goes above $500,000. The seller may estimated selling price of a property. interpret this as only the amount It is also illegal for an agent to advertise above $500,000 having a 3.85 per or advise a prospective buyer of a price cent commission; however, if the sale that is less than the seller’s asking price, price exceeds $500,000, the agent may or if there is no such price, the agent’s interpret this as the entire sale price estimated selling price. This is known having a 3.85 per cent commission. as underquoting. Commissions Seller’s tip #1 Most agents obtain their fee from the seller in the form of a commission Do not choose an agent just because upon completion of the sale. An agent they give you the highest estimated cannot obtain a commission without an selling price. Have several agents authority to sell signed by the seller. appraise your property and give you an estimated selling price. Ask them The agent is required by law to advise to justify their price by showing you, the seller the commission is negotiable, for example, similar properties sold at prior to the seller signing the authority similar prices in the area. to sell. Take into account the agent’s overall There is no set amount for a commission; marketing plan when making your it is negotiable between the seller and decision. the agent, and can be set at whatever amount both parties agree on.

The commission can be paid as either Commission sharing a fixed fee or a percentage of the sale price. The agreed commission must The agent is required by law to advise be recorded on the authority to sell. the seller in writing if they will be If it is recorded as a percentage (per sharing the commission with someone cent), it must also be shown as a figure outside their own agency, such as a in dollar terms. If the agent is using a solicitor, conveyancer or another estate commission scale, ensure it clearly and agent. A statement must be made accurately outlines how much could listing the people with whom the be paid. commission is to be shared, prior to the seller signing the authority to sell. 23

If a commission-sharing arrangement are no hidden charges. You can ask the is entered into after the authority to agent to provide a written schedule sell has been signed, the agent needs outlining advertising and other outgoings to update the authority to sell with to clarify what is being paid for. the relevant details and ask the seller All expenses, including advertising and to sign and date the amendments. other outgoings, are negotiable and must be recorded in the authority to sell. Rebates Seller’s tip #2 Agents place substantial amounts of Clarify with the agent the exact advertising and can be offered significant circumstances under which the discounts or rebates by newspapers for commission must be paid, before purchasing bulk advertising. signing the authority. Do not sign It is illegal for agents to retain advertising without carefully reading and or any other rebate, even where the seller understanding the authority to sell. agrees to the agent keeping the rebate. If you are unsure of anything, ask for clarification from the agent, contact If a rebate or discount is received the Estate Agents Resolution Service on any goods or services, such as at Consumer Affairs Victoria or seek advertising, it must be passed on to the professional legal advice. seller. If benefits received are in a form other than money, such as gifts, then By law, the agent is obliged to provide the monetary value of the gift must be a copy of the authority to the seller at passed on to the seller. the time of signing. Retain this as proof of what was agreed with the agent. If the exact price is not known, then an estimation must be made by the agent. The amount of any rebates or benefits must be stated in the authority to sell. Advertising and other outgoings The authority to sell There will be costs associated with marketing and advertising a Once an agent is chosen, the seller will property, on top of the estate agent’s be asked to sign an authority to sell commission. Even if the property fails appointing that agent. The authority to to sell, the seller will have to cover sell is a legally binding contract, which marketing and advertising costs if they fully sets out the details of the seller’s authorised it. This may be avoided agreement with the agent, including: by negotiating a ‘no sale, no fee’ • whether the property is to be sold arrangement in the authority to sell. by private sale or auction and, if by In this instance, make sure that there auction, the auction date Section 2: Dealing with an estate agent 24

• the negotiated commission and when the property is sold. An agent can marketing expenses with GST set claim commission under an exclusive out separately authority even if the seller sells their own property without the agent. • the circumstances under which commission is payable; this will Sellers should not sign more than depend upon the type of authority one exclusive authority, as in certain signed, whether it is an ‘exclusive’ or circumstances more than one ‘general’ authority commission may have to be paid. • the agent’s estimation of the likely It is less common but a seller can also selling price use a general authority. This allows them to list with more than one agency • the authority period or amount but only pay commission to the agency of time given to the agency to that sells their property. sell the property. By law, the authority must include two statements. The first is a rebate Seller’s tip #3 statement, which will be completed if the agent is to receive any rebates from If you want to make any changes after the advertising expenses. The second is the authority has been signed, they a complaints statement, which explains must be made in writing on all copies that you can lodge a complaint at of the authority to sell and initialled by Consumer Affairs Victoria should a dispute both you and the agent. over commission or outgoings arise. If the agency is to share commission for the sale with another agency, the authority What can be negotiated? to sell may include a commission sharing statement. Alternatively, a seller may be Many aspects of the authority to sell are given a separate statement before they negotiable between the seller and the sign the authority, informing them that agent. Sellers should discuss these with the agency will be sharing commission. the agent and make sure all details fit their requirements before signing. Authority types The following aspects of the sales The most common type of sales authority can be negotiated. authority is the exclusive authority The method of sale which means the seller appoints a single agency to exclusively market their There are two main ways of selling a property. Under an exclusive authority property: by auction or private sale. the agent is entitled to commission Both these methods of sale have their 25

advantages and disadvantages. An Advertising and other outgoings agent will be able to recommend the There will generally be costs associated best method of sale for the seller’s with marketing and advertising a particular circumstances. (See page 34) property. The amount spent on these The authority period outgoings is negotiable with the agent. This is the period of time in which the Other terms and conditions authority is in force with the agent. Read all pages of the authority carefully The authority period is negotiable and and make sure all terms and conditions you should consider the length of time are understood and agreed upon carefully. Once you sign the authority, before signing. These conditions are you will not be able to cancel it during negotiable. Any changes, whether they this period unless the agent agrees. be deletions, amendments or additions, There is no cooling-off period with an must be made on the authority and authority. It is advisable to consider an initialled by both parties. All verbal authority period that does not exceed agreements should be confirmed in 60 days. writing on the authority and signed If no period is stated on an exclusive by both parties. If you have specific authority, then the default period for instructions for the agency, attach them sale by auction is 30 days from the to the authority. date of the auction. For a private sale, the default period is 60 days from the Unfair contract terms signing of the authority to sell. The agent’s authority to sell is a legally If the authority period expires and binding contract. the property has not been sold, you The Fair Trading Act 1999 makes unfair should notify the agent in writing if their terms in consumer contracts void. The services are no longer required. authority to sell a residential property The commission is a consumer contract. Sellers can take action if they believe a term in an The commission or agent’s fee is authority is unfair, and estate agents completely negotiable. Sellers may must make sure their authorities wish to negotiate a ‘no sale, no fee’, comply with the law. contract meaning they will not have to pay any commission or outgoings If a term is unfair, it will be void. The unless the agent completes the sale of contract will continue to bind all the property. parties, but only if it can exist without the unfair term. Section 2: Dealing with an estate agent 26

An unfair term in a consumer contract The steps involved in selling property is a term that causes a significant without an agent include: imbalance in the rights and obligations • considering having the property of both parties to the detriment of valued by a qualified valuer the consumer, and was inserted in the contract intentionally. • deciding the sale price or range sought • advertising the house. You may wish Unfair term in your to advertise your property on one authority to sell? of the many websites that advertise If you believe there is an unfair properties for private sale. term in the authority, contact the Estate Agents Resolution • obtaining a deposit Service at Consumer Affairs • providing the contract of sale with Victoria on 1300 73 70 30. the vendor’s statement attached and arranging for it to be signed Selling without a • handling settlement. real estate agent An easy-to-use, do-it-yourself guide to real estate conveyancing is available If you decide to sell your property from the Information Victoria Bookshop without the assistance of an agent you and includes the contract of sale and will need to thoroughly research every vendor’s statement to assist you with aspect of the selling process in order to the sale. obtain the best possible price. A major benefit of selling property without an agent is the opportunity to For further information visit the make a financial saving by not having Information Victoria Bookshop at to pay commission. 505 Little Collins St, Melbourne, call 1300 366 356 or go to Prospective sellers will need to prepare www.bookshop.vic.gov.au a vendor’s statement (also known as a Section 32) and contract of sale. This can be done with a ‘do-it-yourself’ conveyancing kit or by engaging a conveyancer or solicitor to prepare the documentation for you. 27

Section 3 The vendor’s statement, owners corporation and buying off the plan Section 3: The vendor’s statement, owners 28 corporation and buying off the plan

Before a property is sold, the seller is Section 3 required by law to provide the buyer with a vendor’s statement or section 32.

The vendor’s statement, The transfer of ownership of land from the seller to the buyer is called a conveyance of land. This process is owners corporation and usually undertaken with the assistance of a solicitor or conveyancer. Buyers and sellers should engage their own solicitor or conveyancer. buying off the plan The buyer’s or seller’s preferences and individual requirements will dictate whether a solicitor or conveyancer is chosen. However, it is important to understand there are differences in what solicitors and conveyancers are legally allowed to undertake on behalf of a client. Solicitors and conveyancers

Solicitors A solicitor must hold a current practising certificate and have professional indemnity insurance. Solicitors can perform general legal work and provide legal advice to their client. Some solicitors specialise in conveyancing and . A solicitor can be engaged by a seller to prepare all the required documentation including the vendor’s statement and the contract of sale. Solicitors can also be engaged by a buyer to review and advise on the vendor’s statement and the contract of sale, and ensure that the transfer of is done correctly. A solicitor can advise a prospective buyer about terms and conditions that need to be included in a contract to meet their needs, and on how different types of title may affect their ownership rights and responsibilities. 29

Conveyancers The vendor’s statement A conveyancer is a person other than (section 32) a solicitor, who is licensed to undertake The vendor’s statement (or section property conveyancing work and to 32) is usually prepared by the seller’s do legal work or give legal advice with solicitor or conveyancer. It is then respect to the transfer of title. signed by the seller and made available Conveyancers can be engaged by a to prospective buyers, usually via the seller to prepare the vendor’s statement agent before the sale or auction. The and other legal documentation, such buyer may then have the statement as the contract of sale. They can checked by his or her own solicitor or be engaged by a buyer to conduct conveyancer prior to purchase. searches on title, check the vendor’s The vendor’s statement contains statement and advise on the terms and information about the property’s conditions in the contract of sale. title, including mortgages, covenants, easements, and outgoings such as Licensed conveyancers rates. It does not include any information • must have professional indemnity about the condition of buildings, insurance whether they comply with building • hold prescribed qualifications regulations or if measurements on the title are accurate. The responsibility is on • contribute to the Victorian Property the buyer to find out about anything that fund to compensate consumers is not covered in the vendor’s statement. who lose money as a result of any fraudulent use of trust funds. The information that must be If you use a conveyancer make sure included in the vendor’s statement that they are licensed. Details of the is outlined in section 32 of the conveyancer’s licence are required to Sale of Land Act 1962. This can be displayed on the conveyancer’s be viewed online at letterhead. www.legislation.vic.gov.au. It is advisable to obtain written quotes before choosing a solicitor or conveyancer. The vendor’s statement is a legal document and must be factually accurate and complete. If the vendor’s statement contains incorrect or insufficient information, a buyer may be able to withdraw from the sale or take legal action. Section 3: The vendor’s statement, owners 30 corporation and buying off the plan

Property schemes Seller’s tip #4 Properties can be held under different Make sure all charges including schemes. For example, when disbursements (additional purchasing a unit, flat or apartment, administrative costs) are discussed a buyer could be purchasing a share before signing with a solicitor or in a company title arrangement, a conveyancer. stratum title or a strata title. A solicitor or conveyancer will be able to advise on how the various types of title will affect Do-it-yourself the buyer’s ownership, rights conveyancing kits and responsibilities.

Do-it-yourself conveyancing kits are available through the Information Buyer’s tip #2 Victoria Bookshop at a small cost. The Before making an offer on a property kits include documentation to assist you or bidding at an auction, have a with your sale, such as the contract of solicitor or conveyancer carefully sale and vendor’s statement. check the vendor’s statement for you. If you choose to perform your own You should also consider getting a conveyancing, you will not be covered building inspection from a qualified by a solicitor’s or conveyancer’s building inspector. professional indemnity insurance if something goes wrong. Buyer’s tip #3 There is a lot at stake selling or buying If you are buying an investment a property so you need to ensure you property, check with the Australian are completely confident in your ability Tax Office about allowable deductions to handle the conveyancing yourself. If for rental properties. not, you should employ the services of a conveyancer or solicitor.

For further information about do-it-yourself conveyancing, visit the Information Victoria Bookshop at 505 Little Collins St, Melbourne, call 1300 366 356 or go to www.bookshop.vic.gov.au. 31

Owners corporation • plan of subdivision to determine boundaries of the lot and When buying a unit, flat or apartment, common property the buyer will be provided with their own certificate of title. The buyer is not • contents and conditions of the just purchasing the individual property contract of sale but also the ownership of, and the right • matters contained in the Owners to use, common property as set out by Corporation Rules including the the plan of subdivision. Model Rules Where a plan of subdivision creates • any / of common property, there must be an common property owners corporation. The owners are referred to as lot owners or members. • minutes of previous Annual As a member of an owners corporation, General Meetings. you have the right to vote on decisions about the operation of the owners corporation and will be required Prospective buyers may wish to to contribute to costs for repairs, obtain a copy of Consumer maintenance and insurance, not only Affairs Victoria’s publication for your own home but also for the Guide to owners corporations from common property shared with the the Victorian Consumer & Business other lot owners. Centre, 113 Exhibition Street, Before signing a contract, make sure Melbourne or visit you carefully check: www.consumer.vic.gov.au • cost of living in an owners corporation • how the owners corporation operates • vendor’s statement Buyer’s tip #4 • Owners Corporation Certificate, part Obtain independent legal advice of the section 32, stating whether before buying a unit, flat or apartment there are any proposed works, to find out about the advantages and fee increases and any potential or disadvantages of holding a title under existing legal claims affecting the the different property schemes. property being purchased • register of owners corporation managers at the Business Licensing Authority website at www.bla.vic.gov.au Section 3: The vendor’s statement, owners 32 corporation and buying off the plan

Buying off the plan The law protects off the plan buyers by requiring their deposit be no more Buying a house or unit before it has than 10 per cent of the contract price. been constructed is known as buying The deposit is held in trust by an estate off the plan. The design of the building agent, solicitor or conveyancer or jointly and sketches of its final appearance may by the buyer and seller. If the plan of be included in advertising material well subdivision is not registered by the time before occupation is possible. specified in the contract or the default There are advantages and disadvantages time of 18 months, the buyer has the with buying off the plan. People are right to end the contract. often attracted to off the plan sales as there is a reduced amount of stamp duty to pay. The amount to pay depends Buyer’s tip #5 on how advanced the construction of When buying a unit, apartment or the building is and its current value. flat, you will probably be living in The closer construction is to the full close proximity to others. This means completed value, the higher the stamp certain rights and responsibilities duty. Other benefits for buyers include apply. Be aware this can also mean more input into the design and a price additional noise and other possible at today’s market value that is locked in inconveniences. at the time the contract is signed. Buying off the plan without being able Buyer’s tip #6 to observe the finished product does If buying off the plan, get a firm have its risks such as: date from the developer of when • differences in the expected and the property will be finished. Seek actual quality of the final finishes professional legal advice before signing a contract with a developer. • unexpected changes to the plans • an uncertain completion date • limited recourse with the builder if there is a dispute. This is because the developer, not the buyer, enters into a major domestic building contract with the builder • the volatility of the property market resulting in the market value of an off-the-plan home at settlement being less than the contract price. 33

Section 4 Methods of sale and the sales campaign Section 4: Methods of sale and the sales campaign 34

How you decide to sell will depend on Section 4 many factors. There are generally two ways that real estate can be Methods of sale and bought and sold. Private sale the sales campaign In a private sale the property is advertised and offers are invited from prospective buyers. The sale is negotiated between the buyer and seller, usually with the assistance of an agent. Public auction An auction is a public sale, usually conducted by an estate agent acting as auctioneer. The auction is advertised for a specific place, time and date. Prospective buyers bid and the property is offered to the highest bidder.

Private sale • The seller and buyer agree on a sale price through negotiation • The contract can be conditional. With the seller’s approval, the buyer can make the sale subject to obtaining a loan, a satisfactory building inspection report, or other conditions • For residential properties, the buyer has a three business day cooling-off period (with exceptions).

Auction • Price is determined by competitive bidding between prospective buyers present at the auction • The contract is unconditional, that is, the buyer cannot make it subject to any conditions such as obtain a loan or an inspection • There is no cooling-off period. 35

Deciding on a method of sale The reserve or asking price

The agent will recommend a method of The reserve price is the lowest price sale based on the type and location of at which a seller is prepared to sell a the property, the nature of the market property at an auction, or the seller’s and the seller’s available time frame asking price for a private sale. and personal preference. They should It may not be easy to put a price on also back up their recommendation property such as the family home. No with recent sales data. The seller should matter what anyone says, your house understand all the advantages and will seem much more to you than just disadvantages before deciding on a bricks and mortar. method of sale. The agent’s commission is generally the same whether the To help you decide on the asking property is sold privately or at auction. price or reserve price for your home, you should: However, there are usually additional costs involved in selling by auction. • get to know sale prices in your area by checking property websites and Although it is best not to sell in a newspapers for similar properties hurry, sometimes there is no choice. listed and sold in the area and If a property must be sold quickly, attending auctions and open for an auction may provide a better inspections opportunity to sell by a specified date. However, there is no guarantee that the • use the agent’s estimated selling property will be sold at auction or that price as a guide the best price will be achieved. • consider paying for a valuation by an independent sworn valuer • not allow emotion to cloud any judgments • be realistic. This will help you avoid both disappointment and the risk of buying a property based on unrealistic expectations of the sale price of your own home. Section 4: Methods of sale and the sales campaign 36

Underquoting is unfair to buyers who Buyer’s tip #7 may waste time and money inspecting a property they cannot realistically By researching and knowing the afford. It is also unfair to the seller who market in a particular area, you will be is expecting the agent to generate a better judge of property sales prices. genuine interest from prospective buyers prepared to pay a fair price. The sales campaign Before advertising a property for sale, an agent will generally ask a seller The aim of a sales campaign is to attract to approve the advertised price and prospective buyers and encourage them to confirm in writing that they will to inspect a property. There are two consider all offers at the advertised price main ways of doing this. or within the advertised price range. Advertising This is the main way of attracting prospective buyers to a property. The Seller’s tip #5 nature of the advertising depends on Although auctions are a popular the type and location of the property method of sale, it is important to do and the amount of money spent. your homework to decide if it is the Advertising notifies prospective buyers best method for you. that the property is for sale and may list the inspection dates and times. It also Seller’s tip #6 includes names of the agents who are handling the sale. Property advertising must not be misleading or deceptive. It is illegal to Direct notification misrepresent a property in any way The agent may have a list of prospective when advertising or marketing that buyers who can be contacted when property, whether verbally or in writing suitable properties become available. and photographs. Sellers must ensure These are people who have previously any information provided to the agent registered their interest with the agency. about their property is factual and up to date. If advertising is not accurate, The advertised price and a buyer can prove a property has When marketing a property, it is illegal been ‘misrepresented’, the buyer may for an agent to quote or advertise a be able to take legal action. figure that is less than the vendor’s asking price or the agent’s estimated selling price or range, stated in the authority to sell. 37

Section 5 Locating and inspecting properties Section 5: Locating and inspecting properties 38

Prospective buyers should inspect a Section 5 property to see whether it meets their requirements. Consider having a qualified building inspector provide a professional Locating and condition report prior to purchasing. inspecting properties Locating properties for sale

Buyers can find their property using a variety of methods. The internet The internet is the quickest and most popular way to find properties for sale. Almost all estate agencies list properties on their websites and on real estate classifieds websites and include information such as: • indicative price ranges • descriptions of the property • photographs • virtual tours • inspection times. Some websites also offer the opportunity for prospective buyers to register for free email updates of properties matching their criteria to be sent directly to them. Newspapers Most local newspapers have a property section and major metropolitan papers have lists of properties for sale and inspection. Direct contact Directly contacting estate agencies by telephone, email, fax or in person is another way of sourcing properties for sale. Promotional magazines Many agencies produce colour magazines providing a comprehensive list of properties for sale. These magazines are available free of charge from most agencies. 39

Other ways of sourcing properties for to buy it. The first visit will give you an sale include: initial impression and determine if the • noting signboards in front property meets basic requirements, such of properties as location, age, size, access to facilities, style and condition. If you are inspecting • hearing of listings through word a number of properties in one day, it is a of mouth. good idea to take a notebook and record Open houses any identifying features.

Open for inspection times are usually advertised in newspapers and on the Buyers should also keep an internet. Buyers may wish to arrange an eye out for signs of potential alternative inspection time with the agent. structural problems. Anyone entering the property may For example: be asked for proof of identity and to • sloping or bouncy floors may leave contact details with the agent. mean stumps need replacing This is a security measure and provides • damp brick walls can indicate the agent with a ready database of rising damp or salt damp potential buyers, who can be notified • blisters or bubbles on paintwork if an offer is received on the property, can indicate termite activity or if other properties become available. • cracked walls can indicate subsidence, requiring the replacement of stumps. If there Seller’s tip #7 are large cracks, you should It is not a legal requirement for people seek advice from a structural to leave their details with an agent at an engineer. open house; however, sellers can make • mouldy walls, lifting tiles, this a condition of entry to their property. peeling paint or pools of water If there is anything the seller does not in wet areas can indicate want the public to see, it should be excessive moisture hidden from view. Valuables should be • fretting (crazed) brickwork locked away. can indicate major structural problems • a sagging roof, or cracked Inspections or broken roof tiles may As a prospective buyer you should make involve costly roof repairs several visits to a property before deciding or replacement. Section 5: Locating and inspecting properties 40

Assessing the sustainability When buying an established home it of homes is worthwhile considering the benefits of sustainable features. Sustainable Installing sustainable housing features housing features that can reduce can have a measurable impact on the running costs, reduce greenhouse gas comfort of your home and how much it emissions and add to the value of a costs to run. Features such as rainwater property include: tanks or solar hot water are now found in many new and older homes. • water tanks which help to lower water consumption and enable you There is a 5 star environmental standard to maintain a healthy garden for all new homes and for renovations and relocations of existing homes. • solar or energy efficient gas hot water which can cost less to run • installing insulation, draught sealing, window coverings and windows to It is compulsory for new let in the winter sun, helping to keep homes to have: heating bills low in winter • 5 star energy rating for the building fabric • heating small areas using zone controls rather than heating the • water efficient taps and whole home fittings, plus • a rainwater tank for toilet • using natural gas which generally flushing or a solar hot water costs less to run than electricity system. • replacing your old bulbs with energy Renovations and relocations are saving compact fluorescent lights required to have 5 star energy when they fail. rating for the building fabric, but do not require the water efficient For more information on sustainable taps, rainwater tank or solar hot living in your home, visit water system. www.makeyourhomegreen.vic.gov.au or www.resourcesmart.vic.gov.au. 41

Professional building inspections Buyer’s tip #8 Before signing a contract, you should If the property has been renovated consider enlisting the services of a or extended, check the vendor’s qualified building inspector, surveyor statement and contact the local or architect to provide a professional council to check whether relevant building inspection report of the property planning or building permits were you intend to purchase. A qualified obtained. inspector will know what to look for, Any illegal alterations may become and will see through any cosmetic the responsibility of the buyer once improvements covering up faults that the contract is signed. may be missed by the untrained eye. The inspector will provide a written report Buyer’s tip #9 listing faults in the property, whether they Be cautious of any property inspection can be repaired and how much these report offered by the agent or the repairs are likely to cost. The report will seller. The independence of a report also highlight any unsafe or unauthorised is only guaranteed if it is obtained renovations and/or extensions. specifically by and for the buyer. You may be able to use this report to negotiate conditions in the contract Buyer’s tip #10 with the seller as well as the price. The The fee for a professional inspection inspection service should have full service is small compared with the professional indemnity insurance to cost of buying a property requiring protect you, as the buyer, if a problem is extensive unforeseen repairs. Even if missed in the inspection. major faults are not found, you can Pest inspections use minor faults discovered in the pre- purchase inspection as the basis of an In some circumstances it is ongoing maintenance program if you recommended you get a professional decide to buy the property. pest inspection. If the area you are looking to buy is prone to pest infestations such as termites this becomes even more important. Section 5: Locating and inspecting properties 42

A report by Archicentre in 2006, Vacant land titled An analysis of termite damage in Sydney and Melbourne, suggests that If you are buying vacant land to build a about one in five houses in Armadale, home on consider obtaining a soil test Frankston, Greensborough, Monbulk, prior to purchasing. This could avoid Newport, Wantirna and their immediate problems when building and excavation surrounding areas currently has a commences. If hard and high level rock termite infestation problem or has needs excavating or the site is a filled evidence of a past pest problem. dam or on a flood plain, there will be extra costs associated with footings A pest inspection could save you and foundations. thousands of dollars in repair costs. It is best to do your homework so you can be fully aware of all the costs involved For more information, contact in building your property. You will then Archicentre on 1300 13 45 13 be better informed to decide whether or or visit their website at not to purchase the vacant land. www.archicentre.com.au. 43

completing building work according to Buyer’s tip #11 plans and specifications in the domestic building contract. Do not sign a contract for an owner- built property before checking the Owner-built properties property very carefully. Buyers of a property are protected if the If there is a query regarding defective house is owner-built. or incomplete work, check with your If an owner-builder sells a property local council or ask the property within six years of obtaining a certificate owner for information. of or final inspection, a defects inspection report must be Domestic building insurance obtained from a prescribed building practitioner. The defects inspection Under the Domestic Building Contracts report will be attached to the contract Act 1995, a builder may not carry out of sale. Any defects that arise and are domestic building work over $5,000 not listed in the report will be covered without being registered and where under the builder’s domestic building the contract is more than $12,000, the insurance. For properties built after June builder must take out domestic building 2005, owner-builders are also required insurance. to have a certificate of consent issued by the Building Practitioners’ Board for the domestic building works.

Domestic building insurance An owner-builder must have domestic will protect a home owner from building insurance if the property is sold defective or incomplete building within six years of completion. works where the builder: Checking the • has died vendor’s statement • is insolvent, or As well as inspecting the property itself, • has disappeared. a prospective buyer should have all legal aspects relating to the land and title checked thoroughly before making an offer. A copy of the vendor’s statement However, insurance cover is limited to must be made available and can be six years for structural defects and to obtained from the seller through the two years for non-structural defects. agent. The buyer can then have their A builder still operating a business solicitor or conveyancer check has responsibility for fixing defects or the document. Section 5: Locating and inspecting properties 44

Seller’s tip #8 It is natural to want to present your property in the best possible light. First impressions count and it never hurts to mow the lawn, place a few plants in the garden, keep the house clean and tidy and even to add a lick of paint.

While it is acceptable to present a property in a good light, it is not acceptable to cover up, misrepresent or in any way mislead a buyer about the true condition of your property. 45

Section 6 Private sales Section 6: Private sales 46

A property may be sold privately by a Section 6 seller dealing directly with prospective buyers, however it is more common for a seller to engage the services of an estate Private sales agent for this purpose.

Making an offer

If an agent is managing the sale, the offer to buy a property must be made through the agent. The agent will then communicate this offer to the seller. Although an offer can be made verbally, it is not legally binding until it is in writing and signed by both parties. This will generally be in the form of a contract of sale signed by the buyer and, if accepted, signed by the seller. The agent may also require the buyer to pay a deposit. The deposit will be returned if the offer is not accepted. If an agent is not managing the sale, the offer will be made to the seller who must negotiate with prospective buyers. The deposit will be paid directly to the seller. A seller who is not using an agent may engage a legal representative to assist with negotiating the sale, In this case the deposit may be paid to the legal representative and held in their trust account. An offer becomes binding when both parties sign the contract of sale and all conditions are met. A buyer should not sign without carefully reading and understanding the document first. 47

Conditional offers Often there is more than one person making an offer on a property. The In a private sale, the buyer can agent will negotiate between parties negotiate with the seller to make to obtain the highest possible price for the sale subject to certain conditions the seller. such as obtaining a loan, the sale of an existing property or the successful Goods in relation to the sale of property completion of a building inspection. include personal items, chattels and fittings. If the contract is subject to obtaining a loan, the buyer should always nominate Prospective buyers making their offer in a lender in the relevant section of the writing on the contract of sale should contract. An auction contract of sale check that items of the property or is unconditional. goods (moveable personal property such as a dishwasher) are listed on the Negotiation contract if they are agreed to as part of If the seller does not accept the offer, the purchase. the agent may go back to the buyer There is space in the contract to write and see if they are prepared to make the agreed goods that may be included another offer. Through a process of in the sale. If the buyer does not ensure negotiation the agent will attempt to specific goods are agreed to on the achieve a mutually acceptable price. contract of sale, it may be difficult to This negotiation may involve verbal argue ownership of those goods at the offers, but will only be legally binding settlement of the property. when made in writing.

The requirement that a contract of sale must be in writing does not apply to company title properties. If a verbal offer for a company title property is accepted, it could be legally binding. Section 6: Private sales 48

Contracts Settlement period

Contract of sale Settlement is the date on which the balance of the purchase price is Prospective buyers will sign a contract of paid to the seller, and the title of the sale when they wish to make an offer on property is handed over to the buyer. a property. The contract contains details The seller sets the date of settlement of the property, names of the seller and in the contract. The settlement period buyer, seller’s estate agent, price, the is usually between 30 and 90 days but deposit paid, balance owing at settlement a buyer may be able to negotiate an and any special conditions such as a alternative settlement period with the clause ‘subject to finance’. An agent or seller prior to signing the contract. agent’s representative can complete the details on a contract in preparation for the buyer and seller to sign. Goods and services tax (GST) Seller’s tip #9 Generally GST only applies to the Do not accept a lower offer for the purchase of new homes. It does not sake of a quick sale unless you are apply to established homes unless completely satisfied and willing to sell the seller is registered for GST. You at that price. can check a seller’s GST status at www.asic.gov.au. Do not sign the contract without checking whether GST applies. If uncertain, seek professional advice. If GST applies to a sale, it must be clearly specified in the contract whether the price is inclusive or exclusive of GST and how it will be calculated. 49

Cooling-off period When is it sold?

A cooling-off period of three clear When both parties have signed the business days applies to non-auctioned contract, the property is sold. All parties residential property sales regardless of who sign the contract must be given price. The cooling-off period allows a copy. the prospective buyer time to consider The sale is finalised at settlement when the offer, and begins from the date the all checks have been made, the title buyer signs the contract, not from the and transfer documents exchanged, and date the seller signs it. the balance of the purchase price paid. To end the contract within that period, the buyer must give written notice to the seller or the seller’s agent. A buyer will be entitled to a full refund of monies paid, Buyer’s tip #12 less $100 or 0.2 per cent of the purchase price, whichever is the greater. The decision on how much to offer is a difficult one to make. You need to The cooling-off period does not apply in consider whether to make your best the following circumstances: offer upfront or offer a lower price and • the property was purchased within be prepared to negotiate upwards. three clear business days before or Note that in the case of multiple after a public auction offers, the seller may decide to accept another offer without giving you the • the buyer received independent opportunity to increase yours. advice from a solicitor prior to signing the contract If you are not confident negotiating with the agent, you may prefer to • the property is used mainly for engage a buyer’s advocate or other industrial or commercial purposes professional to do your bargaining for • the property is more than 20 hectares you. You can expect to be charged a in size and is used mainly fee for this service. for farming Buyer’s tip #13 • the buyer has previously signed a contract for the same property with You should insert in the contract a the same terms date by which your offer will lapse. This way you will know whether your • the buyer is an estate agent or offer has been accepted within the corporate body. specified timeframe. Section 6: Private sales 50

Case study #2 Vendor private sale

Mr Lambert decided to sell his old family Within a short period of time of the sign home as he was no longer well enough to board being erected, the agency received maintain it. It was built over 100 years ago six enquiries. and had been in his family for 60 years. He A young couple inspected the house and was reluctant to sell it for fear of it being after negotiating a 30-day settlement, pulled down for a new development. made an offer by signing the contract and Mr Lambert decided to sell his house by providing a 10 per cent deposit. private sale. He was in no hurry and he Mr Lambert accepted the offer and did not want the public interest associated was happy with the sale as it occurred with an auction. He engaged a local much sooner than he had expected. The estate agent recommended to him by sale resulted in a price that was higher friends and negotiated the commission than his asking price and covered all and marketing expenses. associated expenditure. Mr Lambert wanted to steer away from The best aspect of the sale, according fancy advertising in glossy magazines. to Mr Lambert, was knowing the buyers On the agent’s advice he set an asking wanted to preserve the heritage of the price and decided to advertise the home house and only intended to perform at a single price with basic advertising extensions. combining a well-designed sign board to attract and inform buyers, with advertisements in the newspaper and on the internet.

Before the marketing campaign commenced, Mr Lambert hired tradespeople to repair and refresh the house to ensure it would be presented in the best possible condition. The house was repainted, curtains replaced, light fittings cleaned, the old carpet was removed to expose the natural floor boards and the garden was landscaped. 51

Section 7 Sale by auction Section 7: Sale by auction 52

In the interests of transparency and Section 7 fairness, there are strict rules governing the conduct of public auctions.

Sale by auction The sales campaign leading up to an auction is generally similar to that for a private sale. There is an advertising campaign with open house inspections for several weeks leading up to the auction date. In the lead-up to the auction the agent may contact prospective buyers to gauge their level of interest. This gives an indication of the potential attendance on auction day. Pre-auction offers and inspections

Offers may be made through an agent prior to an auction, if this is agreed to by the seller. These offers will usually be in the form of a signed contract and the process of negotiation is the same as for a private sale. If an offer is accepted less than three clear business days prior to the auction date, then no cooling-off period applies. On the day of the auction the property may be open for inspection, generally half an hour before the bidding starts. This allows prospective buyers the chance to have one final look at the property, the relevant paperwork and the rules for the auction.

Seller’s tip #10 Make sure your lowest selling price has been reached before allowing the agent to declare the property is ‘on the market’.

Bids may continue beyond this price; however, it is also possible there will be no further bids. 53

• bidders will be identified on request Buyer’s tip #14 • the law prohibits an intending bidder A copy of the auction rules and from making a false bid, hindering information statement and any another bidder, or in any way additional conditions must be made intentionally disrupting an auction available for inspection at least 30 • substantial penalties apply to anyone minutes before the auction starts. who engages in prohibited conduct You are advised to read them carefully • whether or not there will be vendor or before making a bid. Auction rules are co-owner bids available at Consumer Affairs Victoria’s website at www.consumer.vic.gov.au. • any additional conditions that apply to the auction. Buyer’s tip #15 Vendor and co-owner bids Anyone at a public auction is Vendor and co-owner bids are permitted permitted to ask the auctioneer in at auctions in two circumstances. good faith a reasonable number of • A bid may be made by the auctioneer questions about the property, the on behalf of the seller because they contract or the rules and conduct of are not satisfied with the amount the auction. of the last bid. This is known as a A bidder may also ask the auctioneer ‘vendor bid’ and will be announced to indicate who made a bid. by the auctioneer at the time the bid is made. Only the auctioneer can make such a bid Auction conduct • Alternatively, where the property is There are specific rules that regulate jointly owned, one or more of the the auctioneer’s conduct and how owners who genuinely wishes to buy prospective bidders can participate in the the property may bid from the crowd. auction. Substantial penalties may apply This is known as a ‘co-owner bid’. to anyone who breaks these rules. Co-owners may bid themselves or through a representative in the crowd Before the bidding starts, the auctioneer but not through the auctioneer. must tell the bidders: Vendor and co-owner bids are legal, but • the auction will be conducted only if they are permitted by the auction according to the auction rules rules. The arrangements for making • the rules prohibit bids being accepted vendor and co-owner bids must be set after the fall of the hammer out in the rules displayed before the Section 7: Sale by auction 54

auction starts, and announced by the auctioneer at the start of the auction. Buyer’s tip #16 Dummy bidding In order to bid successfully at an All other bids by or on behalf of the auction, a bidder should: seller or any dummy bids are illegal. A • be clear about their bidding limit dummy bid is either a false bid made up by the auctioneer or a bid accepted • bid confidently by the auctioneer from a non-genuine • ask questions of the auctioneer bidder from the crowd. including an indication of who Bidding at an auction made a bid. Different auctioneers have different methods of conducting an auction. ‘On the market’ Generally, their aim is to encourage as many bidders as possible to compete At a certain point the auctioneer may in order to achieve the highest halt the proceedings and say they are possible price. ‘going inside’ or ‘seeking advice or instructions’ from the seller. The agent The auctioneer can set the amount by will then consult with the seller. which bids increase. These are called rises or bidding advances. The bidder Generally, if the seller is satisfied the may make a bid at the amount stated reserve has been reached, or if the by the auctioneer or offer an alternative seller is prepared to sell at the bid amount. The auctioneer may in turn offered, then the agent will announce choose to accept or reject that bid. that the property is ‘on the market’. This means that the property will Generally, the amount the bidding then be sold, at the seller’s discretion. advances will decrease as the auction Alternatively, if the seller’s reserve is not draws to a close. met, the auctioneer will seek further At any time during the auction, bids. If the reserve is still not met, then including when the auction hammer the property may be ‘passed in’. is falling, an auctioneer may refuse any bid and, if there is a dispute over a bid, resume the auction at the last undisputed bid or start the bidding again. The auctioneer can also refer a bid to the seller at any time before the conclusion of the auction and withdraw the property from sale at any time. 55

When is it sold? Seller’s tip #11 After the fall of the hammer, no more The seller cannot make a bid to bids will be accepted and the property advance the price of a property at will be offered to the highest bidder. auction; neither can anyone acting on However, there is no legally binding the seller’s behalf, other than through contract until both the buyer and seller the auctioneer and only under the have signed the contract of sale. The conditions outlined on page 53. buyer will also be required to pay the Substantial financial penalties apply deposit specified in the contract (unless for dummy and illegal vendor bidding. otherwise agreed).

However, a co-owner of a property As this is an auction, the buyer cannot may make a bid from the crowd to make the contract subject to conditions genuinely purchase the property. and there is no cooling-off period. The sale is finalised at settlement when all checks have been made, the title and transfer documents have been exchanged and the balance of the Buyer’s tip #17 purchase price has been paid. At an auction, be sure to make all ‘Passed in’ your bids during the auction process because the auctioneer cannot accept If bidding does not reach the seller’s any late bids after the property has reserve price, then the property may be been knocked down to the successful ‘passed in’ or ‘withdrawn from auction’. bidder. The seller may then negotiate with the highest bidder who will be given the first opportunity to purchase the property at the seller’s asking price. Advertising after an auction If a property is ‘passed in’ on a vendor bid, then an agent cannot quote this ‘passed in’ amount when advertising and marketing the property, without disclosing that it was a vendor bid. Section 7: Sale by auction 56

Generally, if the seller is satisfied the reserve has been reached, or if the seller is prepared to sell at the bid offered, then the agent will announce that the property is ‘on the market’. This means that the property will be sold to the highest bidder, even if there are no further bids. 57

Case study #3 Selling at auction

Retired couple Bev and Norm had lived in Bev and Norm negotiated and agreed the family home for 32 years. Their adult commission would be calculated at children had moved out and they were 2.5 per cent of the full sale price inclusive looking at downsizing. of GST. This was included in the ‘Exclusive Auction Authority’. After deciding to sell, they made necessary repairs and tidied the house After reviewing the estate agent’s and the garden. proposed marketing schedule, Bev and Norm agreed for marketing expenses Satisfied the property was in a to be capped at $2,000. They also presentable condition, Bev and Norm negotiated 30 days after the auction researched the prices of properties selling date as the length of time the agreement in the area while investigating the track would last if the property did not sell at records and auction success rates of local auction. These details were also inserted estate agents. into the auction authority along with the Bev and Norm were attracted to an agent’s estimated selling price for their auction sale because of the potential house. They carefully read the authority benefits of a quick sale, maximum and asked the agent to explain some of exposure, controlled inspection times, the terms. When they were satisfied they competition between buyers and a understood the terms, they signed the binding unconditional contract. authority.

They invited three agents individually to To raise immediate interest from their home to assess their property and to potential buyers, the agent commenced outline a marketing plan. They asked each an aggressive advertising campaign. of the agents to estimate the likely selling Bev and Norm agreed to prominent price and how much they would charge advertisements in local newspapers and in commission and advertising expenses. on the internet as well as the erection of Bev and Norm refused to sign any agency a large sign board in front of their house. agreement at this point, as they wanted They agreed in writing to the price at time to consider. which the property would be advertised.

After careful consideration of all the On auction day, the auctioneer discussed information, they selected their agent. the reserve price with Bev and Norm and 58

advised he would seek their instructions prior The successful bidder immediately signed to declaring the property on the market. the contract and paid the required 10 per cent deposit. Bev and Norm then signed When the auction commenced, the reserve the contract in acceptance of the property price quickly passed and once bidding officially being sold. stalled, the auctioneer paused and advised the crowd he would seek the vendor’s Although selling the family home was instructions. Bev and Norm instructed bittersweet, Bev and Norm were satisfied the auctioneer their reserve had been with the result, the performance of their reached and the property would sell to the agent and the overall auction experience. highest bidder. The auction resumed and the auctioneer informed the crowd the property ’would be sold today’. After calling for final bids and with no further bids forthcoming, the auctioneer announced the successful bidder. 59

Section 8 After the sale Section 8: After the sale 60

After the sale there are several steps Section 8 before the buyer can take possession of the property. The solicitor or conveyancer usually undertakes these After the sale steps if acting on the buyer’s behalf.

Before taking possession

The deposit The deposit is generally paid by the buyer to the seller’s agent either when the buyer makes their offer or by the date stated in the contract of sale. It is held by the seller’s estate agent, conveyancer or solicitor in a trust account until the settlement date. A seller who does not have an estate agent and who receives a deposit must pay it to their solicitor or conveyancer or bank it in a special purpose account in an authorised deposit-taking institution in Victoria. The account must be in both the seller’s and the buyer’s name. In certain circumstances the buyer may release the deposit money to the seller earlier than the settlement date. For the early release of the deposit the contract must be unconditional and the buyer must be satisfied with the proof of debts information provided by the seller. Where this occurs, the deposit can be released no earlier than, 28 days after the date the contract was signed. Checking the measurements The buyer’s solicitor or conveyancer will send a plan of the land to the buyer to check all measurements and boundaries correspond with those on the title. 61

Lender’s valuation Stamp duty The buyer’s lender may also arrange Stamp duty, now known as duty, must for a valuation of the property. As they be paid by the buyer within three are lending against the value of the months of settlement. It is calculated as a property, the lender will want to ensure percentage of the purchase price or the that the price paid for the property market value of the property, whichever corresponds with its approximate is the greater. Duty applies to the GST- market value. This may happen prior to inclusive price of a new property. the sale if the property is not being sold There are generally two sets of at auction. duty rates: Insurance • a general rate applicable to all types Even though the property may be of property including residential, covered by the seller’s insurance commercial, industrial and rural up to the date of settlement, it is • a principal place of residence rate recommended that the buyer take that provides a reduced rate of duty out building and contents insurance for a property with a residence that effective from the date of signing the is the buyer’s principal place of contract. The buyer’s lending institution residence. will generally require the borrower to take out insurance on the property For example, the general duty rate to safeguard the lending institution’s would be $25,070 on a $500,000 interest as the lender. property while the principal place of residence duty rate would be $21,970. Pre-settlement inspection Duty exemptions may apply for certain Buyers are entitled to make an card holders and first home inspection at any reasonable time one buyers with children. Refer to the State week before settlement. The contract Revenue Office for complete details of sale outlines the seller’s obligation including a duty calculator on their to hand over the property in the same website at www.sro.vic.gov.au. condition as when it was sold. Settlement Taking possession The settlement date is the date on Once settlement is completed, the buyer which the balance of the purchase price can collect the keys from the agent and is paid to the seller in exchange for the take possession of the property. title to the property. Section 8: After the sale 62

This is an official process conducted between legal and financial If a buyer or seller has a problem representatives of the buyer and seller. with an estate agent, they can call The settlement date is also the date on EARS on 1300 73 70 30 or visit the which the buyer can take possession of Consumer Affairs Victoria website the property, unless otherwise arranged. at www.consumer.vic.gov.au. At settlement all outgoings such as rates and other charges will be adjusted If EARS is unable to reach a mutually between the seller and the buyer. The acceptable settlement, it can provide seller is responsible for rates up to information and advice about alternative and including the day of settlement. methods of dispute resolution. As part The buyer is liable from the day after of the assessment of a complaint, EARS settlement. also considers whether the complaint Transfer of land may involve a breach of legislation and whether an investigation should be This document transfers the land from launched to determine if enforcement the seller to the buyer. It is lodged with action is necessary. the Land Registry office and describes how the land is to be held if purchased Penalties by more than one person. Substantial penalties including fines The land can be held either jointly or apply to illegal conduct relating to a as tenants in common. If held jointly, . and one person dies, ownership of the land is automatically transferred to the survivor. Tenants in common effectively hold shares (equally or unequally) in the property and each has the right to dispose of their interest in the land as they see fit. Disputes and complaints

The Estate Agents Resolution Service (EARS) is a dedicated team within Consumer Affairs Victoria. EARS offers a free information and dispute resolution service on residential real estate matters. 63

Buyer’s checklist 3

1. Have you worked out your budget? 8. Has your solicitor or conveyancer checked over the section 32 For most buyers this means finding out if vendor’s statement and the you are eligible for a loan and the amount contract of sale? of the loan. For an auction sale you will need a pre-approved loan as the property 9. Have you developed a strategy for will not be offered subject to finance. bidding at auction or for making an offer for a private sale? 2. Have you selected your preferred suburb/location? 10. Are you clear about your cooling-off rights? 3. What features are you looking for in a property (for example, number For more information, go to page 49. and size of bedrooms)? 11. Do you need to check with the 4. Have you inspected similar agent about any items that appear properties in the area and found to be fixtures of the property but out how much they sold for? could instead be items (personal chattels) that the 5. Do you understand the differences vendor may remove at settlement? between a private sale and an auction? 12. Do you have your 10 per cent deposit organised to be paid For more information, go to page 34. when required by the agent?

6. Does the property require a 13. Have you checked all items you building inspection? believe come with the property Will you need to make the purchase are in good working order and subject to this inspection? ensured they are stated on the contract of sale? 7. Does the property require a pest inspection? 14. Have you checked those items on final inspection? Will you need to make the purchase subject to this inspection? 15. Have you decided to do your own conveyancing?

If yes, have you purchased a kit? Buyer’s & Seller’s checklists 64

Seller’s checklist 3

1. Have you researched how much 8. Have you agreed with your agent your property is worth? about the price the property is to be advertised at? 2. Have you had at least two separate real estate agents 9. Have you specified in your present you with a marketing authority with the agent, the level plan and appraise the likely selling of service to be provided? price of your property? 10. Have you given your agent 3. Have prospective agents provided instructions about the offers you sales records of other properties are willing to consider? similar to yours for comparison? 11. Have you discussed and settled 4. Have you chosen an independent the terms of your proposed legal representative to prepare the contract including the time for vendor’s statement or section 32? settlement with your agent, conveyancer or solicitor? 5. Before selecting and signing with your preferred agent, have you 12. Before accepting an offer on your thought about your rights to property, have you discussed the negotiate the rate of commission details with your agent, chosen and the cost of marketing and conveyancer or solicitor? advertising? 13. Having accepted the offer, have 6. Have you carefully looked over you confirmed with your agent the authority to sell and other that the full deposit stated on the documentation the agent has contract of sale has been paid by provided for you to sign? the purchaser?

7. Have you given written instructions 14. Have you decided to do your own to your agent clearly stating which conveyancing? items in the property are not to be If yes, have you purchased a kit? If no, included in the sale? have you arranged a solicitor or conveyancer to do this work? 65

they have indemnity insurance to cover Glossary any serious omissions about building defects not covered in the report. A Agent’s representative Not a licensed building consultant is not required to be agent. The agent’s representative is registered. employed by or acts for a licensed agent Building inspector A person registered and performs the function of an estate with the Building Practitioners Board as agent. (See also estate agent) a building inspector. This person may Auction A public sale of property operate as a private or council building when the highest bidder is normally inspector and is qualified to inspect the successful buyer. buildings to ensure compliance with the Building Act and building regulations. Authority to sell A legally binding document signed by the seller detailing Building surveyor A person registered the agreement between the seller and the with the Building Practitioners Board as a agent. Many aspects of the authority to building surveyor. This person is qualified sell, such as commission and advertising to issue a building permit, inspect a costs, are negotiable between the parties. building for compliance with the Building Act and building regulations, and issue an Breach of contract The breaking of occupancy permit or certificate of final one or more of the terms or conditions of inspection. a contract. Buyer’s advocate (buyer’s agent) Break fee A fee charged by a lender An estate agent acting solely for the to a borrower to prematurely exit an buyer by sourcing suitable properties existing contract. Note that this process and representing the buyer throughout may cost the borrower many thousands the buying process. of dollars. Capital gain Profits made from the Bridging finance A short-term loan sale of property. (approximately 6 to 12 months) used to fill the time gap between buying another Caveat A note on the title that an property and either selling the one you interest in the land is claimed by a own or obtaining a long-term loan. This third party. type of borrowing is usually at a higher Caveat emptor A Latin expression interest rate. meaning ‘let the buyer beware’. It is the Building consultant An expert buyer’s responsibility to ensure that the experienced in designing and/or property meets their approval prior to constructing a building. When employing purchase. an expert for a pre-purchase report on a property, you should ask whether Glossary 66

Certificate of occupancy A document Consumer Credit Code Regulates issued by a building surveyor stating all credit for personal, domestic or the building is suitable for occupation. household purposes. To ensure fair It is not evidence that the building dealing and to protect the interests of complies with the Building Act or building consumers, all lenders must comply with regulations. the Consumer Credit Code. Certificate of title A document Consumer credit insurance An showing who owns the property, the size option for borrowers to guard against of the land and whether there are any losing their property in case they default limitations on the title such as mortgages, on the loan repayments. This will easements or . safeguard the loan if repayments cannot Chattels Moveable personal property be made because of sickness, accident or or furniture. unemployment. Commission Paid by the seller to the Contract of sale A legal document estate agent, normally when the property prepared by the seller, usually with is sold. It is usually a percentage of the the aid of a solicitor or a conveyancer, selling price of the property. The amount outlining the details of the sale. The of commission is negotiable between the contract of sale is legally binding when seller and the agent. signed by both parties. Common property Areas of a property Conveyancer A person or company used by and belonging jointly to all licensed to conduct conveyancing owners of a property. This applies to such business. This means any business where properties as apartment blocks or multi- conveyancing work is undertaken for a dwelling complexes. fee or reward. Company title Each owner in a block Conveyancing Transferring the of flats has shares in the company that ownership of a property from the seller owns the land and the building. The to the buyer. It is often performed by a owners receive a parcel of the shares with solicitor or conveyancer. rights attached. Each owner is entitled Co-owner A co-owner is a seller who to exclusive occupation of a flat, but is has a financial share in a property and subject to the company’s Memoranda wants to buy out the other co-owners. and Articles of Association. These For example, in the case of a divorce, two documents should be carefully examined for any restrictions. parties may have a share in a property and one party may wish to buy out Comparison rate A tool allowing the the other party’s share. Both parties are true cost of a loan – interest rate, fees known as co-owners. and charges – to be compared with other loans using a single figure percentage. 67

Co-owner bid A co-owner bid is a bid Estate agent A licensed person made by a seller who is a co-owner of authorised to act for another in the the property or by a person (other than selling, buying, or management the auctioneer of the land) on behalf of a of a property. Estate agents usually act for seller who is a co-owner of the property. the owner. Covenant An agreement creating an Encroachment The use of, or intrusion obligation on the titleholder of a property onto, another person’s property without to do or refrain from doing something. consent. This usually refers to a structure. For example, a restrictive covenant could A third party’s right state that no more than one dwelling that obstructs the unencumbered use may be built on the land. or transfer of a property. Examples are Deposit A percentage of the purchase easements, mortgages or caveats. price paid by the buyer when contracts Estimated selling price The price are signed. It is usually 10 per cent. The an estate agent estimates a property deposit must be held in a trust account will attract. It must be recorded on the by an estate agency, by the seller’s authority to sell either as a single figure solicitor or conveyancer or jointly in a or as a range where the difference trust account by the seller and buyer. between the top and bottom figures does Deposit bond Offered by some lenders not exceed 10 per cent. For example: as an alternative to a cash deposit. It is $400,000 to $440,000. also known as a deposit guarantee. Equity Having ‘equity in your own Disbursements Additional charges by house’ refers to the difference between some solicitors and conveyancers on top the market value of a property and what of their fee for extras such as postage, is still owing on a mortgage. This will phone calls and government charges. increase as the loan is repaid or as the property’s market value increases. Dummy bid A false bid made or accepted by the auctioneer. Dummy bids First Home Owners Grant A scheme can include bids made by a non-genuine for first home owners. Please refer to the bidder and ‘fictitious’ bids pulled out of State Revenue Office website at www.sro. the air by the auctioneer. Any bid made vic.gov.au for further information. on behalf of the vendor by anyone, Fittings Items which can be removed other than the auctioneer under the without damaging the property such auction rules, is considered a dummy bid. as garden ornaments, lighting and air Dummy bidding is illegal. conditioners. They must be listed in the Easement A right held by one person to contract of sale if the buyer wants them make use of the land of another. Drainage to remain with the property. and sewerage pipes are examples. Glossary 68

Fixtures Items which are attached to Interest only loan Throughout the the property and cannot be removed term of the loan, only the interest is paid without causing damage to the property off. The loan itself (the principal) is repaid such as bathroom suites, built-in at the end of the time limit of the loan. wardrobes and kitchen stoves. They are Joint tenants The form of ownership usually included in the sale. where two or more people purchase Fixed interest rate An interest rate a property in equal shares. If one dies, that remains unchanged for a set period. their share of the property passes to the surviving owner/s. (See also tenants in When a borrower fails to common) meet mortgage repayments or repay a loan, the lender takes over the property Land Tax Calculated on the value and keeps it. of a block of land and payable by the owner/s. General Law title (old system title) The original system of land titles. A Mortgage A written contract giving General Law title is comprised of all the lender of finance certain rights over the documents that show a property’s specific property. For example, the complete historical record of title house bought by the borrower is used as ownership. For the title to be ‘clear’, it security for the loan. must be traceable without a break up Mortgage guarantee insurance to and including the current ownership. Paid by the borrower to protect the Such a title must now be converted to a lender against failure by the borrower ‘’ when such a property title is to keep up mortgage repayments or to resold. (See also Torrens title) pay back the loan in full when it is due. Goods in relation to a sale of a property Such insurance normally applies where include personal items, chattels and the borrower’s loan exceeds 80 per cent fittings. of the value of the property. This type of insurance is taken out by the lender with Goods and Services Tax (GST) A the cost passed on to the borrower. The consumption tax of 10 per cent levied borrower remains liable for any shortfall; on the final consumer of the goods or for example, if the property is sold and services. The supplier of the transaction the proceeds do not cover what is owed is responsible for collecting the GST and to the lender. sending it to the Australian Taxation Office (ATO). Mortgagee (lender) An organisation lending money to a borrower by a Gross income Total income before mortgage agreement. income tax and expenses are deducted. 69

Mortgagee sale If the borrower ‘Passed in’ The circumstance where a defaults, the lender can seek to recover property for auction is not sold, usually the debt by selling the property that because it has not reached the seller’s was the security for the loan under the reserve price. mortgage. Principal The amount of the loan Mortgagor (borrower) A person itself without interest or other charges taking out a mortgage on a property they associated with the loan. are buying. The property is assigned to Private sale In a private sale, the sale is the lender as security for the loan. negotiated between the buyer and seller Net income Your income after income usually with the assistance of an agent. tax and mandatory levies have been Rebates Discounts received, usually for deducted. bulk purchases such as advertising. Any Off the plan Purchasing off the plan rebates received by an agent must be involves buying a property before it has passed on to the seller. been built. Such purchases are usually Requisitions on title A set of questions based on the architect’s plans and about a property the buyer asks the models. seller after the contract has been signed, ‘On the market’ The point at an usually with the help of a solicitor. auction where a price is reached at or Reserve Bank of Australia Australia’s above which the seller is prepared to sell. central bank with responsibility for (See also reserve price) regulating monetary policy including the Outgoings Any costs incurred by the official interest rate. seller on top of the agent’s commission, Reserve price A seller’s minimum sale such as advertising costs. All outgoings price for the property. It may be recorded are negotiable. on the authority to sell. Overquoting The illegal practice of Settlement When ownership of a overstating the estimated selling price property passes from the seller to the of a property. This is usually done to buyer and the balance of the sale price is encourage a seller to list. paid to the seller. Owners corporation Formerly Solicitor A legally qualified and licensed known as a body corporate. An owners person undertaking legal work and corporation has the collective ownership providing legal advice for a fee. A solicitor of the common area in a subdivision of may specialise in conveyancing and land or buildings. It is responsible for the property law. administration, upkeep and insurance of the common area shared by all the Stamp duty A state government tax, owners (the common property). based on the sale price of a property, paid Glossary 70

by the buyer when property ownership is Unfair contract terms Terms not transferred. Also known as duty. in good faith causing a significant imbalance in the rights and obligations Strata title Individual ownership of of both parties to the detriment of the an apartment or unit within a block or consumer. multi-unit complex. This is separate from and additional to the joint ownership of Valuation An estimate of the value of common areas shared by all the property a property by a registered valuer, usually owners in the building or complex. for a fee. Stratum title Each owner has a Vendor (seller) The person selling the certificate of title and is absolute owner of property. a freehold flat. A service company has the Vendor bid A bid made on behalf of title to the common property and each the vendor. Vendor bids can only be flat titleholder has a responsibility to the made by the auctioneer and only when service company. The service company, the auction rules allow it. The auctioneer in which each flat titleholder has shares, makes this statement before bidding administers, manages and maintains starts and announces each vendor bid as, the property in which each owner’s flat or before, it is made. is registered. Vendor’s statement (or section 32) Tenants in common A form of joint Information which the seller must provide ownership of a property when each to the buyer advising of restrictions such person owns a share of the property, as covenants and easements, outgoings equally or unequally. On the death of such as rates and any other notices such one owner, the deceased’s share passes as compulsory acquisition. to their heirs, who assume the role of tenant in common with the other existing Vendor terms contract Also known owner/s. as a terms contract, when a loan is supplied by the vendor rather than by an Title A legal document identifying established lender. who has a right to the ownership of a property. ‘Wrapping’ A type of vendor terms contract in which the property price and Torrens title A system of title by loan interest rates are usually well above registration governed by the Transfer of the market rate. Penalties for defaulting Land Act. can be severe and such contracts should Transfer of land A document be entered into with caution. recording the change of ownership of a Zoning The permissible uses of an area property from the seller to the buyer. of land as stipulated by the council. Underquoting The illegal practice of understating the likely selling price. 71

Useful contacts Archicentre  Royal Australian Institute of Architects Consumer Affairs Victoria 530 Glenferrie Road Hawthorn Victoria 3122  In person ☎ 1300 13 45 13 Victorian Consumer &  www.archicentre.com.au Business Centre 113 Exhibition Street Melbourne Victoria 3000 Australian Securities and Investment Commission ☎ By telephone 1300 55 81 81 GST enquiries ☎ 1300 300 630 ☎ Estate Agents Resolution  www.asic.gov.au Service (EARS) 1300 73 70 30 Australian Tax Office ☎ Building Advice and Conciliation Personal tax enquiries line Victoria (BACV) ☎ 13 28 61 1300 55 75 59  www.ato.gov.au  Internet www.consumer.vic.gov.au Business Licensing Services from Consumer Affairs Victoria Authority (BLA) are available at Ballarat, Bendigo, Berwick, ☎ 1300 13 54 52 Box Hill, Broadmeadows, Geelong,  www.bla.vic.gov.au Mildura, Morwell, Wangaratta and Warrnambool together with a Consumer Action Law Centre mobile outreach service regularly visiting  Level 7, 459 Little Collins Street rural communities. Melbourne Victoria 3000 To find details about the regional ☎ (03) 9629 6300 office nearest you or the mobile service,  www.consumeraction.org.au call 1300 55 81 81 or go to www.consumer.vic.gov.au and Foundation and click on “Contact Us”. Footings Society

* PO Box 1175 Hartwell Victoria 3124  www.footingsgroup.org Useful Contacts 72

Housing Industry Association Real Estate Institute of Victoria (REIV)  70 Jolimont Street Jolimont Victoria 3002  335 Camberwell Road ☎ (03) 9280 8200 Camberwell Victoria 3124  www.hia.com.au ☎ (03) 9205 6666  www.reiv.com.au Information Victoria Bookshop State Revenue Office (SRO)  505 Little Collins Street Melbourne Victoria 3000  Level 2, 121 Exhibition Street ☎ 1300 36 63 56 Melbourne Victoria 3000  www.bookshop.vic.gov.au ☎ 13 21 61  www.sro.vic.gov.au Insurance Council of Australia Sustainability Victoria * PO Box R1832 Royal Exchange  Urban Workshop Sydney NSW 1225 Level 28, 50 Lonsdale Street ☎ (02) 9253 5100 Melbourne Victoria 3000  www.insurancecouncil.com.au ☎ (03) 8626 8700  www.sustainability.vic.gov.au Land Victoria Victorian Civil and  Level 16, Marland House Administrative Tribunal 570 Bourke Street (VCAT) Melbourne Victoria 3000 ☎ (03) 8636 2000  55 King Street  www.land.vic.gov.au Melbourne Victoria 3000 ☎ (03) 9628 9755 Law Institute of Victoria  www.vcat.vic.gov.au  470 Bourke Street Victorian Conveyancers’ Melbourne Victoria 3000 Association ☎ (03) 9607 9311 * Australian Institute of Conveyancers  www.liv.asn.au (Victorian Division) PO Box 466 Ringwood Victoria 3134 ☎ (03) 9876 8221  www.aicvic.com.au Consumer Affairs Victoria Victorian Consumer & Business Centre  113 Exhibition Street Melbourne Victoria 3000 ☎ 1300 55 81 81 (local charge) 4 (03) 8684 6295 8 [email protected]  www.consumer.vic.gov.au

Services from Consumer Affairs Victoria are available at Justice Service Centres in Ballarat, Bendigo, Berwick, Box Hill, Broadmeadows, Geelong, Mildura, Morwell, Wangaratta and Warrnambool. Our mobile service regularly visits rural communities. Call 1300 55 81 81 or visit www.consumer.vic.gov.au for more information. Reprint October 2010 RE-06-04-1501 TIS Telephone Interpreting Service 131 450 TTY Textphone or modem users only, ring the NRS on 133 677, then quote 1300 55 81 81 Callers who use Speech to Speech Relay dial 1300 555 727, then quote 1300 55 81 81