This week we continue the fine work that Christopher Conolly started in his discussion a couple of weeks back by focussing on how to make an offer in NSW.
Michelle May – Sydney Buyers Agent
Marcus Roberts – Mortgage Broker
Please note that any views or opinions presented in this podcast are solely those of the speakers, and do not necessarily represent those of any business. These views and opinions are general in nature, and do not take account of your personal objectives, financial situation and needs. Please consider whether it applies in your circumstances and seek professional advice wherever appropriate.
Marcus Roberts: Hi, and welcome to the Sydney Property Insider podcast, a weekly Podcast series taking about all things property in the city of Sydney. So, hi Michelle. How are you this week?
Michelle May: Hi, good and you?
Marcus Roberts: Yeah, really well. Really well. So, Michelle, you’re a bit of a star this week. You were recently mentioned in Lifestyle.
Michelle May: I was. They came to me asking about why it is that more and more women are making great strides in property, buying and selling, and it actually turns out that now 47% of all investment properties are owned by women. So, that’s great news. So, yes, that article is on the lifestyle.com.au if you want to have a read about that.
Marcus Roberts: Excellent, and today we are talking about exchanging a contract of sale. So, you know, Michelle you’re really well placed to talk about this, given that this is on a day-by-day basis for you. So, tell us about, you know, how you can exchange on a contract of sale in New South Wales.
Michelle May: Okay, so in New South Wales there’s two ways to exchange a contract of sale. There is the conditional and the unconditional. So, firstly the conditional comes with a five-day cooling-off period, so if you sign a contract you have those five days to do your due diligence in. So, you can get the contract reviewed, you can get an evaluation done, financed approved, building and pest inspection, strata report, all that stuff.
However, when there’s other serious buyers interested or in an auction campaign, it would be unlikely that the agents or the vendors would agree to a conditional exchange of contract. So, this usually just happens in private treaties alone. So, under these circumstances, you have to have done all your due diligences before you are ready to sign a contract, and if you do change your mind, there is a penalty of the agreed purchase price. So, that’s conditional.
Marcus Roberts: Okay. And how does unconditional work then?
Michelle May: So, that’s the way to exchange contracts when you have an auction campaign.
Marcus Roberts: Yes.
Michelle May: So, when you are the successful bidder at auction, when you sign the contract, you are locked in. There’s no cooling-off period, there’s no changing your mind. The other way to have an unconditional contract is when you come in with an offer, you add a 66W Certificate, is what it’s called, which is issued by your solicitor or conveyancer. He or she signs it and they waive the cooling-off period, so that, you know, it’s a serious way to make an offer, and you need to have done all your due diligence prior to doing that.
Now if you have your offer accepted and you do have to wait a few days to get everything sorted before you can actually sign a contract, there’s a real chance of getting gazumped, which is what they call it.
Marcus Roberts: Which is a fantastic word.
Michelle May: I love that word.
Marcus Roberts: Gazumped. I’m going to start using that on a day-by-day basis.
Michelle May: The actual word sounds great, but in reality it’s a very frustrating process, because it allows other buyers to come in and submit offers and nab the property away from you, because nothing is, you know, it’s not a done deal yet. So, especially when you make an offer prior to auction, now there’s no law in place to make agents respond in a competitive offer in any way. So, you don’t know how, you know, the selling agent will react if this happens to you. Now some will go back to the other buyers and tell them exactly how much you offered, and others will be more discrete. So, some will flag the original buyer who’s made the original offer, where the others only care about the highest sale price. So, you know, it’s, others give you a deadline, so everybody works differently.
Marcus Roberts: And really, you know, as we’ve said in this podcast before on previous weeks, the selling agent is not working for you. Selling agent is working for the vendor.
Michelle May: Absolutely.
Marcus Roberts: So, it does make sense for them to then go to other potential buyers and speak to them and say, “Look … ” you know, in some cases discretely, in some cases probably more loudly, but say, “We’ve had an offer, you know. We’ve taken it to the vendor. Do you want to put a higher offer in, or do you want to put a rival offer in,” so to speak.
Michelle May: Yeah. Absolutely. And so they will also be taking to the vendor, you know. They would be talking to them about the merits of talking to other buyers out there, but you know, the vendor can do a number of things. They can decide to go with you and go with the original agreed offer that they have with you, and so leaving out any other potential buyers out there. They can come back to you and say, “Listen, we’ve had a higher offer. Would you like to match that or go above that?” Or, they can just go with the buyer who’s offered the most. You know, it’s up to them essentially. So, when you’re in that situation, you know, you need to either walk away or match the offer, or go above it, and race to get those contracts exchanged unconditionally. Because that’s the only way to lock the vendor in, because that’s the only way to lock the vendor in.
Marcus Roberts: Absolutely.
Michelle May: The vendor needs to lock the buyer in. So, you know, obviously you need to be in possession of the contract and you need to have that reviewed. You need to do a strata search or a building and pest inspection. You need to check with your bank whether you need a valuation or not and if you do, you need to get this organized. And then you need to get your contract signed and go in with that 66W, which is signed by your solicitor. With that the contract and the 66W, and any contract changes that have been agreed to, you take that along with your cheque, and go and see the agent.
Now, the agent then goes and sees the vendor and, you know, everyone signs and the contracts are exchanged. Obviously this is a race against the clock, because it there’s other buyers involved, it’s like who gets things done the quickest.
Marcus Roberts: Who gets everything done quicker.
Michelle May: Who has the most and best help. You know, whose broker is most on the ball and all this kind of stuff.
Marcus Roberts: Yeah.
Michelle May: So, it’s nerve-racking. So, for me my advice would be to any buyer out there before you go making any offers on properties, make sure that you are in a position to exchange unconditionally.
Marcus Roberts: As soon as possible.
Michelle May: That’s right.
Marcus Roberts: Yes. Yup.
Michelle May: So make sure that before you start talking any numbers with the agent, you really will have done your due diligence, and you’re ready to waive that cooling-off period and be ready to go.
Marcus Roberts: Yeah. Especially with things like, and I just had this conversation with somebody the other day. Things like building and pest inspections do cost money, and certainly I’m not saying for a second that they don’t cost money, but we’re talking about buying an asset that’s upwards of $1,000,000.00. Spending two to three times, or, spending on a building and pest for two to three different properties is a small price to pay for that comfort of knowing that you’ve got the right property and you’ve ultimately, there’s nothing untoward, there’s no hidden nasties in the walls, if just for the sake of basically a couple of days.
Michelle May: Yeah, absolutely. There’s no short-cutting there, you know, that you really need to that properly. And even for me, I’ve been buying property since I was 22. I’m in 40s now. I still always get a building and pest inspection done for my own properties, and I always advise my clients to do the same. And that same goes for strata reports you know. Whilst I’ve seen a lot, I’m still not the expert.
Marcus Roberts: Absolutely.
Michelle May: So, it’s worth paying for. Now, there’s another couple of things to consider. So, you’re ready, you know, you love this property, you’re ready to make an offer, you’ve done all your due diligence, but you’re not the only party involved in this transaction. There is the vendor, and there is the agent. Now they have different motivations perhaps to yours, you know. And before you race in to make an offer, you need to really think about the situation and whether that is the best chance to get the deal across the line. You need to think about the situation itself. Is there, for example, the vendor locked in, have they bought elsewhere? Now, if that’s the case, they’re probably more likely to be open to an offer prior to auction or you know, sooner rather than later. Because if it’s a good offer, they then know that they can move on.
But it might that the agent is for example wanting to test the market first. You know, they might to have two open Saturdays first to see what other interest is out there, so you know, if you’re intent on putting in an offer in the first week, it’s going to be a waste of time, because you’re not going to get an answer until after that second Saturday, which leaves open and exposed to buyers, you know, going over your offer.
Marcus Roberts: Of course.
Michelle May: So, you’ve got think very clearly about what the agent is telling you. Now, if the agent has a reasonable asking price on the property and you think it’s probably going to sell for more and the agent’s telling you to make an offer in writing and they’re very clear about what it is their planning on doing, and they’re communicating that openly with you, you need to listen to that, you know. Because they have obviously thought about the process, they do this all the time, they’re obviously working with a vendor whose willing to look at offers [inaudible 00:10:03], because some vendors are not, you know. And you think that this is going to be a popular property then that might be the time to go for it.
However, if you know, the open houses aren’t very popular, there’s not lots of other people there when you’ve been, the agent isn’t very clear on the vendor’s situation, isn’t very clear on how they’re going to run the auction campaign, and you’re not getting any clear answers, then it might be better to hold off. Because I think ultimately if there isn’t a lot of competition around, the agent’s been quoting quite low, if you put in an offer that is rejected, they then have to up the price guide, right, which means that that surprise element is taken away from you at auction. So, then you’re better to hold off with what you believe is a reasonable price to pay, and then jump in at auction. Does that make sense?
Marcus Roberts: Absolutely. Yeah. That makes a lot of sense.
Michelle May: Yeah. So, ultimately I think you need to be ready to move, don’t make any offers until you’re ready to do so, when you’ve done all your due diligence, and listen to what the agent is telling you and listen to what the vendor’s situation is.
So just to recap, make sure obviously you have your finance approved, research the area, and expect as many properties as possible, that you’re really clear about the value of the properties, so you’ve got your budget, but that’s separate from the value of the property. Those two things are not necessarily aligned. Make sure that it is what you can afford and that, you know, this is what you want to do. So, think about it very clearly and just be aware that jumping in and making an offer on a text message is not really worth doing.
Marcus Roberts: Yes. Yeah.
Michelle May: Just do it properly and then your chances of success will be much greater. So, I think that’s the way to do it in New South Wales. Obviously, there’s different ways to do it around the country, depending on if there’s more private treaties or auctions. But clearly at the moment, there’s still a lot of auction campaigns happening, but if you have any more questions about this, how to make a successful offer, obviously write us an email.
Marcus Roberts: Yes.
Michelle May: Contact us at [email protected], because every single transaction is different. So if you found yourself in a situation that doesn’t exactly follow what we just talked about, yeah, contact us and maybe I can give you some advice on how to approach it better next time, even after so many years of buying myself. I find myself in situations where I go, “Oh, okay. This is new. This agent does it slightly different.”
Marcus Roberts: Yeah.
Michelle May: It’s important to be open to listening, because an agent will obviously, you know, they there to sell, so if you are a serious buyer, they will take you seriously and they will give you that information that you need. Provided it’s a reasonable offer to make a successful purchase.
Marcus Roberts: Again, and like allows, Michelle, you said this in the recap as well, but making sure you do your due diligence. It’s just, you know, the most important thing I think of. Making sure that what your offering is going to be, you know, in line with other properties in the area, is going to be in line with what the asset truly is worth. So, doing that research before you put that offer in is going to help you in the long run, whether that’s buying for your own place, whether that’s buying as an investment property.
Michelle May: Yeah, absolutely, because if you find yourself that the bank does the evaluation and it falls short, you will be responsible for that shortfall. Now with the property prices as they are, you know, that could easily be $50,000.00. Now, I don’t know about you, but I don’t have any spare 50 grand lying around.
Marcus Roberts: Sure, you don’t Michelle.
Michelle May: Well, it’s easy for the bank to come back shorter. You know, if you’ve made an offer
Marcus Roberts: It doesn’t always happen. I mean, I can certainly say from my own experience that it has happened, where people have offered more than what the bank valuation comes back at. I would say that that’s probably a very small minority of the time, and the vast majority of the time, a professional evaluator’s going to look at the price that was paid by a purchaser at an arms-length transaction, that’s well based on the market’s evidence, it’s likely that the purchase price is an acceptable valuation. However, you are running that risk. So, rather than running that risk and suddenly running around for that last couple of weeks trying to scrape together $50,000.00 in the case in the example that we’re giving, doing that due diligence, doing that research ahead of time, is going to put you in the best position to make sure that you meet, exchange, go through with the sale, and continue living happy for the years to come.
Michelle May: Absolutely. And also don’t forget that even if you pull out on a conditional contract, if you change your mind, there’s still a penalty involved-
Marcus Roberts: Yes.
Michelle May: … you know, up to 0.25% of the agreed purchase price. Now if you pull out of an unconditional contract, you know, you lose your deposit. So, that’s again-
Marcus Roberts: We’re talking about big penalties.
Michelle May: Absolutely. Absolutely. So, you know, take your time, I mean be fast about it, but take your time taking the proper steps. You know, I can’t be more clear about that. I read the other day again that there was research that people are spending less and less time, you know, doing their due diligence on properties.
Marcus Roberts: I read that as well. Yeah. It’s fascinating given that this is the biggest asset that many people will ever have or ever own.
Michelle May: Absolutely.
Marcus Roberts: And they’re doing less research than they are looking at cars.
Michelle May: I know, and you know, a $23,000.00 Golf, or, a $700,000.00 apartment, I’m sorry, but that doesn’t quite equate.
Marcus Roberts: Especially if you’re buying it as an investment where you’re going to be receiving rent for this, it’s going to be hopefully an appreciating asset over the years ahead, doing more due diligence, doing more research than you would on buying that Golf, is certainly going to hold you in good stead in the years to come.
Michelle May: Yes, and you know, even for owner-occupiers, this is their biggest investment, you know.
Marcus Roberts: Yes.
Michelle May: Because they might never be in a position to have that, you know, that investment property. So, as an owner-occupier and especially first home buyers, if they make a mistake, that first check, it can cost them many, many years to recover and to recoup, that they may never do. So, yeah, definitely think about what you’re doing.
Marcus Roberts: Yeah. Not to scare the listeners out there. There is help.
Michelle May: Exactly.
Marcus Roberts: It’s not you doing this on your own as the buyer. You know, liaising with building and pests, liaising with a good solicitor, liaising with the real estate agent, understanding, asking the right questions, potentially working with a buyers’ agent, working with your banker-broker, all of these other experts are around you to help with the purchase.
Michelle May: Absolutely. Yeah. Absolutely. So, I think that is about it in terms of exchange of contract, but if you have any more questions with regards to you know, how to buy successfully, what do I do, my offer’s been rejected, you know, get in touch with us.
Marcus Roberts: Yeah. Let us know.
Michelle May: We’d love to answer your questions for the next episodes.
Marcus Roberts: So, again, if you do have questions or if you want to leave us some feedback, you can find us at [email protected], that’s [email protected] In the weeks ahead, we have some exciting things planned. We’ve got a real estate agent lined up for a good conversation. We’re hoping to get a couple of property managers on in the weeks ahead, a financial advisor talking about saving for that first deposit, especially for those first home buyers. So, really excited with the weeks ahead and who we’ve got coming. We’ve got some great guests lined up.
Michelle May: Absolutely. So, I’m looking forward to learning some more along the way. I think in real estate you never stop learning.
Marcus Roberts: That’s right.
Michelle May: So, I hope you’ll join us next time. I think that’s us. That’s us for today.
Marcus Roberts: That’s us for this week. Have a great week everyone and we will be with you, same place, same time next week.
Michelle May: Bye.