Preparing to buy
Found a house you like, and are ready to go to auction for it or make a conditional offer? Here's what you need to know.
Deposit
Make sure you have money to settle the initial deposit! Most people know about 20% LVR and needing a 20% deposit to buy a house, but you will typically need to pay a 10% cash deposit upfront on the fall of the hammer or once the sale goes conditional. You need to have these funds sitting in a on-call account ready to be transferred.
It is unacceptable and almost unheard of to not be able to pay the deposit, so make sure you have this sorted or you'll be in a lot of pain.
Bank Approvals
Go back to the bank where you have the pre-approval, and submit the property title, Sale and Purchase Agreement, LIM and other information to them for a further approval to purchase the property. Although you can make this a condition of sale on non-auction sale types, this is a straightforward step so you may as well do it before you make any offers and save everyone time.
Insurance Approvals
Insurance is straightforward for most properties, but if you are trying to insure one of these:
1. Older than 1955
2. Has structural issues or other significant problems
3. Near or on a natural hazard
4. Has complications like granny flats
Call your insurance company or broker and get a proper full coverage insurance quote before you proceed any further. This is important because there have been cases where once you win the property or have the offer succeed, the insurance companies may decline coverage due to various reasons. If Insurance does not offer cover, your bank cannot lend you money, meaning you are in deep hot water quite quickly, and are still obliged to settle.
Lawyer Approvals
Your lawyer needs to give you guidance on if you should proceed or not. They will conduct initial due diligence. Email the title, LIM, sale and purchase agreement, and anything else to your lawyer for review and approval. This is not a DIY step.
Building Reports
As a first-time home buyer, particularly when dealing with mostly unconditional auctions, it’s easy to get overwhelmed with the cost of building reports. At $700 or more per report, you could find yourself spending a significant amount of money without even winning the property. It’s important to be strategic and pragmatic about when and how you use building reports.
Know When to Skip:
If you're looking at a new build with a reputable builder and a 10-year Master Builder warranty, you may not need a building report at all. These properties tend to be in good condition, and the warranty covers you for major defects.
On the other hand, if you’re looking at a 1910s villa that needs work, getting a building report becomes essential. Older homes may have hidden issues like structural damage, asbestos, or leaks that could cost you a lot to fix.
Conditional Offers and Building Reports:
When making conditional offers, always ensure that a building report is part of the condition of sale. This way, you’ll be able to walk away from the deal if the report reveals issues that you’re not willing to take on. Your lawyer will help you with the proper wording in the agreement to ensure you're covered.
Arranging the Report:
After your offer is accepted (and subject to your conditions), arrange for a builder to conduct the inspection. This will usually be coordinated with the listing agent to gain access to the property.
Ideally, find a builder who will let you join them during the inspection. This allows you to learn what to look out for and can save you money down the line by helping you spot basic issues yourself.
Focus on the Big Picture:
Building reports can be exhaustive, but remember that no property is perfect. Builders are trained to spot every small imperfection, and they’ll report them all, even if they’re minor and fixable.
The key is to focus on the major issues. If the report reveals significant structural problems, water damage, or other costly repairs, this could be a red flag. But if it’s mostly minor cosmetic issues or things that don’t affect the structural integrity, you might decide they’re worth accepting.
Assess Your Comfort Level:
Ultimately, it’s about your comfort level. Are you okay with the repairs presented, or are you willing to negotiate on price based on the findings? If you’re comfortable with the minor repairs or know you’re prepared to take on the work, it could be a good opportunity. If not, it might be best to move on.
By being strategic with your building reports and using them wisely, you can save yourself money while still ensuring the property is a solid investment. Just remember to focus on the major issues, and don't let every minor imperfection scare you away unless it’s truly a dealbreaker.
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