Process of buying a house
Buying a house is a big deal, not to mention a big expense. If you’re thinking about buying your first property, it pays to know your rights as a buyer and how the buying process works. If it’s been a while since you’ve been in the market this might be just the refresher you need. The process of buying a house will differ depending on whether the house is sold by private treaty or at auction. Rules may also vary in each state or territory.
Once you’ve found the “right” property you might make an offer, generally one lower than the asking price. You might be asked to pay a deposit. “This won’t mean that the property is yours or that it gets taken off the market,” explains the NSW Office of Fair Trading (NSW OFT). “It only proves to the seller that your offer is serious. The agent must also let you know if someone else makes a later offer on the same property.” It’s important to understand that the seller is not obligated to sell you the property, you have no obligation to buy the property even if your offer is accepted, and the deposit will be refunded if you don’t end up buying.
You may be “gazumped” — this means that even though you have a verbal agreement the property is sold to someone else for a higher price. “If you are gazumped neither the agent nor the vendor is obliged to compensate you for any money you may have spent on legal advice, inspection reports, financial applications or inquiries,” says the NSW OFT.
If your offer is accepted and you are not gazumped, the next step is to exchange contracts. This is the legal part of buying a home. You and the seller will sign the contract and this is when you will need to pay a bigger deposit — usually 10 percent. Sign the contract only when your solicitor or licensed conveyancer is happy. “Following exchange, you have a financial interest in the property so it’s wise to get it insured,” says the NSW OFT.
In most states, except WA, there is a “cooling-off period” of up to five days where you can change your mind. You’ll need to write a letter and deliver it before the period ends to cancel the contract. You will be refunded most of your deposit but a fee may be charged. In NSW it’s 0.25 percent of the purchase price. Let’s say you agree to buy a house for $400,000 and you pay a $40,000 deposit but change your mind. You will be refunded $40,000 less $1000 (0.25 percent x 400,000).
Settlement, when you become the legal owner of the property, occurs 30-90 days from when you sign the contract. This can be negotiated to a period that suits both you and the seller.
Things are a little different if you end up buying the property at auction. If you are the successful bidder you hand over your 10 percent deposit and exchange the contract then and there.
If the property is “passed in”, meaning the reserve was not met and bidding has stopped, the highest bidder can negotiate with the seller and a sale is possible. If you buy a property at auction or exchange contracts on the same day after it is passed in, it’s important to know that a cooling-off period does not apply.
Questions to be asked Real Estate Agents
- Why is the vendor selling?Depending on the vendor’s circumstances, such as deceased estates, liquidation and divorce, you may be able to negotiate a better price. Don’t rely on the estate agent’s word. Ask a neighbour.
- How long has the property been on the market?If it has been on the market for a long time, it may indicate a problem with the house. If not, it may mean the vendor will be keener to negotiate on the price.
- Is the vendor negotiable on the price?See if there is flexibility.
- How soon does the owner need to move out?If the owner is in a hurry, he or she will probably be more open to bargaining. If you have cash, it also means you may be favoured over another buyer.
- Who set the price on this property?The owner may have set the price themselves, which may be unrealistic and outside market value. The agent may disagree with the asking price and be prepared to help with negotiations.
- How much do you think the property will sell for?This may give you an idea of the disparity between the asking price and the genuine market price.
- What else do you have at this price? And what else is in the market right now?This lets the agent know you are not committed to the property.
- What comes with the property?Try and pin down as many things as possible: carpets, curtains, light fittings, kitchen and bathroom fittings, beautiful features like stained glass windows that the vendors might want to take with them. Unusual plants, ride-on-mowers, sheds, custom-fit dishwashers, ovens, microwaves, fridges, etc.
- If you are using a buyers’ agent, make sure that the property is not being sold by the same agent or agency. This is called dual-listing and represents a conflict of interest.
- Ask them straight out if there are any problems with the property.By doing this, you can avoid the expense of pulling out after building inspections, etc. Make it clear that if you proceed and problems emerge, you will quit the deal and go to another agent.
- Will the home be in the same condition when I take ownership?Be sure to schedule a walk-through inspection prior to closing.
Buying a house: what to look for outside the house
When buying a home, it is extremely important to take stock of “externals”.
The inside of a house reflects a person’s taste and can usually be easily modified, but the outside of a house is less controllable. Neighbours, the community, council restrictions and structural issues usually fall into the externals category and can be a source of great angst and expense.
Consider the following when assessing the neighbours and community:
- Drive around the area to see if there are any surprises, like factories.
- Determine whether it is close to public transport, hospitals, parks, childcare, recreation centres or commercial premises
- Ask the vendor whether the neighbours from hell live next door and if so, why don’t they get along? It may be that the problem is not a problem for you. Vendors must tell you if they have had disputes with their neighbours.
- Are there barking dogs or crowing roosters next door or over the road?
- Do noisy hooligans live next door?
- Is there much traffic?
- Is there a school near to the house? This can be good, but if you are too close, you may find yourself competing for car space outside your house, not to mention the noise.
- For people looking for five-acre blocks, look for roosters, barking dogs and trail bikes for kids. These can drive you mad if you think you are going to have peace and quiet in a semi-rural setting.
- If you are buying near the bush, assess the fire implications.
- Check there are no big holes, hidden mineshafts, etc, or any other undesirable features in the landscape.
- Is the house near a giant power pole? This will usually affect the resale value and may affect your health.
- Ditto for factories belching smoke or pollution into local water supplies or major traffic arteries that also create pollution.
- Spend a couple of hours in the car checking out the locality. Is it your kind of neighbourhood? If you like trees, are there lots of trees? If you have children, are there other children? Do you like to eat out?
Having sussed out the neighbourhood, the next thing to assess is the grounds and gardens. A few things to keep in mind include:
- Garden maintenance. If you want a low-maintenance yard and dislike leaf litter, choose appropriately. It is very difficult to gain council approval to chop down trees or lop branches.
- Are their trees in your neighbour’s garden that overhangs your yard? If you do not like the trees, it could be a subject of dispute.
- If you don’t like trees and leaves, examine the street. Big trees drop leaves that blow well beyond the boundaries of their houses and are clearly visible. They usually are protected by council.
- Does the yard require clearing? This could cost $1000.
- Check the fences and gates. The cost of a new fence is usually shared with the neighbour and usually costs at least $1000. If the existing fence is not compliant with council regulations and your neighbour wishes it to be fixed, you must comply.
- If the house runs on septic, have the tank checked.
- Are the decking and verandas stable?
- Is the clothesline in a convenient place that catches the sun?
- If there is a swimming pool, check the pumps and its general condition.
- Make sure the yard is well drained, particularly if you are located at the bottom of a hill. Living in a swamp is no fun.
- Check the condition of sheds and pergolas.
Last but not least in your inventory of externals is the house itself. Problems here can prove extremely costly so make sure you tick off the following:
- Are the roof tiles slipping or is the roof sagging? New rooves cost tens of thousands of dollars. Sagging rooves could reflect more serious problems like subsidence or structural issues. Visit the house on a rainy day to check for leaks.
- Look for asbestos. Removing asbestos from your own property is not illegal, but the safest option is to call in the experts and this is expensive. Asbestos can appear in fences, garden sheds and houses. It can be either flat or corrugated sheeting. It was used in water or flue pipes, roof shingles, building boards, imitation brick cladding, plaster patching compounds, textured paint, vinyl floor tiles and the backing of linoleum floor coverings.
- Check any areas where the wood touches the ground to make sure that termites haven’t accessed the structure of the house. On areas where there are bricks between the soil and wood, check for termite paths. Termites can destroy a house and this is rarely covered by insurance.
- Look under the house. Are there are underground streams or general damp? This can be very expensive.
- Examine the orientation of the house. Poor positioning can make it over-hot or cold, which will cost money to regulate. There might also be problems with privacy.
- Check any external plumbing (pipes often runs under houses and along walls) for leaks.
- Are the gutters rusted or leaking, sawed off, and attached to proper drainage?
- Does the house need any external painting? A good paint job can run into the tens of thousands of dollars, particularly for two-storey houses. Ask the vendor when the house was last painted. A paint job usually lasts about 10 years if done properly.
- Does the driveway comply with council regulations? Check that it is in good order.
- Check garage doors and fuse boxes.
- Make sure that any recent additions to the house have council approval.
- Does the house look straight?
- Check the positioning and condition of television antennas. Turn on a TV to check the signal.
Buying a house: what to look for inside the house
Buying a home can be a bit like buying a carton of eggs. You never know what you’re going to find when you look inside — bits might be missing, cracked, old, broken or rotten. So you have to check carefully to make sure you are getting what you pay for.
First-home buyers usually visit a few properties before making a final decision and this can be a test for the memory, so take a digital camera and a pen and paper. Take photos and notes about the features, colors and negative and positive points of each residence. Then, when reviewing the properties in the comfort of your home, tick them off against your wish-list.
There are some tried and tested things you should check for on the inside of the house. Mainly you want to identify anything that might be an extra cost, ranging from minor replacements to serious structural work.
Here are a few nasty surprises to keep an eye out for:
- Turn the taps on in the kitchen, bathroom and laundry to check the water pressure, performance and drainage. Check for dirty water. You might like to leave the tap running for a minute and it can’t hurt to drink the water for a taste test.
- Check the hot water system. Is it big enough for your needs? A family will need more hot water than a couple. Also check for leaks, rust and age. Replacing a busted hot water system can be expensive and is not the sort of thing you can put off. If it is gas, check for the system’s last servicing.
- Good insulation can save hundreds on heating and cooling bills. A quick visit through the manhole should give you some idea of its condition. Also check for cavity wall insulation.
- Are there major cracks in the walls or do the doors stick? This can be a sign of subsidence. This can be an extremely expensive problem to fix and is usually not covered by house insurance.
- Be extra cautious if the house has been recently painted as it could be masking serious problems.
- Take a torch to shine on the paintwork in dimly lit rooms to see if there are any obvious structural defects that are not clearly visible in the dark or have been painted over.
- Check for damp. Feel the walls and look for signs of peeling or bubbling paint. Watermarks are a dead giveaway, as is mould. Fixing damp can sometimes run well into the tens of thousands of dollars. If freshly painted, rely on your sense of smell.
- Bathrooms often have mould. Mould can’t just be painted over. A serious problem will usually involve installing a new ceiling/wall and better ventilation.
- Check all the windows. Do they open and slide easily? Do they have cracking paint? This could be a sign of rot. Press your finger into the wood. If it’s soft, it is rotten.
- Tap the walls to do a preliminary termite check. You can get instruments which measure humidity behind the walls as this is often a sign of infestation. Termites are not usually covered by house insurance so make sure you also get a professional in if you decide to buy the house.
- Good storage, like built-ins and sheds, can save you over time whereas a lack of storage is bound to cost.
- Are there any unusually shaped, difficult to furnish rooms?
- Make sure there are sufficient power points and that they are at your preferred height and position in the room. New points will cost money.
- Check for Internet access.
- Check that the toilet is on the same level as the bedrooms for easy access. If it is a two-storey house, it is nice to have a toilet on both levels.
- Check the location of bedrooms. Parents often want children to be on the same level as them.
- Do you like the wall colors? Repainting can be expensive if you employ a professional. However, if you don’t mind painting yourself, try to look past the psychedelic paint job, as it can be a relatively inexpensive project that can add value to your home.
- Old-fashioned electricity switches can point to old wiring.
- Visit the house on a rainy day to check for leaky rooves, walls or ceilings.
- Are there cracked tiles or loose grout in the bathroom or kitchen?
- Check for fly and mosquito screens. In summer, these will be a must and are likely to cost up to $1000.
- If you intend renovating, check to see if there are floorboards under old carpets, and their condition. People sometimes do insane, cheap things like staple the carpet to the floor and use industrial glue for their tiles. Both these things will add significant expense and time to floor polishing costs. Carpet should be easy to raise without many rusted nails or staples.
- Kitchens and bathrooms are the most expensive rooms in the house to renovate so pay close attention to the age and quality of cupboards, benches, plumbing fittings and tiling.
- In old houses in particular, check for holes in floorboards and cracks and fissures that let in vermin and cockroaches.
- Measure spaces in kitchens and laundries to make sure your appliances such as refrigerators, washing machines, dishwashers and microwaves fit. Failure to fit could cost a couple of thousand dollars in replacements.
- Make sure your furniture fits in the rooms.
- Check for the materials used in cupboards and benches. Good materials will last a lot longer.
- Check out the floor coverings. Will they need to be replaced and if so, when?
- Does the house have central heating or air conditioning? If so, how old are they? Check to make sure they are functioning well.