Buying or selling a home

Contributed by Ann-Margaret Walsh and Piercy Porter and current to 1 September 2005

The purchase of a home is often the largest financial transaction that a person enters into during his or her lifetime.

GETTING THE MONEY

First home buyers usually rely on a combination of savings, a loan from a financial institution and the Federal First Home Owners grant to buy their home. Non-first home buyers usually combine the sale proceeds of the existing home with a new loan and/or savings.

The Federal First Home Owner’s Grant ($7,000.00 at the time of publication) is available to buyers who have not previously owned a residential property. Spouses (including de facto) who purchase a property together will not qualify for the grant or any portion of it if one of them has previously owned a residential property. Most financial institutions are authorised to assist first home owners making an application for the grant. If yours is not so authorised, or if you are not taking finance, then you may seek assistance from the Office of State Revenue.

In the last decade the home mortgage market has become both competitive and complex. Borrowers need to do a bit of homework and to shop around. Important variables in loan products include interest rates, establishment costs and “hidden” costs such as administration fees and early discharge penalties. Interest rates can be variable (the lender can change the rate up or down in line with market fluctuations), fixed (the borrower and the lender agree to fix the rate for a certain period of time, usually from one to five years) or a combination of the two (for example, half of the loan is on a variable rate and the other half is fixed).

Home loan mortgages are covered by the Universal Consumer Credit Code which provides minimum standards of protection for borrowers. The code requires a credit provider to use clear and easy to understand language in its documents. Where there are two or more borrowers, in most cases each borrower must be given a separate copy of documents and notices. Credit Providers, as they are called in the Code, are required to truthfully disclose to a borrower all relevant information about the proposed loan in a written contract, including interest rates, fees and commissions. If you lose your job or are sick, you can ask to have your contract changed so that you can better meet your repayments. Credit providers are required to be careful not to make contracts with consumers who would find it difficult to meet their repayments. A court can also order changes to a contract if it is considered unjust.

Home loan mortgages usually consist of two core documents. The mortgage itself sets out the obligations of the mortgagor (usually, but not always the borrower) in relation to the property being used to secure the loan. Those obligations include:

• to insure the property;
• to maintain the property;
• to pay any money due under the loan secured by the property; and
• not to alter any building without consent of the mortgagee.

This document will also define what constitutes a default under either the mortgage or the loan and set out the circumstances in which the mortgagee can exercise its power of sale. The other document is usually described as the loan offer or loan contract. This document sets out the details of the loan such as the principal amount, the interest rate and any special conditions upon which it is granted. You will usually find the disclosures required to be made by the lender under the Universal Consumer Credit Code in this document.

THE REAL ESTATE AGENT

Some sellers of residential real estate sell their property by themselves without employing a real estate agent. Kits to assist sellers are commercially available and normally contain everything from a “For Sale” sign to detailed marketing advice.

Most real estate transactions are, however, handled by real estate agents engaged by the seller. The seller pays the agent’s commission. While the agent is expected to deal fairly with the buyer, buyers should be aware that the agent’s prime duty is to the seller who naturally wants to obtain the best possible price for the property in the shortest amount of time.

All real estate agents, be they companies, partnerships or individuals, must be licensed. So too must be sales representatives in their employ. The Real Estate & Business Agents’ Supervisory Board (REBA) is responsible for the licensing system. If you wish to confirm that an agent or representative is properly licensed you should contact REBA (See end of this chapter for contact details).

Real estate agents’ fees are no longer regulated by law. It is a good idea to shop around before engaging an agent. You should ensure that the quotes you get reveal the total amount you will be charged and not just the commission exclusive of advertising, administration or any other hidden charges. At the same time you request a quote you should request a copy of the agent’s written authority form.

The written authority form is essentially a draft contract between the seller (usually) and the agent where the seller agrees to pay the agent his or her commission and agreed expenses upon the settlement of the sale of the property. The terms and conditions contained in this document are negotiable. They should be read carefully and, if you are not satisfied with something, suggest changes to the agent. You should pay particular attention to the provisions relating to the period of agency and whether you are giving the agent exclusive agency. REBA or a solicitor may be able to advise you if you have problems dealing with a real estate agent.

THE OFFER AND ACCEPTANCE

A buyer who finds a property he or she wants to buy makes an offer by way of a Contract for Sale Of Land by Offer and Acceptance. This is a printed form which is provided to the buyer by the seller or the seller’s agent. The Offer and Acceptance sets out various matters regarding the parties, the price and conditions upon which the offer is made. It also incorporates the 2002 Joint Form of General Conditions for the Sale of Land, a document which is provided to the buyer by the seller’s agent when the Offer and Acceptance is completed and which basically sets out further terms of the contract entered into between the buyer and the seller which do not appear in the Offer and Acceptance. The General Conditions are reviewed and revised every couple of years.

Usually the seller’s agent fills in the relevant sections of the Offer and Acceptance indicating the price and the terms and then it is signed. The buyer should read the document after it has been filled in and before signing it to make sure that it is correct. The agent then presents the offer to the seller, who may accept it by signing it. At that stage there is a contract that may still be subject to any conditions inserted by the buyer.

The main features of the Offer and Acceptance are:

Agent

The offer is made to the seller’s agent and so the name and address of that estate agent is usually inserted at the top of the Offer and Acceptance. The agent will be entitled to a commission, usually under the written authority referred to above. Sometimes, if the agent works in conjunction with another agent, both names will be inserted.

Buyer

This is the person or persons buying the property. If there are two or more buyers each one must be named on the Offer and Acceptance. Failure to properly name and identify the purchasers on the Offer and Acceptance can dramatically increase the amount of stamp duty payable on the document. This is because, in certain circumstances, the Office of State Revenue may view the later addition of parties as a separate and further sale and levy stamp duty upon it as well as the original. If you are in doubt you should seek independent advice on the matter before you sign the offer. The seller’s agent may not know the answers to a buyer’s questions. Advice from a solicitor or the Office of State Revenue would be more appropriate.

There are two ways in which property can be owned by more than one person, and it is by inserting the appropriate words in the Offer and Acceptance that the buyer’s future rights in the property are determined.

First, the property can be put in the name of the buyers as joint tenants. This expression produces a legal arrangement between the buyers such that, in the event of the death of either party, the survivor automatically becomes the sole owner, and a simple document registering the death of the other party results in the survivor obtaining full title to the property. This deprives the deceased party of any right to pass on his or her share in the property to anyone under a will.

Second, the property can be put in the name of the buyers as tenants in common. On the death of one of the tenants there is no right of survivorship, that is, the surviving partner does not automatically become the owner of the property, as the deceased purchaser can bequeath his or her interest in the property to someone else. This type of ownership is an advantage where a number of unassociated people are buying or where unequal amounts are contributed to the purchase of the property. It is possible to describe the varying proportions in which they contribute and in which they will ultimately own the home.

Description of the land

The property should be described in the offer and acceptance by its street address and also by its formal title description.

Purchase price

A buyer will have decided what to offer for the property. The purchase price includes the land, the house, the “fixtures and fittings” and “chattels” listed in the Offer. “Chattels” will normally include curtains and light fittings. “Fixtures and fittings” normally include floor coverings, hot water systems, stoves, pool equipment, dish washers and built-in cupboards.

Manner of payment

The seller normally requires the buyer, as a sign of good faith, to pay an amount up front known as a deposit. It should be noted however, that a deposit is not necessary for the contract to be binding upon both parties. The amount of the deposit, if any, and when it must be paid is a matter for negotiation between the parties. The rest of the purchase price is paid at settlement.

Date of settlement

Settlement is when the balance of the purchase price is handed over in exchange for the certificate of title (see below). Sufficient time should be allowed to permit the necessary papers to be drawn up and finance to be approved. It should also be a date which may allow the seller (or the seller’s tenants) to move out in time to give the buyer vacant possession.

Finance conditions

The buyer may have been told by his or her financial institution that they are eligible for a loan. The financial institution will not normally commit itself until the buyer has actually found a house. Because of this, the buyer, when finding a house, will not have finance confirmed. Therefore the offer is made “subject to finance”. The buyer must indicate the financial institution where it is intended to obtain finance, the amount of finance to be sought and the latest date by which approval for finance is to be obtained. The buyer should read the condition carefully and be aware of the obligations. In particular the buyer must use his or her “best endeavours” to obtain the loan. In other words, a genuine attempt must be made to obtain finance from the nominated lender. This is to prevent the buyer changing his or her mind about the purchase and making no real effort to obtain finance. The buyer must immediately notify, in writing, the seller or the seller’s agent of any approval, non-approval or rejection of the loan application. Basically if finance is not approved by the due date, then so long as the buyer has used his or her best endeavours and notified the seller of non-approval or rejection, the contract is deemed to have come to an end.

Other express conditions

The parties may include any other conditions regarding the purchase on the rear of the offer. The conditions should be read carefully. Some of the more usual conditions include:

• that the contract be subject to a white ant certificate showing that the house is free of termite activity. This condition is particularly popular with older houses. The seller’s agent normally has the appropriate wording for such a condition;
• that the contract be subject to an inspection by a registered builder/engineer to the satisfaction of the purchaser. Again, this is useful if the house is old;
• that the contract be subject to the buyer obtaining necessary approvals for a proposed redevelopment;
• that the contract be subject to buyer selling his or her current house by a certain date.

If the buyer is unable to sell that property within the period, then the contract will not proceed.

General Conditions

The Offer and Acceptance document expressly incorporates the Joint Form of General Conditions for the Sale of Land into the contract. The seller’s agent must provide a copy of the conditions to the buyer upon completion by the purchaser of the Offer and Acceptance. If you wish to view this document before that time you may purchase a copy at larger newsagents and some stationers.

The Joint Form of Conditions is a lengthy and reasonably complicated document which sets out in detail the obligations of the parties pursuant to the contract entered into by them. It is not practical to list all the terms and conditions here. Some of the issues addressed by the Joint Form of Conditions are:

• what happens if there is a delay in settlement and what penalties apply to the party at fault;
• how rates and taxes are to be apportioned between buyer and seller;
• the right of a buyer to inspect the property before settlement;
• the passing of risk from the seller to the buyer;
• what representations and warranties are made by the seller;
• when is the buyer entitled to possession of the property; and
• what happens if one party defaults on its obligations under the contract.

SETTLEMENT

Settlement is where all parties with an interest in the property (including outgoing and incoming mortgagee) meet to exchange the documents and cheques necessary to complete the transaction. The documents are then lodged at the Titles Office which records the change of ownership.

Settlements are usually handled by a solicitor or licensed settlement agent who may act for both parties. Conflicts of interest can and do arise during the settlement process. It is strongly recommended that buyers and sellers appoint independent solicitors or agents. Buyers in particular should appoint a representative who is independent of both the seller and the seller’s real estate agent. It is open to both parties to seek quotes for the settlement work. Neither party is obliged to accept a solicitor or settlement agent recommended by the seller’s agent.

If you are a buyer, your solicitor or settlement agent will peruse the title, advise you of any encumbrances not addressed in the Offer and Acceptance, prepare the transfer document, advise you on any stamp duty concessions available to you, attend to the stamping of the documents, liaise with the financial institution assisting you with the purchase, obtain statements and accounts from the rating authorities, adjust the rates and taxes with the seller’s agent, attend settlement and generally look after your interests until the settlement is completed.

If you are a seller and you have an existing mortgage over the property, your solicitor or settlement agent will make arrangements with your financial institution to attend settlement with a discharge of your mortgage. To ensure there is no delay you should notify your financial institution personally as soon as you accept an offer. Your solicitor or settlement agent will also adjust rates and taxes with the buyer’s agent, attend settlement on your behalf, disburse the sale proceeds according to your instructions and generally look after your interests until the settlement is completed.

A settlement agent cannot give legal advice. He or she must advise you to seek legal advice if a problem arises.

GOVERNMENT CHARGES, TAXES AND DUTIES

The Titles Office charges fees for the registration of documents. The buyer pays the fee on the transfer document and the new mortgage (if any). The seller pays the fee on the discharge of mortgage and any other document(s) needed to remove encumbrances. The Titles Office also charges a fee for providing copies of titles and other documents. Solicitors and settlement agents will itemise these charges in their settlement statement.

The Water Corporation, the local government authority and the Office of State Revenue charge for the supply of information that is required for checking and adjusting rates and taxes. These costs are borne by the buyer and will be itemised in his or her solicitor’s or settlement agent’s settlement statement.

Stamp duty is by far the largest impost on the buyer. A buyer taking out a loan pays stamp duty on the mortgage and duty on the conveyance. A cash purchaser pays stamp duty on the conveyance only.

Provided the money borrowed is borrowed to purchase or erect a dwelling-house a borrower pays stamp duty at the rate of $20 per $1,000 for any amount up to and including $8,000.00 plus $0.25 for each $100.00 or part thereof in excess of $8,000.00. Financial institutions usually provide their borrowers with a form to claim this concessional rate. GST (Goods and Services Tax) does not apply to the sale of existing residential premises. GST may be applicable to new properties. “New” properties include properties that have not been previously sold as residential properties, properties created by substantial renovation of a building and properties built on the site of demolished premises.

How is stamp duty assessed?

The Stamp Duty payable on the conveyance is assessed as a percentage of the purchase price with marginal rates varying from 2% to 5.4%. Sample assessments are:

Purchase Price Stamp Duty

$150,000.00 $4,200.00

$250,000.00 $8,200.00

$500,000.00 $20,700.00

There is a concessional rate available to a buyer of a principal place of residence for $200,000.00 or less. In the case of the $150,000.00 property referred to above, this would reduce the duty to $3,859.00. Certain purchasers who qualify for the First Home Owners Grant also qualify for First Home Owner Rate. In the case of improved property, no duty is payable on properties up to $250,000.00 and a reduced rate applies up to $350,000.00. In the case of vacant land no duty is payable on properties up to $150,000.00 and a reduced rate applies up to $200,000.00.

Stamp duty reckoners and calculators can be found on the Office of State Revenue’s website: www.osr.wa.gov.au. The buyer’s solicitor or settlement agent will provide the form(s) to claim any concession(s).