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What to do after choosing your property off-the-plan |
So you’ve found an investment property, researched the location, quality of design and floor plans, and it’s time to make the next move – purchase!But what happens next? All-too-often the buying process can seem nerve-racking — a daunting and off-putting exercise for just about anyone. The good news is that it doesn’t have to be. The even better news is that it’s much simpler than you’d think — especially with the assistance of Which Property? We’ve prepared this step-by-step guide that explains the process because it’s always easier when you know what to expect. Our goal is to limit any confusion you may have when purchasing off-the-plan, before signing the contract. Step 1: Instruction to proceedNow you’ve selected your property, the first step you need to take is the completion of an Instruction to Proceed (ITP) Form. This is simply a form that indicates your intention to purchase the property — it means that you are ready to proceed to the next stage of the process. This ITP is also sometimes referred to as an Expression of Interest or Reservation Agreement. These forms serve the same purpose — to assist in the preparation of the contract documentation. The ITP is not a legally binding document, but a signal of good faith between the seller and buyer who are indicating their desire to proceed with the preparation and signing of the contract. As with all real estate transactions, including off-the-plan purchases, time is of the essence and only contracts signed by all parties are legally binding. Step 2: Initial holding depositOnce you have completed and signed the ITP, the seller (developer) will require an initial holding deposit. This amount will vary but generally speaking it is often $1,000 or $2000. However, some sellers may require a larger initial holding deposit. When your ITP and initial holding deposit have been received, the property will be removed from the market by the seller. This means that the property you have selected has now been reserved for you while the contract is being prepared. If for any reason prior to signing the contract and the transfer of the full deposit, you are unable to or do not wish to proceed with the purchase of the property, your initial holding deposit will be fully refunded. Step 3: The contractThe contract is prepared and sent to you — or your solicitor, depending on who has been nominated on your ITP. If you have nominated your solicitor to receive the contract first, they will examine the documentation on your behalf to ensure it's accurate. Your solicitor will usually provide you with a summary review of the contract, bringing specific dates or requirements to your attention prior to signing. The contract documents that will be sent to you or your solicitor include: Two copies of the Contract, a PAMD 30c form; warning statement, and a BCCM version 14; body corporate management statement. Two copies of the Disclosure: The disclosure document for an off-the-plan purchase is the seller’s disclosure to you, the buyer of the property, both prior to the development and following construction. Essentially, this document ties the land and the potential construction together to create the final property at settlement. The document therefore includes building development and all relevant plans including site plans and floor plans, the community management statement, body corporate fees and lot entitlements. Two copies of the PAMD 27c: The PAMD 27c is the selling agent’s disclosure to you, the buyer. The purpose is to make you aware of relationships that the selling agent has, and of benefits that your selling agent, and other people, will effectively gain or benefit from the sale. Two copies of the Buyer’s Acknowledgement: This one page form outlines the documents which were issued to you for signing. This may be signed by you or by your solicitor. Please note these are all legal documents which your solicitor will explain to you in detail. They are for your protection, as well as the seller's. Step 4: Solicitor reviews contractWhen your solicitor is satisfied with the contract, they will make arrangements with you either to come into their office or send the contract to you for execution. Step 5: Purchaser signs contractOnce you are comfortable with the contents of all documents you must sign the contract where indicated, and return them to your solicitor promptly — generally within seven days. Remember time is of the essence and you have not legally secured the property until the contract is signed by all parties. Even at this stage the seller is quite entitled to sell the property to someone else if they feel you are taking an unnecessary amount of time to complete the contract without providing a reasonable explanation for the delay. If however, there are any details in the contract that you still do not understand or if you feel any of the information is incorrect, you need to discuss these issues with your solicitor immediately. Step 6: Seller signs contractOnce you have signed the contract your solicitor will then forward them onto the seller, or the seller’s solicitor, for contract signing, the execution of the contract. Up until this time the contract is not legally binding. It is only when the seller signs and dates the contract, the contract date, that the contract is live and binding. Please note it is only the last person who signs the contract who can apply the date to the contract. Of course, even after everyone who needs to sign the contract has actually signed, the contract is still conditional on the purchaser and seller completing their obligations under whatever specific terms and conditions are included in the contract. Step 7: Cooling-off periodIn Queensland all purchasers of real estate have a cooling-off period of five days after the actual contract date. During this time you can decide for any reason whatsoever not to proceed with the contract. Other States have varying legislation regarding real estate contracts. At the expiry of this five day cooling-off period, the contract will still be conditional upon both the buyer and seller meeting any contract obligations included in the contract documents. Step 8: Pay balance of depositSellers usually require purchasers of off-the-plan to pay a full 10% of the purchase price as a deposit. The balance of the 10% deposit; that is, 10% of the purchase price less the initial holding deposit, is generally required within 14 days of the contract date. So, what would happen to your deposit if the seller were unable to deliver a finished or completed product? Many mistakenly believe that the seller actually keeps the deposit monies to use during construction. This is not the case — all deposit monies are held in trust for the purchaser in a solicitors’ trust account. If for any reason the seller cannot complete the contract by delivering the property then all cash deposits are refunded in full to the purchasers. Of course, the charges you pay for deposit bonds or bank guarantees cannot be refunded. Step 9: Unconditional contractAfter the seller has received the full deposit and all other conditions of the contract have been satisfied or met, the Contract of Sale will become unconditional. Once this occurs, there is now a legally binding document in place and all parties, buyer and seller, will be legally bound by the contract. In the event that a purchaser in this instance decided that they didn’t want to proceed with the purchase, the seller has every right to claim the purchaser's deposit and any other costs they may have incurred. Notwithstanding this, most sellers will allow a purchaser to exit the contract without penalty if there is a genuine reason — such as the death of a party to the contract. Step 10: FinanceWhen buying off-the-plan it is important to understand that banks will only provide approval in principle for finance. Generally, settlement of the property is too far in the future to approve a loan. Some banks will even pre-approve your finance for 12 months, but still require an update of your information prior to lending you the money and settling the property. For this reason many off-the-plan contracts are not subject to finance. Putting this aside, you should still speak to your bank or finance broker before signing a contract to determine if your current financial situation would allow you to purchase a property. If you believe your situation at the time of settlement will be the same or improved, it is then appropriate for you to proceed with the contract. Once the contract is signed we encourage you to stay in regular contact with your financier throughout the contract period. At minimum, you must be in close contact with your financier at least two to three months prior to the expected date of settlement. As the property nears completion you will be advised of the official settlement date and need to organise your financial arrangements in readiness for settlement. During this process the bank will most likely order a valuation on the property you are purchasing. Generally banks will lend up to 90% of the property valuation if you pay for lenders mortgage insurance. If you are borrowing 80% or less of the value of the property or if you are providing additional security to the bank, for example another property, and the total borrowings on the combined security (the two properties) are 80% or less, then lenders mortgage insurance won't apply. Once you have secured finance for the property you are ready to settle. Step 11: SettlementThere are two phases to settlement when purchasing off-the-plan. The first phase occurs upon practical completion. This triggers the issue of Certificates of Classification, which indicates that the building can be legally occupied. The second phase occurs when the titles are registered. This leads to settlement, which usually occurs 14 days later. As you may have noticed, there are two major differences when purchasing a property off-the-plan. The first is in the contract details. A contract for purchasing off-the-plan will be much more detailed given that construction may not have commenced, or may have only just begun. In this case, the contract will include everything from proposed body corporate assets and expenses to an outline and schedule of finishes for each property. The second difference is in the settlement phase. While settlement for an existing property generally occurs 30 days from the contract date, purchasing off-the-plan allows more time (approximately 12 to 18 months or more) between contract date and settlement. At Which Property? we pride ourselves on providing the highest level of customer service throughout this process. Our buyers are kept informed every step of the way with regular Purchaser Updates that provide the development status as well as details required to keep in mind for settlement. The process doesn’t need to be complicated, and with the assistance of Which Property? purchasing off-the-plan can be relatively stress free. In conclusion We hope this step-by-step guide has helped to demystify the buying process. |