For most Australians, purchasing real estate isone of the most significant financial investments they will ever make. Because buying real estate typically involves large sums of money, it is important to understand all aspects associated with the process, including the various legal, financial, and bureaucratic issues.
This article will take you through the most important aspects of buying real estate, from performing a title search to choosing a realtor and calculating the additional costs associated with your purchase.
It will help to make the process of purchasing real estate much simpler and much safer!
Work with a realtor that you trust
Many buyers have been negatively impacted by working with real estate agents who have not been completely honest and forthright. It is important to find a realtor who is experienced, professional, and most importantly, trustworthy.
Find an agent who has an excellent reputation and is willing to put your best interests first.
Talk to friends and family about the real estate agents they have dealt with and read online reviews of real estate agencies to locate a trustworthy agent. Having the right agent will help you locate properties that are perfect for your requirements and make the entire process much easier.
Perform extensive research on the available locations
As the old saying goes, the three most important aspects of buying real estate are location, location, location! It is crucial that you perform research into the locations where you are considering a purchase.
This is where having a skilled and highly professional real estate agent to work with comes in handy — they will be able to provide you with useful background information on different locations.
Create a shortlist of properties you are interested in
Once you know where you are interested in purchasing and how much money you are willing to spend, begin looking for suitable properties.
Have a pragmatic and hard-nosed approach to choosing the properties you want to inspect. Look for properties that are well located and have the attributes you are looking for (the right number bathrooms, bedrooms, the right size block, and so on).
If you are going to be living in the home for a few years, select a property that has the size required for a growing family.
Some of the considerations to keep in mind when performing location research include:
- Potential for growth in the value of properties in the area
- The sales history of properties in the neighbourhood
- The kinds of community services and infrastructure that are nearby
- Crime rates
- The availability of medical services
- Proximity to public transport and other infrastructure
- Proximity to your workplace, shopping centres, parks, cinemas, daycare centres, schools and so on
- Is it a rapidly growing area with new homes being constructed?
- The condition and value of the other houses in the neighbourhood
- The estimated rental return (if it is an investment property)
Of course, the factors that are important to you will vary if the property is an investment or a primary residence.
Sort your finances early on and set a reasonable spending limit
Another golden rule for purchasing real estate is to only buy property that you know you can afford. Have a meeting with your financial advisor or mortgage broker to develop a realistic price limit for your purchase. This limit will be based upon your current financial situation, your employment status, and any potential financial or lifestyle changes in the near future.
If you are married and considering having a child in the future, consider how this will affect your financial situation and capacity to repay your mortgage. Remember that interest rates are guaranteed to change at some point, which may affect the affordability of your mortgage.
After you have decided how much are willing borrow, meet with your mortgage broker or a bank to obtain pre-approval for the loan. Avoid the temptation to overspend, even if the bank is willing to loan you more money than you have requested.
Be fully aware of the additional costs associated with purchasing a property
There are many additional costs associated with purchasing property. Make sure you include the following expenses in any calculations:
- Home loan application fees
- Stamp duty
- Lenders mortgage insurance
- Mortgage registration fees
- Legal fees
- Building inspections, surveying reports and pest inspections
- The cost of moving house
- Council rates
Ask the real estate agent detailed questions about the property
Discuss each property with the real estate agent and ask some important questions including:
- Why is the vendor selling?
- Do you have a recent sale report for the area?
- How long has the property been listed for sale?
- What was the original asking price for the property?
- Are there any issues with the property or the neighbours?
- Are the sellers willing to negotiate on price?
- What is the lowest price they are willing to accept?
- Are the homes fixtures included in the sale price (fans, air conditioners, solar panel systems and so on)?
- Are there any special terms of sale affecting the property (extended settlement date, rental arrangements)?
If you find any of their answers unsatisfactory, investigate the property further or look for better options.
Obtain a copy of the contract of sale from the real estate agent
There are several documents involved in the conveyancing process, with the Contract of Sale being the most important of these documents. It sets out the conditions of the sale between the seller and the buyer.
The real estate agent managing the sale should be able to provide you with a copy of this document. You need to obtain a copy of this document at an early stage so you can check it for any irregularities or issues with the sale.
It is usually best to obtain a conveyancer or solicitor to examine the Contract of Sale and help you understand what it says. Some of the aspects that will be outlined in this document include:
- The property’s address
- The names of the vendor and purchaser
- The conditions of sale, including financial aspects, the repair of certain parts of the property or any additional building inspections
- The total sale price of the property and the deposit that must be paid
- Additional items being included in the sale
- The contract of sale’s settlement date
It is important to remember that the Contract of Sale is flexible. When you make an offer you can return this document with any alterations or additions that you require. Once you have signed the contract of sale, it becomes an enforceable legal document. It is up to the seller to accept or reject the offer outlined in the contract.
You should only sign this document after you have performed the necessary property inspections and property searches — including a title search.
Perform a title search on the property
Performing a title search on the property is one of the most crucial aspects of purchasing a property. A title search checks that the property does in fact belong to the person selling it. It is a check that should be performed well before you sign the Contract of Sale. Some of the information uncovered by a title search includes:
- If the address of the property is correct and is the property you are inspecting
- It will confirm that the seller actually owns the property
- It reveals any encumbrances that affect the property — for example there may be easements or roads on the property that are used by local councils or utility companies.
- Any mortgages or tax debts that are associated with the property
Perform other property searches
After performing a title search on the property, perform the following searches:
- Registered plan search
This will allow you to check the official plan of the property, showing its boundaries. Compare this to the surveyor’s report, if you had one performed.
- Bankruptcy search
A Bankruptcy search will check the if the seller of the property is bankrupt and has no legal rights to sell the property.
- Land tax search
This search will determine if there are any unpaid taxes affecting the property, including capital gains tax, GST, and stamp duty. As strange as it sounds, you could inherit those taxes if you purchase a property that has a liability.
- Body corporate records search
If you are purchasing a property with body corporate, you should check the last few months of notes from AGM meetings. This will help you understand the financial status of the body corporate and any serious issues that may affect your property.
- Council development search
Search for council-approved developments in the area surrounding your property. This is done to ensure a large block of units, busy road or noisy business haven’t been approved for construction next to your property. You should also perform a local authority search to check if there are any outstanding rate payments due on the property.
- Contaminated land search
Each state government runs a registry that lists land that has been contaminated by toxic chemicals. Check this registry to ensure the soil on your property is safe.
Put your offer in writing
After you have performed all of the property searches and inspections, you can go ahead and make an offer. Put your offer in writing and outline any changes to the contract of sale that will be necessary. It is always best to have a solicitor or conveyancer review any documents that you sign.
They will help you understand the paperwork and ensure the entire process goes smoothly!