What happens after you sign the contract?
Signing a contract means that your offer is accepted by the vendor. As soon as the contract is signed by the vendor, the contract is said to be exchanged and this is the official date for your property purchase transaction.
Depending on which state do you live in, we have different property conveyancing laws. If you are in NSW, for example, you leave a 0.25% deposit while signing the contract and you will generally have 5 days of cooling off period. During the cooling off period, the following things happen:
Formal approval of finance
You might have pre-approval in place already. It is now time to convert this into the full approval. Your lender or mortgage broker can help you in the process. The lenders organize the bank valuation to see whether the purchase price is supported under the current market environment. The valuation report will also provide some risk information to the lender and overall acceptability of the property as security.
Depending on your choice of lender and deposit size, some banks require access to the property to conduct a full valuation, and some can just do the report by kerbside inspection or even from the desktop valuation. When a licensed real estate agent is involved in sales, some lenders don't even require the valuation as they can rely on the contract price if the transaction meets their strict conditions.
If the property valuation comes as per the purchase price and the lender accepts the security, then you need to meet rest of the conditions that were advised when pre-approval was issued. This could include, for example, reduction of credit card limit, evidence of funds to complete, closure of car loan, etc. If there have been adverse changes in your circumstances or certain account conducts that lenders don't like since pre-approval was granted, they may refuse your application at this stage. Please make sure that your position and account conduct remain satisfactory even after you obtain pre-approval.
No matter how experienced you are, the finance world is full of jargons and subject to ongoing changes. It is advisable to discuss with your broker or lender prior to signing the contract.
Building and Pest Inspection
Building and Pest Inspection or Strata inspection report (for an apartment, units, and townhouses):
This is another important task that needs to be carried out during cooling off. Your conveyancer or legal adviser will assist in organizing the inspection for you but you need to pay for the service yourself by providing your credit card details. In most cases, it can cost you up to $300 for strata inspection reports and $500 for building and pest inspection report.
The idea of conducting such inspection is to find any abnormality in the building. Through this report, you need to make sure that:
- there are not any ongoing issues in the building,
- the building is structurally sound,
- building defects are in line with your expectation as the age of the building
- there is no litigation or indication of litigation involved
- administration fund and sinking funds have a good balance
- the building is not infested by any pests
With the help of this report, you can also prioritize the maintenance works should you decide to buy this property. We have seen many instances where purchasers have been able to re-negotiate on the offer price after reviewing the report. Of course, this requires experience and smartness to ask for a further discount so that your demand sounds logical for the vendor to consider. Experienced property professionals do this on a regular basis as a part of their job and it is worthy to engage them in your purchase process as well.
Final mind making from the purchaser
A third important task you need to carry out during cooling off period is making up your mind to proceed further. While we recommend doing as much research as you can prior to signing, we are fully aware that there are circumstances that might require re-thinking. People pull out of the contract for many reasons or even no reason! Some of the potential reasons could be:
- You think you offered too much to the property
- You were too emotional while leaving the deposit
- You found something serious in the neighborhood, which you don't like
- You found some other properties selling at a lot discount such that forfeiting this deposit is still worthy
If everything is good to go, then you may proceed with a further deposit to real estate agent trust account.
If you need further time to finish the above tasks, then you can ask for an extension of cooling off period through your conveyancer. Please make sure that you put this request at a reasonable time frame and explain the selling agent about the updates.
In the unfortunate event of you not proceeding ahead because of one or some of the reasons above, you need to let your conveyancers know as soon as possible. Your conveyancer will then send written notification to the purchaser advising that the contract is being rescinded.