Buyer’s Guide

What to do first?

Consult a conveyancer. The conveyancer will:

• Advise on possible exposure to surcharge Stamp Duty and annual Land Tax
• Give an estimate of stamp duty
• Advise on payment of deposit – by cash or deposit bond
• Explain the importance of an initial contract review
• Discuss appropriate reports to obtain (building, strata etc)
• Address any other queries the buyer may have

The Contract

It is recommended that the contract be reviewed by a conveyancer before making any firm commitment to buying. This review would normally include:

• A written review highlighting the most salient points of the contract and providing recommendations for contract changes.
• Discussing any queries or concerns a buyer may have about the contract.
• Negotiating contract changes with the seller’s representative.
• Guiding the buyer through the pre-purchase process and ensuring he/she is ready to make an offer or bid at auction.
• Arranging Building/Pest/Strata reports if required.

Exchange of Contracts

Contracts are signed by all parties and when the seller and buyer have both agreed on a price and the conditions of the sale. The contracts are exchanged and dated and the deposit paid by the buyer.

Contracts are drawn up in duplicate,. One copy is signed by the seller and the other by the buyer. The exchange of contracts is the exchanging of copies so that each party ends up holding the copy signed by the other party.
The contract can be exchanged in one of two ways:

By the Estate Agent

In this case the contracts are signed and exchanged shortly after the sale price has been agreed to. The agent will send the appropriate copy of the contract to the party’s conveyancer . The buyer may have a 5 business day cooling off period (unless it is waived) in which to get any reports, finance approval and have the contract explained by their conveyancer. Often the period of the cooling-off period is extended – by agreement – to 10 business days. The seller does not have the benefit of the cooling off period.

The process is the same if the property is sold at public auction or on the same day as the property was submitted for sale by auction and passed in – except that there is no cooling off period.

By the Conveyancers

In this case, it would be normal for the buyer to have all reports done, financial approval and the contract explained by their conveyancer before the contracts are exchanged. It is usual practice for the buyer to waive their cooling off rights so that the contract is binding on both parties as and from the date of the exchange taking place.

Until such time as the contracts are exchanged, either party can withdraw from the transaction, it is only once contracts are exchanged that the parties are bound to proceed, and in the case of the buyer having a cooling off period the buyer is not bound until the cooling off period expires.

The Cooling Off Period

Every contract for the sale of residential property (less than 2.5 hectares) has a cooling off period of five business days (the cooling off period ends at 5:00pm on the fifth business day). This means that after entering into the contract the buyer has five business days in which to “cool off”. The seller is locked into the contract and cannot withdraw from the sale. If the buyer, for any reason, does not want to proceed with the purchase, they can rescind the contract within the five day period. If the buyer does rescind the contract they forfeit to the seller 0.25% of the sale price. The contract is then at an end and neither party has any further claim against the other.

The buyer can waive the cooling off period by having the contract explained by a conveyancer or solicitor and a certificate signed by that conveyancer or solicitor and the certificate handed to the seller’s conveyancer. The certificate is commonly called a “Section 66W certificate”.

The cooling off period can be shortened by the use of the s66W certificate whereby it will be stated that the buyer has agreed to shorten the period to whatever number of days has been agreed.

Stamp Duty

Stamp Duty is payable within 90 days of exchange of contracts. More often than not, settlement is completed within the 90 day period – in which case it is paid at settlement.However, if settlement is more than 90 days then the buyer will need to make arrangements for this stamp duty to be available.
Stamp Duty calculators are available HERE.

Title Insurance

Some property issues which are unknown or cannot be investigated at the time of purchase can arise following settlement. Typically, these issues may not become apparent until many years after the purchase.

These types of issues can include:

• Illegal building works or alterations
• Non-compliance with development laws
• Boundary discrepancies such as encroachments
• Fraud, forgery & identity theft
• Proposals/interests claimed by third parties
• Unregistered easements

Title Insurance is a specialised type of insurance available to buyers and it effectively manages the risks inherent in purchasing a property. A buyer will need to disclosure any matter known to him/her that may influence the insurer’s decision to insure.

For a one-time premium, paid at settlement, a buyer has protection throughout their ownership.

Title Insurance can be obtained after exchange of contracts.

Policy details & premiums are available at www.stewartau.com.

Building Insurance

In New South Wales, all buildings on the property are at the seller’s risk until settlement – unless the buyer takes possession before settlement. The seller is obliged to maintain the property in substantially the same condition as it was at exchange of contracts.

If the buildings are substantially damaged ,the buyer is not bound by the contract to proceed with the purchase. If the damage is minor, a buyer may proceed with the purchase after negotiating the price down to cover the cost of repairs.

The buyer should take out building insurance effective from the date of settlement (or possession if this has been agreed). The buyer’s lender will require that it is noted on the policy as an “interested party” – and then provided with the certificate of insurance.

There is no need for a buyer to take out building insurance for a strata property. This is covered by a policy taken out by the Owners Corporation.

Sold with Vacant Possession but Tenant in Possession

A tenant is not bound to move out of the property until the term of the lease has expired and a notice to vacate has been served.

If selling a property that is tenanted, the seller should be sure that the term of the lease will expire before the settlement is due.

The seller must give 30 days’ notice to vacate to the tenant, immediately contracts are exchanged. The buyer’s conveyancer should verify that the notice has been served.

Council, Water Rates, Land Tax & Strata Levies

Council Rates

The Contract provides that council rates be adjusted between the seller and buyer as at the settlement date.

Council rates are levied for the financial year. They will be adjusted so that the seller pays the rates up until the day of settlement and the buyer will be liable from then until the end of the rating period, in this case, the 30 June. They are adjusted as if the rates are paid in full regardless of whether they are in fact paid or not. Any outstanding rates are paid by the seller from its sale proceeds.

Council rates may be paid by instalments but are an annual levy. It is normal practice to adjust the rates for the next full year not according to what instalment may be due next.

Water Rates

In some country areas, the water rates are paid to council and may be incorporated within the council rates. In other areas where a separate water authority supplies the water and or sewer service an adjustment of these rates must also be made at settlement.

Water rates are usually quarterly (in some areas, 4 monthly) and the adjustment made will only be for the current period. The same principles apply to water rates as they do for council rates.

A water usage charge may have to be paid by the seller. To assess whether a charge is payable or not can be done in one of two ways.

• A meter reading can be organised, this will cost whoever organises it whatever the authority charges for a meter reading.
• An estimate can be done, by using the last quarter’s water usage charge.

It is usual to use the estimate system to calculate the usage charge because, quite often, the cost of having the meter read is more than the charge itself. The seller makes an allowance to the buyer for the usage charge. When the actual bill for water usage is received the whole bill becomes the buyer’s responsibility.

Land Tax

Land Tax is not payable for a property occupied as a principal place of residence by the owner(s). If, however Land Tax is payable (and it can be many thousands of dollars) then it may or may not be adjusted with the buyer – depending on how it is dealt with in the contract.

Irrespective, a seller is legally obligated to provide to the buyer a certificate from Revenue NSW to the effect that Land Tax is either payable or not for the property.

Strata Levies – Unit, Townhouse, Villa

The quarterly strata levy will need to be adjusted. The levy is adjusted in the same manner as council rates except that they are adjusted on the quarterly levy. The quarter for strata levies may begin at any time.

There may also be special levies to take into consideration. A special levy is struck when there are not enough funds held by the owners corporation to cover a special job needs to be carried out, and there are not enough funds held to cover the cost of the job.

Normally a special levy struck before the date of the contract has to be paid in full by the seller. Sometimes the special levy may be paid by instalments. Unless otherwise agreed in the contract, all instalments must be paid by the seller. If however, a special levy is struck after the date of the contract, then that levy is paid by the buyer.

Retention for Capital Gains Tax

The Federal Government now requires that all persons selling a property in excess of $750,000.00 (no minimum selling price from 1st January 2025) obtain from the Australian Taxation Office a certificate stating that a buyer is not obliged to retain any of the purchase moneys and remit to the ATO.

If such a certificate is not provided to a buyer then the buyer must then retain an amount of 12.5% (increasing to 15% from 1st January 2025) and remit this to the ATO.

If no such certificate is provided to the buyer – and the buyer neglects to retain those funds – then the buyer is liable for the full amount which should have been retained.

Settlement

If the property is sold with vacant possession, then the seller will need to vacate the premises by the time of settlement. The property should be left in a clean and tidy condition, and all possessions moved from the property.

A buyer is entitled to inspect the property in the 3 days before settlement to verify that the property is still in substantially the same condition as it was at exchange of contracts

If the buyer is selling and buying simultaneously, he/she may have already left the sale property and be enroute to the property being purchased. If this is the case, the buyer should be available in case something goes wrong in either settlement.

Sold with an Existing Tenant

If there is a tenant in the property who is staying after settlement, an adjustment of the rents will be made at settlement

If the rent is paid in advance, then you will make an allowance in the settlement figures to credit the new owner with that part of the rent that applies after the settlement date. If the rents are in arrears no adjustment in your favour is made as the new owner is not expected to take over a debt that is owed to you.

Quite often, the managing agent may be holding rent in trust as they may collect rent weekly but account to the owner monthly. If this is the case, the adjustment of rent will be made by the managing agent. Your conveyancer will determine how and what adjustments are to be made.

After Settlement

The change of ownership details will be notified to Council, Water authority and Valuer General when documents are lodged for registration at the Land Titles Office immediately after settlement. The strata manager is notified by the conveyancer. Sometimes the seller will continue to receive assessment notices for the property. A buyer cannot assume that these will be passed on. If the buyer has not received rates notices 3-4 months after completion then he/she should contact the appropriate authority to ensure that they are noted as the new owner

WRITTEN by Paul Denny

Paul denny has over 45 years conveyancing experience and has assisted over 30,000 clients with their property transactions.

Contact us today on 02 48 111 554 or email info@bowralconveyancing.com.au to discuss how we can assist you with your conveyancing needs