Buying and selling a property

29 Jan

Written By For Good Digital

A vendor can sell their own property, without engaging an estate agent, by private treaty, but not at a formal auction. Estate agents must be licensed through the BLA (see ‘Contacts’ at the end of this chapter).
The BLA and the Estate Agents Council regulate estate agents’ activities and trust accounts, administer the estate agents’ guarantee fund (which repays clients when estate agents or their staff steal money held in trust) and investigate complaints.
The Real Estate Institute of Victoria (REIV) is the representative body of estate agents practising in Victoria; most agents are members of the REIV.
An estate agent should be formally appointed in writing as the agent for a vendor’s property as this protects both the vendor and the agent. The agent is not entitled to take their commission without a written appointment; however, an agent can market a property without being appointed.
There are three types of appointment:
- ‘general sale authority’: this makes the fees payable only if the agent is the effective cause of the sale;
- ‘exclusive sale authority’: this makes the fees payable if the property is sold by the agent, or by any other person including the vendor, to a person who was introduced to the property during the authority period, or up to 120 days after the end of the period, and who buys as a result of the introduction; and
- ‘exclusive auction authority’: this makes fees payable on the same basis as the exclusive sale authority.
The authority must contain specific information about the agent’s fee, a statement identifying discounts and rebates, etc., and a statement about where complaints about the agent can be made.
The right of the agent to sell under a general and an exclusive sale authority lasts for 60 days and under an exclusive auction authority for 30 days, unless another period is specified in the agreement.
A vendor may also negotiate the fees, advertising costs and terms with the agent.
Vendors can engage multiple agents for the one sale to act for them simultaneously, either as conjunctional agents (so that the agents share the fees) or by giving each agent a general sale authority (which entitles only the selling agent to receive commission).
Most residential properties are sold through exclusive sale authorities as this gives the agent the greatest incentive to earn their fees.
Sale by private treaty or auction?
Vendors need to decide whether to sell by private treaty or by auction. Sale by auction is popular, but a vendor should only choose an auction if they:
- are prepared to pay the extra expenses;
- understand the agent’s authority; and
- are satisfied that it is the best marketing strategy for their property – the estate agent should provide guidance on this.
Advertising expenses
Unless the estate agent’s authority states otherwise, the cost of advertising a property for sale is paid for by the vendor, not the agent.
It is recommended that vendors ask for a detailed list of advertising expenses when selecting an agent to sell their property.
Advertising is generally sold to agents at a discount by websites, newspapers, signboard suppliers and printers. The estate agent’s authority may state that the agent can keep the discounts. A vendor can delete this clause and ask that the discounts be paid to them.
Estate agents’ fees
Fees are stated in the estate agent’s authority. There is no limit on the amount an agent can charge. It is up to the vendor to negotiate a price.
An estate agent’s authority must show:
- the commission and outgoings; and
- if the fee is calculated on a per centage basis, a statement of the fee expressed as a per centage and dollar amount that would be payable on the reserve price or other relevant amount.
The fee can be based on a service or series of services, such as holding open homes, negotiating the contract and collecting the deposit, or it can be a commission on the price.
Vendors should ask for a detailed price list from the agent before signing the estate agent’s authority.
Underquoting
There are underquoting laws that apply to residential properties. Agents must prepare a statement of information for each property they are engaged to sell which must include an indicative selling price, details of the three most comparable properties and the suburb’s median house or unit price. Complaints about underquoting are dealt with by Consumer Affairs Victoria (CAV) (www.consumer.vic.gov.au).
Estate agents
Shop around for an agent. You should consider their costs, competence and experience. You should also conduct thorough negotiations before appointing an agent. Negotiations should cover the type of appointment, commission and advertising costs.
Vendors should not:
- sign a contract of sale that contains terms (including price) you are unhappy with; ask the agent to re-negotiate with the buyer;
- agree to sell the property to the agent, or to anyone employed by the agent, or to a company associated with the agent without first seeking advice about section 55 of the Estate Agents Act 1980 (Vic). These contracts may involve a conflict of interest. You should consider raising your price by the amount of commission or get the agent to forego commission to ensure that the agent is not getting an artificial discount not available to other buyers; or
- sign a contract of sale for a price less than the value of the loans secured on the property (including overdrafts that are indirectly secured) unless you consult your lender and your solicitor or financial adviser first.
Ultimately, selling the property is your decision as the vendor. You must determine whether an offer is acceptable. An agent must pass on all offers to you. If the offer is above the sale price specified in the agent’s appointment and you refuse it, you may be liable to pay the agent’s fee.
Additional expenses
The expenses of conveyancing, adjustments of outgoings (e.g. council and water rates) at settlement, the fee for using an electronic conveyancing platform, stamp duty, the mortgage lodgment fee, registration fees, insurance and other charges can add around six per cent (or more) to the purchase price depending on the duties, insurance and concessions that apply.
Pre-purchase contract review
Before you make an offer to buy a property, send your conveyancer or solicitor the contract to review. They will recommend which special conditions to strike out or add, and any further diligence to do in light of what has been disclosed in the vendor’s statement. It is important to get the contract reviewed before you make an offer as the vendor is less likely to agree to any changes once the contract is signed and you may incur fees to vary the contract.
Most conveyancers and solicitors charge a fee to review a contract. It is important to get a written review rather than verbal so you have a record of what advice was given.
Signing contracts
As a buyer, you should not sign a contract of sale until:
- your conveyancer or solicitor has reviewed the contract of sale and vendor’s statement;
- your lender informs you in writing that finance is pre-approved (unless you include a finance clause, as discussed above);
- you have checked that the boundaries of the land match the title measurements (which are on the registered plan in the vendor’s statement) – check the distance from the land to the street corner (or the ‘connecting point’) shown on the plan, to ensure that the land inspected is the same as the land in the title (note that your ability to object to a title based on minor discrepancies in the dimensions of the land may be restricted under a standard contract);
- you have checked whether you are required to install barriers that comply with Australian standards for any swimming pool or spa on the property;
- you have checked with the local council that the swimming pool or spa has been registered and the fencing is compliant (and the vendor has a compliance certificate);
- you have checked with the local council to ensure that the land can be used in the way you intend;
- you have checked the land for contaminants by engaging an environment consultant, if you are concerned about the potential for contamination resulting from past uses or activities, or you will be using a groundwater bore, or there are signs of potential contamination in the soil, or for any other reason;
- you have checked the area’s planning permits (at www.planningalerts.org.au) and considered if these will affect your amenity or privacy; and
- any conversations you have had with the estate agent about early access to the property, goods coming with the property or other special conditions are written into the contract.
The documents you are required to sign immediately on purchasing the property are the contract of sale and the vendor’s statement. Do not sign any other documents without independent legal advice.
Section 27 statement
At the time the buyer signs the contract of sale, the vendor or their agent may present a section 27 statement asking the buyer to consent to the early release of the buyer’s deposit to the vendor (pursuant to SL Act s 27). This statement contains details of any mortgage or caveats over the property, which allows the buyer to make an informed decision about whether to consent to their deposit being released. Also, where there is a mortgage, the buyer should request a letter from the lender confirming the particulars of the loan (e.g. the total amount owing and whether the borrower is in default).
A section 27 statement can only be served on a buyer once the contract is unconditional, which means a vendor has to wait, for example, for any finance or building and pest inspection clauses to be satisfied or to expire.
In certain circumstances, lawyers consider it safe for the buyer to consent to the vendor receiving the deposit before settlement. Most importantly, the vendor should have sufficient equity in the property to enable the mortgage to be discharged at settlement without relying on the deposit and they should not be in default of their mortgage (and the vendor agrees to not re-mortgage the property). ‘Sufficient equity’ generally means that the total debts owing on the mortgage do not exceed 80 per cent of the purchase price.
If a buyer agrees it is safe for the vendor to get the deposit early, they can sign the section 27 statement. Once this is done, whoever is holding the money in trust is authorised to release the deposit to the vendor (often less real estate agent fees and commission).
If a buyer objects to their deposit being released early (and they need to state a valid reason for the objection), the vendor will not be able to access the deposit until after settlement.
If a buyer neither consents nor objects to the request, the deposit can be released to the vendor 28 days after service of the section 27 statement on the buyer.
If you receive a section 27 statement, seek legal advice before signing it. If the agent gives it to you directly, ask for it to be forwarded to your conveyancer or solicitor for their review.
Inspecting the building
The contract of sale may contain warranties about the quality of the building. The rule is still caveat emptor, meaning ‘let the buyer beware’. However, deliberately misleading statements made by the vendor or their estate agent may give the buyer a right to compensation.
There are two types of pre-purchase inspections:
1. A building inspection involves a building inspector examining the building, inside and out, and noting any issues from major structural faults to minor defects, maintenance issues and safety hazards. Outside, the inspector will look for cracking and rising damp, and will examine drains, gutters, sheds, retaining walls, fences, windows and roofing. Inside, the inspector will look for cracks in the walls, uneven or springy floorboards, leaking ceilings and the quality of the finishes and fittings. Some inspectors will also investigate roof spaces (to check the framing and insulation) and under the floor, but these areas are often excluded as they are difficult to access.
2. A pest inspection looks for evidence of timber pests (e.g. termites).
There are two ways buyers can do a building/pest pre-purchase inspection:
1. If the property is not being sold at auction, buyers can make an offer subject to a satisfactory inspection. The special condition is added to the contract and the buyer is given a set timeframe to organise the inspection. Generally, if the inspection identifies ‘major structural defects’ or a current major pest infestation (which is the normal wording of a building/pest clause), the buyer can terminate the contract and get their deposit back. However, the preferred option for a buyer is to add a condition to the contract that allows a buyer to terminate the contract if an inspection is not to their satisfaction or reveals defects that require work above a certain value to fix.
2. If the property is being sold at auction, your only option is to get the inspections done before the auction.
Buyers can employ a licensed building inspector or an architect to conduct a building inspection – and, if necessary, a licensed pest control operator – to ensure the property is sound before making an offer. The professional fee for a building and pest inspection of an average-sized house is about $500–$700.
Sometimes, a vendor will agree to negotiate a reduction of the contract price due to defects being identified in the building and/or pest inspections, but they are not obligated to do this.
What are chattels?
Chattels or goods are movable items that are not fixed to the property (e.g. a non-integrated dishwasher, washing machine, non-affixed garden shed, a garden statue, television antenna, light fittings, a swimming pool pump and filter and floor rugs). Unless specifically included in the contract, the vendor is entitled to remove chattels.
If a vendor has a particular item they want to leave with the property, or the buyer has a particular item they want included in the sale, it is important that these items are listed in the ‘Goods sold with the land’ section of the contract.
The vendor must give the buyer a vendor’s statement (also called a ‘section 32 statement’) before the buyer makes an offer on the property.
The vendor’s statement is a key document in the sale of a property; the contract is void without it. The vendor’s statement contains information about the land but not about the quality and condition of the buildings or fittings, the conformity of buildings with building regulations, any land wrongly included inside the fences, or any land in the title that is outside the fences.
A buyer should make independent enquiries to verify the information contained in the vendor’s statement and to discover any information not included in the statement.
An omission or error may allow the buyer to avoid the contract of sale without penalty at any time before settlement.
If there is a dispute raised by the buyer, the vendor may challenge the contract avoidance and win if a court is satisfied that the vendor believes they acted honestly and reasonably, and that the buyer is in substantially as good a position as if all the information had been provided.
A well-drafted vendor’s statement contains all the information required by the SL Act (s 32), including:
- a title search (also called a register search statement) and copy of the plan of subdivision;
- warnings about planning controls;
- easements, covenants and similar restrictions (including leases);
- planning information, including proposed amendments to the planning scheme;
- prohibitions in the planning scheme against building a dwelling house, if the land is outside the metropolitan area;
- whether there is road access to the property;
- rates, taxes and outgoings charged on the land, or a statement that the charges do not exceed a specified amount;
- statutory charges on the land;
- services connected to the property;
- if works have been done in the last seven years by someone other than a registered builder, an owner-builder defects inspection report and insurance (as required by section 137B of the Building Act 1993);
- the Australian Valuation Property Classification Code and whether the land falls under the Commercial and Industrial Property Tax reform scheme;
- insurance details if the contract does not provide for the property to remain at the vendor’s risk until the settlement date;
- building guarantees and permits obtained in the previous seven years;
- any notice, order or approved proposal affecting the land that the vendor could be reasonably assumed to have known about;
- owners corporation notices and liabilities;
- contaminated land;
- orders under the Land Acquisition and Compensation Act 1986 (Vic);
- Growth Areas Infrastructure Contribution information;
- whether the property is on the Heritage Register; and
- energy efficiency information.
If land is sold pursuant to a vendor terms contract, the vendor must provide additional information, including details of interest and repayment terms of the loan. Details must be provided of any mortgages that will not be paid out and the vendor’s default on the loan(s) (if applicable).
If the property being sold is an off-the-plan property, the vendor should disclose the latest version of the proposed plan of subdivision in the vendor’s statement.
It is mandatory for the vendor or their agent to give the buyer the due diligence checklist issued by CAV before the buyer signs the contract and the vendor’s statement, which is available at www.consumer.vic.gov.au/housing/buying-and-selling-property/checklists/due-diligence.
In addition to the vendor’s disclosure requirements (see above), the Sale of Land Amendment Act 2019 (Vic) provides that vendors and agents cannot knowingly conceal any material fact about a property from a buyer.
This helps a buyer make a fully informed decision before buying a property, as some information may not be available or visible, even if the buyer has personally inspected the property.
Material facts can include:
- whether a murder has occurred on the property;
- whether any building work has taken place without a building permit or planning permit, or that is otherwise illegal;
- the underlying cause of an obvious physical defect (e.g. a large crack in a wall would be obvious to a buyer, but the underlying reason for the crack, such as defective stumping, may not be);
- whether the property has been used as a methamphetamine laboratory;
- whether the property has flammable cladding; or
- whether there is any asbestos on the property.
The vendor or agent must answer any questions from a buyer about material facts as fully and frankly as possible. A vendor or agent who fails to disclose a material fact can be liable for penalties; however, a buyer will not necessarily be able to exit a contract because of this failure.
For more information, see the Material Fact Guidelines on the Consumer Affairs Victoria website at www.consumer.vic.gov.au/saleofland.