Buying Property During COVID
The Lessons Learned!
Australians have a love affair with property. It’s got to be the most popular topic talked about at a dinner party or with mates over a beer at a BBQ. Remember those days!.
Unfortunately, most of us think that we are property experts because we live in a house.
It’s like buying a second car. Would you buy without getting a mechanic or doing an RACV check?
If I am in a dispute with my neighbour over the position of a fence, am I in a stronger or weaker position trying to win that dispute if I represent myself or hire a Barrister?
It’s the same with property but the stakes are so much higher because of the size of the transaction and the money involved.
A lot can go wrong. Buying and selling property is not a straight forward process.
My involvement in property stretches back to 1985, as a Cadet Property Valuer with Burgess Rawson, Fitzroy’s and Westpac, before forming WBP in 1995, becoming CEO for 15 years and later Chairman of WBP Group, one of the largest property valuation companies in Australia.
Over the last 10 years, I have been a licensed estate agent, buyer’s agent, property advisor, guest speaker and asset manager.
I have been involved in thousands of property transactions over the last 35 years and my experience has taught me to be wary.
Every client is different, every property is different and there are so many moving parts, from contractual matters, to price and terms, planning and building issues and literally hundreds of attributes that I know either drive future value or detract from it.
This expertise and experience I carry to every new property I buy, sell, value or provide independent advice on.
Let’s look at just a few of the lessons learned:
Inclusions + Exclusions
What is included in the sale? Well almost anything can be negotiated and included as a chattel in the contract. The most common is a dishwasher or a particular light fitting. If I want it I always make sure that I add it in as a chattel. Artwork, furniture and other chattels can be included but it’s important to detail these in advance. Often in an attached inventory. The value is often separated from the freehold value as banks will not generally lend on items that are not fixed to a property.
The failure to cross out a line, tick the right box in a particulars of sale document can be a trap for those not buying property on a regular bases. Is the property new, has it been sold before? Will it attract GST? Does the margin scheme apply? Is the vendor registered for GST? These are important questions to ask when buying property. As a buyer you need to understand the implications of any contract you sign. If you attend an auction and your bid is the highest, it’s important you understand what clauses to delete and what boxes to tick. Few people take their lawyer to an auction but it’s harder to amend a contract once it’s signed.
Deposit Amount and Terms
These are all negotiable but in my experience it needs to be done in advance. 10% deposit and balance in 60 days is standard but I rarely use the standard and this section will vary to suit the requirements and needs of my client. The deposit maybe a smaller fixed sum or 5% of the contract amount. The deposit amount may also vary depending on the length of settlement terms. It has been quite common in buying development sites to demand 12–24 months terms but typically in residential transactions terms will vary from 30, 60, 90, 120 or 150 days. The date of settlement is also important to ensure it does not fall on a weekend or public holiday. If the property is to be leased, consideration needs to be given to the time of year it settles. It’s much harder finding a new tenant during winter in Melbourne and rentals are usually weaker. Settlement dates and other terms need to be negotiated.
If you purchase, in some cases you maybe liable to pay a proportion of the vendors land tax. This can be a substantial amount of money in some transactions. How many buyers understand and check this detail?
Did you insert a COVID Clause in the contract? This would have been useful for some during the lockdown. How do I settle my new home if I cannot sell my current home during a lockdown? A COVID Clause could have been the escape. I know many buyers and sellers that were caught in this trap. Having to obtain expensive bridging finance or being unable to settle, notwithstanding the additional stress could have been avoided with the correct property advice.
Building and Pest Inspections
I rarely buy a house for a client without first checking the structural integrity of the building. I will point out the obvious and do what I call a “dad’s look”, but I am not a registered builder, so I get a professional to undertake this due diligence. Any offer I make is made subject to a satisfactory building and pest report.
I don’t like them. It weakens my negotiation position and I have bigger things to worry about. If it’s not ready then we wait. If my client has finance approved and I can make an unconditional offer; this becomes a weapon! The types of property I buy rarely come without competition. I am placed in a far greater bargaining position if I am clear on my limit and therefore more likely to win.
These can be both good and bad and therefore must be investigated fully before you buy. How will these controls affect your future plans? Can I renovate in the future or can I rebuild in the future? I recently had to appoint an architect in the City of Port Phillip to lodge a planning application with a scheme just so as we could paint the external façade.
In conclusion, buying property can be very tricky and I have seen many learn the hard way. There are many attributes that I know drive value and identifying those properties that possess these features can make all the difference between making a poor decision or a very rewarding one.
Understanding a building’s orientation, its development potential, its floor plan, intrinsic value, its functionality, potential and state of repair, historical growth performance and DNA, shape and topography of the land and walk distance to public transport, schools and shopping are just a few incidentals that buyers need to understand before buying.
Why I love my job so much is that I am continually challenged and learning from each assignment I take on. Some days I am dealing with an adverse possession claim, a road widening application, a flood zone, a subsidence risk area or buying in a bush fire zone.
My best and only advice is to always seek independent property advice before you sign any contract. A good buyers agent who is qualified and experienced may cost 2% of the transaction cost, but making a costly mistake can set you back many years of pain.
The selling agent maybe friendly, but it is you that has to live with the mistake if you have failed to conduct your own due diligence.