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Top 5 legal pitfalls home buyers should be aware of

Top 5 legal pitfalls

Doing your research will help ensure a sound property purchase process

1.       Failure to consider Sunset Clause

Sunset Clauses usually affect off-the-plan property purchases but may sometimes affect existing properties. There are scenarios where developers have run over time with construction and the Sunset Clause has been triggered. Sometimes, developers cancel contracts and refund deposits, only to then try and resell the properties at higher prices to new purchasers. While you will get your deposit back, the market may have moved on in the meantime and property values may have risen beyond the purchaser’s means. It is important for prospective purchasers to do their research on the developer and builder and satisfy themselves on the reliability of the developer and builder in delivering projects on schedule.

2. Failure to make council enquiries

A prospective purchaser should always check with the local council the property is not in a special area designated for things such as flooding, bush fire prone and significant snowfalls.

The purchaser should ask the council if there are any town planning permits allowing anyone in the area to do something which is not strictly in line with the zoning of the property you are buying; or if anyone has a private section 173 agreement with the council which allows/imposes certain requirements on the property or any properties in the area, which a purchaser would not normally be able to discover by just looking around the area.

Not sure how to check or if this could apply to you? Ask a property lawyer from Conveyancing.com.

3. Failure to get loan documents in order

Given the large sums of money required to purchase properties, the vast majority of most home buyers obtain finance from a bank or financial institution to help fund the purchase. Ensuring that finance is approved, and the relevant loan documents signed well in advance of the settlement date is therefore critical. In our experience, too many purchasers assume that engaging the services of a mortgage broker means that they do not need to do anything to obtain their loan; they take the view the mortgage broker will “sort it out”. This is a dangerous mistake to make as unfortunately all too often we find that brokers, mobile lenders and home finance managers fail to ensure mortgage documents are prepared and executed by clients correctly.

As an associated issue, purchasers always need to make sure their contract is made “subject to finance” and complies with their obligations and the times for seeking approval etc in every case where they do not have finance in place before they sign.

4. Failure to consider issues with tenants

Many properties are bought as investments and are bought subject to the existing tenancies. Full details of the tenancies will be attached to the contract. By virtue of the law on completion of the purchase the purchaser automatically steps into the shoes of the vendor and the lease becomes enforceable by the purchaser. A discussion with tenants before exchange will reveal any issues that might exist that would otherwise remain undisclosed.

5. Failure to consider settlement delays

It is important to note that delays to settlement are not uncommon. For example, if a settlement is scheduled for 2pm, it may only actually settle at 4pm or may be delayed till later in the day. If the purchaser books a moving van to arrive at their new property at 2pm, they bear the risk of having to make alternative arrangements should settlement be delayed. They may also have to make alternative arrangements for the collection of keys from the real estate agent.

Anecdotal evidence of the most common issues home buyers encounter during closing a sale

  • Bank ends up valuing the property much lower than the sale price. Thus, the purchaser ends up needing to come up with more shortfall funds than anticipated.
  • Unexpected issues with the title. For example, a caveat might be lodged over the property by the third party that claims to have an interest in the property, such as an ex-spouse or former domestic partner.
  • Building and pest inspections reveal major issues with the property.
  • Enquiries establish the vendor did not get all necessary planning or building permit approval for past works on the property.
  • Probate or other court orders not being granted in time for the sale. Sometimes, despite best efforts, the vendor won’t have the legal power to complete the sale. This is particularly important to be aware of if the vendor is a company or is selling property out of a deceased estate.

We understand the property purchase process and help make it simpler our clients to understand. Contact us to speak with an expert about how we can help.

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