Buying A Property By Private Treaty
This is the most common way of buying a home in Australia and it is when the home is for sale with a set price.
Whilst it has a listing price, rarely does the property sell for this price. What normally happens is after a period of negotiation where offers pass back and forth between the seller and the buyer, they will come to a mutually agreeable price and the property will be sold.
Once both parties are happy, the Contracts of Sale are signed and a deposit of approximately 10% is made. This method normally offers a cooling off period, however some sellers request the buyer waive the cooling off period as a condition of the contract being signed.
If there is a cooling off period, the buyer can complete the final legal, building and financial checks. Keep in mind if the buyer pulls out of the contract, they may lose a percentage of the deposit, so make sure you discuss all of this with your lawyer or conveyancer before you sign anything. For information about other methods of buying a home click here.
What are the advantages of buying a property by private treaty/sale?
- Greater flexibility for negotiation. A contract can be signed subject to certain conditions being met such as a building inspection, finance approval, repairs to the property etc
- You may have more time to make a decision therefore there is less emotion than an auction
- There is more certainty regarding the price than at auction
- Buyer’s usually find it easier to stay within their financial comfort zone as the emotion of the auction is removed
- You do not have to pay for any report until you have signed an agreement to buy the property. In most cases you have a cooling off period allowing you to complete your due diligence and finalise your finances
- Takes the competitive nature of auction bidding out the process
How to make a private treaty/ private sale offer
Negotiating the deal is at the heart of a private treaty sale and given that most people only buy and sell a handful of properties in their lifetime, it is understandable that most buyers feel uncomfortable with the process.
To help you put your best foot forward, here are our top tips on making an offer and negotiating a private treaty sale. For more information download our Buying a Home Guide.
How to successfully make an offer and negotiate a private treaty / private sale purchase
- Ensure you have thoroughly researched the market and spoken at length to the Sales Agent and worked out what the property is worth and the right amount to offer
- Ensure you have pre-approval in writing from your lender and have done your financial due diligence to ensure you can still afford the repayments if the interest rates change or you are unemployed for a period of time
- Although it may be a good idea to make an offer slightly below the asking price so you can negotiate upwards, don’t go unreasonably low either
- Deliver a signed contract with a cheque for the deposit to the agent and send an email to both the agent and the vendor’s solicitor. They are legally bound to advise their client of your offer
- By attaching a cheque to a signed contract, you can make your offer much more appealing
- Never sign a contract unless you have had the appropriate legal advice from your solicitor or conveyancer. An offer isn’t legally binding, but a contract is, so making sure you know what you are signing is paramount
- Know the maximum amount of money you are prepared to pay for the property and stick to it
- Speed can be important. If you love a property and have done all of your due diligence, be ready to make an offer quickly as properties are often snapped up in a few days after hitting the market
- Ensure your building and pest inspector is on standby to inspect the property if your offer is accepted
What is a conditional offer?
A conditional offer is when a buyer makes an offer on a property that is contingent on something getting done for the purchase to go through. Conditions may be subject to the buyer getting finance approved, completing a pest inspection and building inspection or the sale of a property.
Conditions are negotiable so when working out your conditions keep in mind the seller doesn’t not have to agree and if the conditions are extreme, the seller may reject your offer no matter the price.
Using a solicitor or conveyancer
Property contracts are fairly complex and unless you have a good knowledge of real estate law you are better off using the services of a property conveyancer or solicitor who is familiar with the legal documents and legislation within your State or Territory. They can provide peace of mind and ensure the process runs smoothly.
In Australia most States and Territories let you choose either a conveyancer or a solicitor as a legal representative. However, in Queensland and ACT you are required to use a solicitor. You should engage the services of a conveyancer or solicitor upfront so there is no delay when it comes to exchanging contracts.
Ask your McGrath Agent or other professionals you trust, such your accountant or lawyer for a recommendation. Once you have narrowed the choice down, check their license with the Department of Fair Trading or equivalent in your State or Territory.
Exchanging signed contracts
Signing and exchanging contracts is the first step to legalise the sale of a home. There will be two copies of the sale contract, one for the buyer and one for the seller. You each sign one copy before they are swapped or exchanged. At the time of exchange, the buyer will be required to pay a deposit, which is normally 10% of the purchase price and this will be held in trust by the real estate agent or your conveyancer.
This step is important for a number of reasons:
- The buyer and seller are not legally bound until signed copies of the contract are exchanged subject to cooling off periods and whether the contract is conditional or unconditional
- If you sold your property at auction, there is no cooling off period and the buyer is legally bound to buy your property once the contract is signed and exchanged
- There is normally a five-day cooling off period during which time the buyer can withdraw from the sale. This may have been waived if they signed a 66W, extended or reduced in your contract so it’s important to be aware of this
- Generally, a seller does not have a cooling off period, once the contracts are exchanged, they are normally bound to complete the agreement.
You should at least have pre-approval by the time you are making offers, as you need to have the deposit cheque ready when your offer is accepted. Having pre approval demonstrates to vendors that you are a serious buyer and allows you to move forward quickly once your offer is accepted, as applications and supporting documentation have already been completed and submitted. Oxygen Home Loans can help you with your home loan application and organising pre-approval.
The settlement period begins the day the Contact of Sale is signed and is the last step in buying your new property. The length of settlement can be a condition of the sale and usually no less than two weeks and generally around six weeks.
Negotiate through your solicitor or conveyancer for a date that works for you. Once the contract is signed the settlement date cannot be changed unless both buyer and seller agree. Have one more inspection of the property to ensure it is in the same condition as when you exchanged contracts.
On settlement day you can visit the real estate office selling the property to pick up the keys to your new home. You are responsible for advising your insurance company, phone, gas and electricity companies as well as the electoral commission about your change in location.
For more information about other methods of buying a home visit our Buy with McGrath page.
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