In the present difficult and challenging economic climate, the ‘Global Financial Crisis’, there are situations brought upon us by the prevailing circumstances and which would not normally exist when things are relatively stable.
At present, it seems that properties at the lower end, price-wise, of the market are being snatched up quickly, while with properties priced at, say, more than $1.5 million there have been significant falls in prices, including falls by as much as 20% below levels prevailing a couple of years ago.
Because no one really knows just when the economic situation will find an equilibrium, it’s extremely unwise, if not potentially disastrous, to enter into a contract for a purchase if you have not got a firm contract of sale, as it is this document which exchange relies. With what seems like, or certainly has been, a falling market, the sale price may end up being substantially lower than the owners/ sellers expect (and sellers traditionally value their own properties at higher prices than the market dictates).
In any case, buyers who are relying on loan finance for a purchase need to get their loan approval in writing. If you are relying on oral loan approval, it may be difficult to prove the loan was actually approved. Bank officers are people after all, and their recollection or understanding of what is said may be quite different from what a borrower believes he or she heard.
There can be a race to exchange contracts if there’s competition among potential buyers, especially at the lower-priced end of the market. That may result in gazumping, where one buyer ends up being out-bid by another. This can be particularly irksome when one buyer has understood that he or she is assured of being able to proceed with buying a property and then engages a solicitor for evaluation of the contract and arranges for various inspections to be undertaken, and in so doing, incurs considerable expense.
Under NSW law, it is nearly always the case that there is no binding contract until a formal exchange of contracts has occurred. Until then, it is strictly speaking, open for negotiation, so that if an offer is made, accepted, and agreement reached on a price, it is only an agreement in principle. For example, if after an offer from a buyer is accepted and the buyer then gets appropriate advice and discovers there are problems with the property involving anticipated expenditure of say, $50,000 it is open to the purchaser to re-negotiate a reduction in the price.
Remember too, that GST applies to new residential premises, as defined in the legislation. It’s generally included in the price but you need to check that.
As for off-the-plan purchases, these are potentially dangerous and fraught with risk. While there are some advantages to a purchaser in buying an off-the-plan unit, the disadvantages need to be carefully considered. Potential advantages may include the following: the price may be lower (because of the uncertainties associated with such developments), the time between entering into the contract and completion (settlement) is generally longer than for a normal purchase, and purchasers may have an opportunity to have a say as to what kind of fixtures and finishes they would like in the property. However conversely, there are a number of disadvantages such as: considerable uncertainty as to the time that it will take to complete the building, that there’s no direct relationship (under a contract) between the purchaser and the builder, that there’s often nothing for the purchaser to see (except perhaps a mock-up of a completed unit for demonstration purposes), and the contract is generally far more complicated than usual. In short, perhaps the greatest risk may be summed up in a few words: a purchaser cannot see what he or she is going to end up with.