Contract offer question

Hi guys ,

I brief questions to reiterate the basics .

I’ve received the section 32 on Friday at 6PM . My solicitor had no time to check the title .

I’d like to make an offer on Saturday .
RA have a standard REIV contract of sale and section 32 . I’d like to make an offer subject to building and pest inspection without subject to finance .

As far as I know , we can’t cancel the deal during cool off period because the contract has special conditions .

Let’s assume we sign an offer on Saturday subject to building and pest inspection and my solicitor checks the section 32 on Monday .

I understand that the only way to cancel the deal is due to building and pest inspection failure .
I am not sure if my understanding is correct and we still have a cool off period ?

0.2% of the price ( $92) don’t bother me :)

Kind Regards
gprp
 
My understanding is that the cooling off provisions still apply regardless of the other conditions. I'm assuming that you're buying residential, there's no auction involved, you're not an estate agent, this is the first time you've offered on this property, and you haven't sought legal advice on this contract first.

The cooling off penalty is $100 or .2% of the purchase price, whichever is less. $92 translates to purchase price of only $46,000; is the maths right, or would you be up for more?

Also, the standard REIV clauses for pest and building aren't worth too much and only cover you for major structural defects. You may like to consider having your solicitor draft something different for you so that there's a little more to negotiate with if the reports come back with anything interesting. That may prove difficult on a Saturday but shows the benefit of being well prepared. Is there a reason why you want to offer today, instead of Monday...?
 
Thank you very much for your prompt response .

You"re absoltely right : 0.2% is $920 .

I am not keen to get into adventure , hence I'll wait until Monday

I used a different statement when submit the offer , however every second agent is trying to push REIV statement with " major defects " and it seems like buywers accept it without hesitation .

I had this discussion with one of the agents two weeks ago . I've asked him to define a major defect . How do you determine if it's major or minor defect ? By price ? By severity ? Building report doesn't specify any defect as " major or minor" .

Thanks again

BR
gptp
 
gprp,

I recall you discussing this in another thread. Have you made many offers recently with a non standard building / pest clause? I think if you had you will find given the current hot state of the Melbourne market, vendors have so much choice in all the offers they're getting a strongly worded building / pest inspection will completely turn them off.

I'm not saying to exclude or remove them as this is entirely your decision based on what you feel comfortable with. However in my recent experience a lot of vendors are getting offers subject to no or minimal conditions. If I was a vendor and i got offered say 5k less but with no conditions, compared to an offer with a building / pest clause that basically allowed the potential purchaser to pull out over a minor building defect, i know which offer i'd choose.

Purchasing strategies need to be varied based on the current state on the market, you can get away with a lot of conditions in a slow market but maybe not so much currently in Melbourne. You need to balance your conditions by trying to mitigate your risk as much as possible against not turning the vendors off and ending up never purchasing at all. But if you think your strategy will work for the type of property you're looking to purchase then you may consider a non standard condition, jut giving you something you to think about.
 
Hi Rickardo ,

I've submitted 6 offers recently with a non-standard building and pest inspection.
I've used a clause specified by Fudge from Sunshine Cost . This clause is neutral ; I also brought a standard contract of sale to substantiate that this is a standard definition in Queensland . It seems to work fine , RA's accept this amendment without any issue .

The problem is that people give an unconditional offer . I've missed the property today ; price range was $420 - 460K , I offered $462K . The winning offer was $467,500 and unconditional .

I think that we are not ready mentally to give an unconditional offer .

Code:
You need to balance your conditions by trying to mitigate your risk as much as possible against not turning the vendors off and ending up never purchasing at all.

How do you mitigate the risk if people give unconditional offers ?
I've spoken with my solicitor and he's said that so many people nowadays are getting into trouble with " a major structural defects" and then trying to escape a trap without any chance .

Rickardo , how is your search ?

BR
gprp
 
How do you mitigate the risk if people give unconditional offers ?
I've spoken with my solicitor and he's said that so many people nowadays are getting into trouble with " a major structural defects" and then trying to escape a trap without any chance .

Rickardo , how is your search ?

BR
gprp

Hi gprp,

I’ve recently secured a property using an unconditional offer while still mitigating the chances of buying something with a structural defect / pest infestation.

I offered a good price with an unconditional offer which was accepted on the weekend. This gave me 3 full business days to organise with the agent to complete a building / pest inspection while still being able to pull out using the 3 day cooling off legislation within Victoria if necessary.

The risk with this type of offer is not being able to get an inspection done within the time frame, if this happens you’d either have to continue with the contract without getting one done or walk away.

In my case the agent was agreeable as the property was vacant and the inspection company was able to complete a timely inspection. If you go down this path you don’t have to worry about the wording of your building clause because if the inspection shows a defect you simply pull out using the cooling off period.

This does not mitigate the risk of your finance falling through, my strategy with this has been to get pre approval, only borrow up to 80% with one lender so you don’t have to go through the LMI approval process, then use pre set up LOC’s or cash for the remainder of the purchase price. Then when you purchase have all your docs ready so you can get unconditional approval asap, so if something does go wrong you’ve got time to source finance elsewhere.

Hope this helps, how is your search going?
 
Hi Rickardo,

Sorry for interrupting this thread, but I urgently need advice.

I am new to this forum and relatively new to the real-estate market Looking to purchase our first home in Melbourne. We made a few offers in the last few months all with financial loan and bldg+pest conditions. All rejected for various reasons :confused: We are close to finalising something now. However, the Vendor is refused to accept our financial approval. Even though we have our pre-approval, we still need the final go ahead from our bank. We cannot risk signing without this laon approval. I am trying to understand what I can do to eliminate the need to even insert this condition, and was reading the following you wrote:

"This does not mitigate the risk of your finance falling through, my strategy with this has been to get pre approval, only borrow up to 80% with one lender so you don’t have to go through the LMI approval process, then use pre set up LOC’s or cash for the remainder of the purchase price. Then when you purchase have all your docs ready so you can get unconditional approval asap, so if something does go wrong you’ve got time to source finance elsewhere."

Could you please explain what it means? In simpler terms? I would highly appreciate it.

Thanks in advance :)
 
Could you please explain what it means? In simpler terms? I would highly appreciate it.

Hi coyote_mag,

It is in a vendors best interests to minimise the conditions of the contract, but in your interests to try and maximise them, unfortunately in the hot Melbourne market the vendors currently have a lot more offers coming in and therefore can be much pickier in what they accept.

To expand on my previous post, when you are applying for finance the Loan to Valuation Ratio (LVR - this is basically what percentage of the purchase price you need to borrow) will have an affect on how easy the loan application will be. If your LVR is below 80%, then the bank your are applying for finance with will assess your application on its merits using their serviceability, asset, and various other criteria.

However, when you are borrowing over 80% LVR you will need to obtain Lenders Mortgage Insurance. This is provided by a separate institution independent from your bank. This means they will also assess the application based on their own criteria. In this situation there are two approvals you need to obtain, one from your bank and a second (and sometimes more difficult) from the mortgage insurer.

With your purchase, what is your LVR going to be? If it’s below 80% and you have good serviceability and some assets, it’s much more likely a lender will approve your loan without too many dramas, and it is in this situation only where I would feel more comfortable proceeding without a finance clause.

Do you have a mortgage broker? Their advice will be invaluable on determining whether a lender is likely to accept your application without too many dramas.
 
Hi Rick ,

I am very happy to hear that you were able to secure the property .

I am still searching , however it looks like I was able to perfect my negotiation strategy and wise approach . I've given a few unconditional offers using the same strategy - 3 days cool off period , however I was unable to secure the properties because the other offers were 5-10K higher than ours.

I am very confident that I'd be able to secure a property soon due to a simple fact : I understand the process and do my homework prior to submit
the offer . Fortunately , I am not in the position to stretch our budget and to submit a crazy offer above the market price . I've got the impression that agents perceive me as a serious buyer , rather than " tier kicker" . I am dealing with 5 agencies in my area and hopefully the market will slow down a bit from 1 January .

Coyote_mag , ideally you should put 25% to avoid LMI if you don't have any assets . You must know you limits ; define your max. budget and don't
get emotional .

Rick 's explanation is very comprehensive ; I'd suggest you to discuss your case with a mortgage broker . I can PM you contact details if you need one.

BR
gprp

Hi gprp,

I’ve recently secured a property using an unconditional offer while still mitigating the chances of buying something with a structural defect / pest infestation.

I offered a good price with an unconditional offer which was accepted on the weekend. This gave me 3 full business days to organise with the agent to complete a building / pest inspection while still being able to pull out using the 3 day cooling off legislation within Victoria if necessary.

The risk with this type of offer is not being able to get an inspection done within the time frame, if this happens you’d either have to continue with the contract without getting one done or walk away.

In my case the agent was agreeable as the property was vacant and the inspection company was able to complete a timely inspection. If you go down this path you don’t have to worry about the wording of your building clause because if the inspection shows a defect you simply pull out using the cooling off period.

This does not mitigate the risk of your finance falling through, my strategy with this has been to get pre approval, only borrow up to 80% with one lender so you don’t have to go through the LMI approval process, then use pre set up LOC’s or cash for the remainder of the purchase price. Then when you purchase have all your docs ready so you can get unconditional approval asap, so if something does go wrong you’ve got time to source finance elsewhere.

Hope this helps, how is your search going?
 
Hi Guys ,

As I've expected , we bought a house today .

Location, size and price are perfect .

I've implemented the right strategy and it pays off .
The house is 4 years old only , so still under builder's warranty .
No need in building inspection , because 137b specifies all the discrepancies .

Kind Regards
gprp
 
Hi Rick ,

Thank you for your kind words .

It's been a long journey , however I feel serenity now despite all the obstacles .

I wish you all a Merry Xmas and a Happy New Year

Kind Regards
George ( not Costanza :))
 
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