House & Land Question

[Investig8]

I thought I would ask since my searches are failing me at this time of the morning.

If I'm buying a H&L package (split contracts)

The land won't be registered for a couple more weeks.

The builder wants me to initial a Prelim Contract, is it normal for the builder to charge for the contract setup?

In this case its 1500 upon putting our initials on the Prelim Agreement and 5500 on contract setup completion from the builder. This has a statement that says you will have to pay for the preparation regardless of the purchase going ahead, for instance if finance is not in place.

I haven't got anything for the land as yet.

Thanks

 

[bashworth]

Setting up the contract normally involves the builder carrying out a survey and site investigation.


That typically costs around $1500, which is non-refundable as the builder has actually done the work.

 

[Investig8]

Thanks bashworth, I understood work is involved and everyone should get paid as it's not a free lunch, but the extra $5500 regardless of whether you proceed or not?

Dont know if it matters but this is a QLD H&L IP.

Is it a common or accepted practice to try and get a "subject to finance approval" clause on the Prelim agreement, they are very clear that you should be pre-approved for finance before accepting the Prelim agreement.

I understand the above looks like a dumb question however, are lenders in the habit of pre-approving unregistered land with nothing built on it and a land settlement 3 months away, and a build start date 4 months away with completion by april 2015?

 

[beachgurl]

I've built in NSW in the past but am currently in the early stages of a tender for a build in Qld. I too was shocked at the prelim pricing and that you are pretty much committed at the point of signing for a tender, instead of just paying a prelim 1-1.5K with no obligation to proceed further with them.

I had planned to tender with 2 or 3 builders, but once I received their prelim contracts I saw that each of them required me to pay for contract prep whether or not I went ahead with them. One builder wasn't going to charge for contract prep, but would send a bill for all works conducted (survey/soil/office admin) if I didn't go ahead.

That said, over 5K sounds very expensive up front! the builder I am going with expects a 1.5K deposit up front and once the go ahead is given to prepare the contract, I pay another 2.5K.

the pre-approval the builders want is conditional approval from your lender that you are capable of paying back a loan of a particular size. I doubt that any lender will provide a valuation on unregistered land and a yet to be produced contract to build. Unfortunately you have to sign the build contract and cross your fingers that when the time comes, the lender will value the land and house at what you are paying for them. A lot of the time this won't happen, particularly if you have a larger block of land for the estate or having a larger house/more upgrades than standard for that estate.

 

[Breamster]

Hi Investig8

Possibly in a similar situation to you ie split contracts. Ive purchased land in a separate contract (land unregistered, due to register in 2015), and have not yet signed a builders contract. I'm presently obtaining advice about whether I am actually contractually bound to build with the 'developer' who sold me the land. There is nothing in my land contract which says I must.

Out of interest, how did your builder ( or land contract) bind you to building that particular builder?

 

[Shahin_Afarin]

Get your solicitor to review the COS.

Also if the vendor selling the land has to also build then some lenders will not like this (i.e. NAB, Westpac) but some will be ok (ANZ, Macquarie).

 

[Investig8]

Hi Investig8

Possibly in a similar situation to you ie split contracts. Ive purchased land in a separate contract (land unregistered, due to register in 2015), and have not yet signed a builders contract. I'm presently obtaining advice about whether I am actually contractually bound to build with the 'developer' who sold me the land. There is nothing in my land contract which says I must.

Out of interest, how did your builder ( or land contract) bind you to building that particular builder?

Hi Breamster,

The land came about because of a conversation with the builder about a previous package which upon further investigation was in a location that I didn't fully understand and after research decided not to go with, I then asked the builder if he knew of any land which would suit the house I preferred as an IP.

He got back to me with a couple of options of which after research i liked however one was going to require more foundation work and hence more cost and so I went with the other as the numbers stacked up for both.

I haven't seen the land contract, it's on it's way but the split contracts I don't believe binds me to the builder. (I'm not a lawyer/conveyancer, someone like Terry & co could answer that one)

Mine is reversed I believe, as I like this specific product and had land presented to suit as long as the land met my requirements for what I look for, I just had access to someone with local and industry knowledge that could supply me with options for me to choose from, I was under no obligation until the Prelim Agreement.

I will have my conveyancer looking over these aspects once they receive the contracts.

Having said all that I have no doubt whatsoever that the builder has a handshake agreement with this particular developer as they are both from the same old school network in this region.

Hope that helps.