Will the agent have a form I can fill in and I write subject to finance on it?
Hello Jennyn
Each State has a different way of doing things - in Victoria an offer is usually made directly on to the Contract of Sale. Maybe in NSW you do things differently.
As with all things, it is helpful to keep in mind what you are doing and why.
No, I don't mean that the 'what' is buying the property, in this instance the 'what' is requesting a 'Subject to Finance' clause.
In Melbourne there are particular suburbs where it is rare for a property to be offered for Private Sale. At Auction the sale is binding and unconditional on the fall of the hammer, so there are no finance or inspection clauses at all.
With a sale by private treaty, a buyer asks for conditions to be included in their offer to the vendor purely to protect their own interests.
So you are wanting to protect your possible inability to secure funds, and if your application for finance is not approved, to be able to withdraw from the sale without penalty.
That is fair enough and simple enough.
There really is no need to waffle on with lots of conditions within that condition. Overall, there are a few basic points to keep in mind:
Deposit: You cannot offer what you do not have, so negotiate the actual amount of the deposit limited to that which you have available in cash, or failing that, enquire whether the vendor would accept a Deposit Bond for the remainder of the agreed deposit until settlement.
However, you cannot apply for a Deposit Bond until you have approval for finance, so again do not offer what you do not have - the Deposit Bond will take about 7 days from approval of finance to issuance of the actual Bond. This is usually sent directly to the Vendor's Solicitor or Conveyancer for exchange at settlement.
LVR: If you were a vendor what would you think if the Agent came to you with an offer to purchase the property and the buyer is wanting to borrow 100% of the purchase price? Most vendors are not investors, and to them this would look to be a very weak sale - probably not even worth considering.
So let's say you want to offer $200,000 for the property, and you will be using equity from one of your other properties and thus borrowing about $210,000 to also cover the stamp duties, adjustments and other expenses. How would the vendor view that? They would think there was no hope for the sale!
So to protect your interests, keep it simple. The Finance Clause simply has to say
'A loan of not less than $160,000 from any registered lending institution' and even that is a bit wordy. After all, you could be borrowing the money from your Mum or using a line of credit or whatever.
Yes, you are obliged to take immediate steps to apply for finance, that is inherent in the clause even if it is not written there. You are also beholden not to withdraw your application. If you are offered a loan at the Standard Variable Rate but wanted a Discount Variable Rate, then morally you will be obliged to proceed with the purchase as you have been offered finance at the ‘going rate’.
The clause is part of your offer to the vendor. They are under no obligation to accept any part of your offer, and this incudes allowing the finance clause.
Keep it simple. Help them to accept your offer and to allow you time to arrange finance. Make sure you have all your paperwork in order before you submit the offer so that you can see your broker as soon as you have an exchanged Contract, or even prepare the application for finance before that, so all you have to do is pass a copy of the Contract to your broker.
As investors we can sometimes overlook that to most vendors selling a property is selling their home, and something many people do only once or twice in a lifetime. Some people will never be involved in the purchase or sale of property - I have an elderly friend whose husband already owned their home when they married. She hopes to die there, so even though she owns property she has never bought and hopes to never sell.
For a vendor the buyer's finance clause is an anxious time. Keep it simple, make it easy for them, and prepare yourself ahead of time to make it easy for you, too.
Good luck with your new purchase, may it be a great buy for you and one which brings you much satisfaction over many years
Regards
Kristine
I didn't know he was on the forum. I was asking because I'm not sure yet if I can get finance for properties over 5 acres but will be contacting Peter about it before I go down next week.
