Customer of mine was referred to me by her conveyancer.
Her lender, with whom she had had two previous mortgages, had given her a 'verbal' approval to buy a new house as she was moving back to Melbourne after a 'tree change' had gone sour.
Verbal approvals being what they are, you guessed it, she signed an unconditional contract only to find that her trusty lender reneged.
She bought the house in regional Victoria in September, 2008 for $285,000 - list price $320,000. She is moving out of this and into the new purchase on the Mornington Peninsula, purchase price $261,000.
The purchase valuation has come back at $261,000. So far, so good.
Regional Victoria, however, came back today at $240,000.
Ouch.
Ouch.
Yet more ouch.
So, no capacity to refinance the September mortgage as this would mean paying a shortfall to the current (reneging) lender
After much discussion with the assessor, he has agreed to put to credit that she can have a credit card, fully drawn at settlement, to get her in the door.
As the purchase contract is currently in rescission - not a good look for her to be out on the footpath next week - the credit card sounds wonderful.
The moral of the story is:
Do not rely on verbal assurances that 'she'll be right'
Do not rely on what you think is a bargain, or what you think the value 'should be'
Make sure that you can complete the deal before you sign an unconditional contract
OK, this customer has a strong income and can pay out the credit card within a year. The amount of interest she will pay will be minimal compared to the penalty interest on the contract, the loss of her deposit and the reselling costs if she doesn't complete the contract
But this is still a situation far from ideal. She has lost weight, lost sleep, lost money because someone from the Bank said 'no worries'.
In a falling market - and make no mistake, this market is shallow and falling - even if we negotiate a great deal the valuer may not agree with the contract price. Risk factors assume a higher importance in weak markets - time estimated to sell, lessening demand, neighbourhood drift - all these things form part of a valuers report.
Even if you are confident that you have struck a bargain, at the very least have a 'Subject to Valuation' clause in your contract. In Victoria, we are all used to Conditions of Sale - in NSW and other States the buyer is more vulnerable if the only Condition is the Cooling Off clause which can, and frequently does, result in the buyer forfeiting a small percentage of the purchase price if they withdraw.
However, an unconditional Contract can and will be upheld by the Courts so tread warily.
Hopefully, we will have loan documents by Monday and can negotiate a further two days to settle, pleading the recent public holidays. But this anxiety could have been avoided if the customer had shown a little less trust and a little more caution for her own best interests.
Caveat Emptor
You must look after your own interests and that includes taking your time to buy, not being afraid of 'losing' the property, and making sure that your finance is organised before you sign on the dotted
Cheers
Kristine
Her lender, with whom she had had two previous mortgages, had given her a 'verbal' approval to buy a new house as she was moving back to Melbourne after a 'tree change' had gone sour.
Verbal approvals being what they are, you guessed it, she signed an unconditional contract only to find that her trusty lender reneged.
She bought the house in regional Victoria in September, 2008 for $285,000 - list price $320,000. She is moving out of this and into the new purchase on the Mornington Peninsula, purchase price $261,000.
The purchase valuation has come back at $261,000. So far, so good.
Regional Victoria, however, came back today at $240,000.
Ouch.
Ouch.
Yet more ouch.
So, no capacity to refinance the September mortgage as this would mean paying a shortfall to the current (reneging) lender
After much discussion with the assessor, he has agreed to put to credit that she can have a credit card, fully drawn at settlement, to get her in the door.
As the purchase contract is currently in rescission - not a good look for her to be out on the footpath next week - the credit card sounds wonderful.
The moral of the story is:
Do not rely on verbal assurances that 'she'll be right'
Do not rely on what you think is a bargain, or what you think the value 'should be'
Make sure that you can complete the deal before you sign an unconditional contract
OK, this customer has a strong income and can pay out the credit card within a year. The amount of interest she will pay will be minimal compared to the penalty interest on the contract, the loss of her deposit and the reselling costs if she doesn't complete the contract
But this is still a situation far from ideal. She has lost weight, lost sleep, lost money because someone from the Bank said 'no worries'.
In a falling market - and make no mistake, this market is shallow and falling - even if we negotiate a great deal the valuer may not agree with the contract price. Risk factors assume a higher importance in weak markets - time estimated to sell, lessening demand, neighbourhood drift - all these things form part of a valuers report.
Even if you are confident that you have struck a bargain, at the very least have a 'Subject to Valuation' clause in your contract. In Victoria, we are all used to Conditions of Sale - in NSW and other States the buyer is more vulnerable if the only Condition is the Cooling Off clause which can, and frequently does, result in the buyer forfeiting a small percentage of the purchase price if they withdraw.
However, an unconditional Contract can and will be upheld by the Courts so tread warily.
Hopefully, we will have loan documents by Monday and can negotiate a further two days to settle, pleading the recent public holidays. But this anxiety could have been avoided if the customer had shown a little less trust and a little more caution for her own best interests.
Caveat Emptor
You must look after your own interests and that includes taking your time to buy, not being afraid of 'losing' the property, and making sure that your finance is organised before you sign on the dotted
Cheers
Kristine
