Written offers

Couple of newbie questions:

- Are verbal offers and written offers binding?

- If so can you be gazumped?

- Is there a situation where you can be gazumped after a Sales Contract has been sign?

- A common trend seems to be the use of written offers, what are the advantages and disadvantages of them? I think this question was discussed about 2 years ago in a very old thread and was wondering if opinions have changed.

My PPOR was a blur, so with my IP I want to be as knowledgeable as possible. With so much knowledge floating around this forum someone's bound to have an opinion ;)

Thanks
Colin
 
Hi Wild,

IMO the only time verbal or written offers are binding is at an auction. Yes, you can still be gazumped until contracts are EXCHANGED. If you have signed the contract but the vendor has not then they can do what they want.

As far as written offers and verbal offers, some seminar givers believe that written offers give the vendor a push. I never have and vendors seem to understand that if I make an offer then I wish to buy their property :D
 
Originally posted by WildeeST
- Are verbal offers and written offers binding?

NO.

No contract is binding unless it is done in the specified manner, by specified, I mean that each state has a manner in which real estate contracts MUST be set out, including appropriate warning statements, etc. If you sign a letter which simply states "I offer $xxx on this property, signed..." this shows intent, but is not a binding contract.


- If so can you be gazumped?

Yes.

Gazumped (as I understand it) means that you offer on a property, your offer is accepted, and you go away happy, then they get another offer from someone else, for more, and they accept the better offer.

It's not nice being the purchaser in this situation. (It's also not nice being the agent in this situation!!). I guess it's a matter of they got a higher offer, and took it. :(

You can be gazumped at ANY TIME BEFORE THE SELLER SIGNS THE CONTRACT. So it's important to get them to sign as soon as possible.

- Is there a situation where you can be gazumped after a Sales Contract has been sign?

Not if it has been signed by the vendor (see above) but yes if you are the only party to have signed.


hope this helps,

asy :D
 
The philosophy behind making a written offer is it shows the vendor you are serious.

Unfortunately, RE agents ofter get verbal offers that are later retracted.

If a vendor has two offers, and one is in writing showing the buyers details (name, address, phone), the amount of the offer and any T&C's, versus a verbal "Offer them $x", the vendor would lean towards the written offer, all other things being equal.

Sometimes, you can actually get a better deal just because it's in writing.....


Mind you, don't make a practise of putting it in writing then rescinding. You will very quickly gain a reputation.

Cheers,

Simon.
 
OK that make me feel a little better:)

Just following on from there, would you then get the building inspection, pest inspection etc... done before the exchange of contract of would you have a clause in the contract to take care of these matters?

I see alot of potential cost if you get gazumped before the vendor signs the contract.

Thanks
Colin
 
You can put all those T&C's in the contract, but be aware some vendors wont take a property off the market if there's too many.

Common T&C's
Subject to Finance - Always !!
Subject to purchasers satisfaction with building report
Subject to purchasers satisfaction with pest report

Note the Purchasers satisfaction, not just "satisfactory report". Make sure you have the say on whether it's satisfactory!

You will need to put dealines on the above tasks.

Say ...

Subject to finance approval for $xxx,xxx by dd/mm/yyyy
Subject to purchasers satisfaction with building report to be obtained by dd/mm/yyyy

etc.

Good luck.

Simon.
 
That makes perfect sense when someone else explains it you:)

One thing that I'm still not clear about...if you happen to use equity in your PPOR then I would assume you will be borrowing 100% + a little extra (if possible). In the above scenario how would you provide the deposit of say 5-10% at the time of signing the contract, when you are still finalising your finance.

My best guess is you would get a pre-approval from the bank. But this leads to another question of bank needing to value the property so would not give you the deposit money yet. This is too much like the chicken and the egg question. Going around in circles because I believe have made the wrong assumption somewhere.

Thank you to all that have replied...make me more confident about doing my first IP.

--Colin--
 
If you haven't got all the finance tidied up yet, you can use a Deposit Bond for the 5/10%. Very economical method. Basically you "borrow" the money for a preset time, for a fee. You still have to ante up at settlement.

But...

Make Sure you have the finance tied up.

Deposit Bond (very, very roughly....)

$17,000 costs around $200 for a few months. It will vary depending on the supplier and the term. Banks have them, and some insurance companies.

You're right, you need to refinance your place to get the equity out.

And....Lesson before you have to learn it yourself.....from one who didn't.

Avoid cross collaterisation across both properties. It makes for mess later on. Increase your PPOR loan, get the money to pay the deposit for the IP, use separate loans.

All the best,

Simon.

btw - "proper way" (not that there really is one, but it's easier...) revalue PPOR and get money first, then look for IP....
 
Simon's advice is spot on!

If your thinking IP, first step is to refinance the PPOR with an additional LOC which may be drawn upon to finance deposit. This will allow you to choose whether to fund your deposit obligations with cash or a deposit bond. Often the choice between the two options come down to a cost/benefit analysis based on the interest charged on the funds drawn down from the LOC and the upfront cost of the deposit bond.
 
Back
Top