Purchasing a property is not as simple as finding a willing buyer and a willing seller. There can be a lot of back and forth regarding price, repairs, and other compromises between the two parties before they seal the deal. After both sides have come to an accord, the agreements are then put into paper – a legal document which we know as the Contract of Sale.
A contract of sale is one of the many legal documents that are part of the conveyancing process and is an essential part of any real estate transaction.
Whether you are planning to buy a property in the short term or in the distant future, it's important to get familiar with this document and its importance.
Who prepares the contract of sale?
The document is prepared either by a qualified conveyancer or solicitor. When a home is sold privately, it is typically the real estate agent who drafts the contract, and the total price of the property, as well as the initial deposit, so that the buyer can make an offer.
The contract is then checked and approved by the conveyancers representing both parties. You should be aware of all proposed changes to the contract to ensure that you are duly protected.
What is in the contract?
The contract of sale should detail every aspect of the transaction. While the required information included in the contract may differ in for each of the Australian states, it should typically indicate the complete address of the property, the names of the seller and buyer, the name of the seller's agent, and the conditions of the transaction which includes terms of payments and loan details.
Furthermore, the contract should also note of the initial deposit to be paid by the seller, the total sale price of the property, the dates of offer and of the property settlement, the cooling off period, and any inclusions and exclusions as discussed by the buyer and seller.
As a buyer, you have to ensure that the seller includes attachments relevant to the contract, such as zoning and property certificates, sewage plans, plans of the land if the property is within a subdivision, and home warranty insurance certification.
Which parts of the contract can be negotiated?
You can always have the terms of the contract negotiated according to your comfort level. For one, you can have the cooling off and settlement period be adjusted to a longer or a shorter period of time. Please make sure that there are different suggested cooling off periods in each Australian state. Payment terms and the amount of initial deposits are also a common subject for renegotiation. You may consult a financial adviser to discuss the best course of action regarding this.
You can also bargain on what fittings and fixtures will be included in the purchase of the house. If other personal properties are sold as part of the package deal, clarify what these are and request additional items if necessary.
How is the deal sealed?
The usual process of completing the contract of sale process starts with you submitting your offer to the seller, which includes any additional changes or conditions and the price of the property.
Before you put your pen to paper, ask your solicitor or conveyancer to do some final checks in the document. Once you sign the contract, the paper becomes a legal and binding document.
Take note of the date on which you signed the contract as this typically commences the cooling off period.
If the seller accepts your offer, then the two parties will proceed to the contract settlement. However, should there be changes, the seller would send the contract back to you ideally with proposed changes. Assuming everything is good to go, you and the seller (or both of your representatives) will meet for the contract settlement. This is when all final checks are done, as well as the payment of the initial deposit and exchange of legal documents.
How is the contract of sale different from a deed?
The main difference of the two lies in their purpose: a contract indicates the obligations of the parties regarding the sale of the property while a deed serves an important part in transferring ownership of the property from one person to another.
While a contract commences the sale of a property, a deed is an instrument that concludes the process. When the seller signs the deed, it officially transfers the ownership of a property to you as a buyer.
Do rules surrounding the contract of sale differ for each state?
Each state has its own particular rules surrounding the process of buying and selling of properties. In the Australian Capital Territory, it is a must for the seller to give potential purchaser with all the required legal documents before the property will be offered for sale.
In Victoria and South Australia, sellers are required to provide potential buyers with a vendor's statement before the contract is signed. This document discloses information about the property which is not readily found by inspecting such as mortgages, covenants, easements, and zoning.
Meanwhile, contracts of sale in Northern Territory are required to go under the scrutiny of the Register of Land, Business and Conveyancing Agents or the Law Society Northern Territory.
Visit the state's local real estate institutes and law societies' websites to know more about these particular rules.
- Victoria – Real Estate Institute of Victoria | Law Institute of Victoria
- Australian Capital Territory – Real Estate Institute of ACT | ACT Law Society
- Tasmania – Real Estate Institute of Tasmania | Law Society of Tasmania
- Western Australia – Real Estate Institute of Western Australia | Law Society of Western Australia
- Northern Territory – Real Estate Institute of Northern Territory | Law Society NT
- New South Wales – Real Estate Institute of New South Wales | Law Society of New South Wales
- Queensland – Real Estate Institute of Queensland | Queensland Law Society
- South Australia – Real Estate Institute of South Australia | The Law Society of South Australia
One last thing
It is a must for you as a buyer to understand every detail indicated in the contract of sale. Given that the process involves complex legal matters, it would be best for you to avail of the services of an experienced professional in the field.