Step 7 - Making Offers and Negotiating
The first mistake people make when they submit an offer on a property is that they think the Seller only cares about the price, which is not always the case. The process of making an offer and negotiating with the agents is about striking a balance between price and contract terms.
When we talk about 'terms' of a property contract we are generally referring to the following (please note there are various other terms such as 'lease backs', 'all-cash offers' etc.):
Deposit amount
This is the amount that you pay upon the signing of the contract to show that you are a serious buyer.
Generally speaking, it is common for you to pay around 10% of the purchase price on signing, or a lower amount such as 5% on signing then the balance of the deposit once the contract is unconditional. It is also generally the case that the deposit is refunded in full if you validly terminate the contract pursuant to a condition of the contract (i.e. building and pest or finance as discussed below).
However, the laws regarding deposits varies between states, so it is vital you speak to a conveyancer to understand your obligations and what happens to your deposit if the contract falls through.
Settlement period
This is the period from when the contract is signed by all parties to when the sale is completed (i.e. you own the property and the Seller gets their money).
This is usually anywhere from 30 days to 90 days from the date of the contract.
Building and pest condition
This a standard condition in a contract which protects the Buyer by making the purchase conditional on an inspection of the property by a professional building and pest inspector who will provide the Buyer with a report detailing any minor / major defects or termite (or other pest) issues present in the property. We will talk more about understanding the results of these reports later on in this website.
Your ability to terminate the contract or further negotiate the sale price based on the results of this report will depend on the relevant state so it is vital you speak to a conveyancer about your options before negotiating.
The standard period for you to complete the building and pest condition is anywhere from 7 days to 14 days.
Finance condition
A finance condition is another standard condition in a contract which protects the Buyer by making the purchase conditional on obtaining a formal loan approval.
The period required for you to obtain finance approval will be very dependent on your personal circumstances so it is vital that you speak with your mortgage broker to understand how long you will need post-signing to get the loan approved.
Generally speaking, the most common period to satisfy the finance condition is anywhere from 7 days to 14 days.
Special conditions
The special conditions are additional clauses that change, add to, or clarify the standard terms of the contract.
If the Seller has added any special conditions your conveyancer will be able to tell you if they are problematic.
In terms of any special conditions you want to add, here are a few common ideas / concepts that you can raise with your conveyancer to see if they can provide you with the drafting for a corresponding special condition:
The property is to be sold with all fixtures and chattels included and they will be in working order.
Once the contract is unconditional, the Seller is to provide reasonable access to the Buyer’s property manager so that they can conduct at least 1 inspection each week to potential tenants. The Buyer’s property manager should provide at least 48 hours notice.
Once the contract is unconditional, the Seller is to provide reasonable access to tradespersons for the purpose of obtaining quotes for any works / repairs that the Buyer believes is necessary or desirable.
Images used to advertise the property on realestate.com.au, Domain or any other similiar website can be used by the Buyer for the purpose of advertising the property for lease.
All appliances in the proprety are to be in working condition at settlement.
All of the Seller’s furniture, hard waste and similar items are to be removed by settlement.
The Buyer reserves their right to conduct a pre-settlement inspection at least 3 days prior to the date of settlement.
For reference, most of these are nice to haves and should not really be deal breakers, especially in a hot market or in a deal where you are competing with multiple offers, in these situations you should discuss with your conveyancer and consider including no special conditions.
Noting again that the above are not sample clauses to include a contract, they are just ideas / concepts of things to potentially include in your offer, anything that eventually goes in the contract needs to be reviewed and prepared by your conveyancer.
Just to re-iterate this point, the above summary of contract terms is not legal advice, you must speak to your conveyancer so you understand all your options before your enter into any negotiations (it truly does vary quite a bit from state to state in Australia). Refer to Step 2 of this website on how to find a good conveyancer.
This is not a substitute for a discussion with a conveyancer - but ChatGPT can give you a solid summary of the above conditions, just make sure you be very specific on your scenario (i.e. what state you are buying in etc.)
Understanding 'unconditional offers' and when a contract becomes 'unconditional'
Before we move on to actually making competitive offers I want to make it clear when a contract becomes 'unconditional' and what an 'unconditional offer' is. You should ask your conveyancer about this but I just want to give some general background as it will be important background information.
As discussed above, a contract of sale generally contains two main conditions: (1) building and pest condition; and (2) finance condition. Therefore, the contract of sale will be come 'unconditional' once both of those conditions have either expired, been satisfied or waived by you.
Once the contract is unconditional, the parties are locked in to the contract and you cannot withdraw from the contract without incurring serious financial penalties, such as losing all your deposit.
An unconditional offer is when you do not include a building and pest condition and a finance condition - i.e. you are locked in as soon as you sign the contract (unless there is a cooling-off period which is available in some states).
This is generally the most competitive type of offer to a seller as it gives them more certainty; however, it is more risky for you / the buyer.
If you have confirmed with your mortgage broker it can be possible to remove the finance condition but I personally would never remove the building and pest condition as you don’t want to be inheriting a property with structural issues or active termites which could costs tens or event hundreds of thousands of dollars to fix. This is especially important if you are purchasing properties interstate. The only exception to this is if you were able to conduct a building and pest inspection prior to submitting your offer - but that is quite uncommon in my experience unless the proprety is being sold via auction in which case it is standard.