The contract for sale
The first thing you need to do if you are selling your house or apartment is to prepare a contract for sale. Putting your house on the market without having a proper contract is an offence under NSW law and could lead to you being fined.
What do I need to include in the contract for sale?
The law says that all sellers must include certain information in the contract for sale and must also make certain promises (known legally as ‘warranties’) about the property they are selling. These obligations are known as the Vendor Disclosure Requirements.
The most common documents you may need to include with the contract are:
- A zoning certificate. This is issued by local council and shows planning controls and other things which may affect the property, such as any proposed road widening
- A drainage diagram. This shows the location of any sewer lines
- A title search confirming that you own the property
- Copies of any documents creating easements, rights of way, restrictions or covenants
- Certificate of compliance or non-compliance for any swimming pool
- Certificate showing whether or not land tax is owing on the property.
You should also talk to your solicitor about whether you should include:
- An identification survey
- A building certificate, and
- A homeowner’s warranty insurance certificate.
What if I am selling a strata title property?
Most apartments in NSW are strata title. If you are selling a strata title property, you will also need to include:
- A copy of the property certificate for the lot and common property
- A copy of the strata plan showing the lot
- A copy of the by-laws affecting for the strata scheme.
You should also let your solicitor know if any special levies have been levied or are likely to be levied.
What warranties am I deemed to have made about the property?
Unless the contract for sale includes specific information that says otherwise, by putting your property on the market you are deemed to have made a number of promises about it. These include:
- That the land is not subject to any ‘adverse affectation’ (essentially government proposals that might affect the land)
- That there is no sewer on the land that is not shown in the drainage diagram
- That the zoning certificate gives an accurate picture of the zoning of the land at the date of the contract
What happens if the contract doesn’t comply?
If you do not comply with the Vendor Disclosure Requirements and there turns out to be a problem with the property, the buyer may be able to cancel the contract for sale, in which case you will also have to return their deposit. This could be very serious if you have already bought a new home.
Should I use standard or tailored terms in the contract?
Many of the terms in any contract for sale will be standard, which means they have been in use for a long time and are generally considered to be fair to both the seller and the buyer. You don’t necessarily have to include all of these standard terms in your contract, especially if they do not reflect your needs or the property you’re selling.
Your solicitor will make sure that the contract for sale doesn’t only meet the legal requirements, but that it is also in your best interests. That said, it is likely any buyer will want to negotiate some of the terms on which they’re buying. For instance, if they are also selling a home, they may want a longer or shorter settlement period than normal.
Alternatively, they may want to make sure certain items, such as the blinds, are included as ‘fixtures’.
Your solicitor will continue to negotiate with the buyer’s solicitor to make sure that you still sell on your terms. This will include working out a time to ‘settle’ the sale, which is when you will be paid the balance owing.
Selling by private treaty vs selling by auction
Many properties in NSW are sold by private treaty. This is where you advertise the amount you would like to achieve for your property and then negotiate the final price with any prospective buyers.
If you choose to sell by auction, the contract will not include a ‘cooling off’ period. Instead, if the property is ‘on the market’ (i.e. your reserve has been met) and the hammer comes down, the winning bidder is bound to go through with their purchase (unless, of course, there is a serious problem with the contract for sale).
How does a ‘cooling off’ period work?
A cooling off period gives a buyer the chance to consider whether they really want to enter the contract once the emotion of making an offer has subsided (it also gives them the chance to carry out any building and pest inspections before the contract is final).
Potential buyers will usually only forfeit 0.25 per cent of the purchase price if they pull out during the cooling off period.
You can ask the buyer to waive the cooling off period, especially if they have a solicitor acting for them and have done their searches and inspections.
What’s included in the sale?
Unless the contract specifically says otherwise the property is sold ‘in the state it’s found’. That also means any ‘fixtures’ are automatically included.
A fixture is anything that cannot easily be taken away without doing damage to the property. For instance, stoves are usually fixtures because they are wired in, whereas fridges are not because they only need to be unplugged. Sometimes you may be able to exclude a fixture from the contract for sale. At other times, what constitutes a fixture isn’t so clear cut (e.g. removable floor coverings or an above-ground pool) and this can lead to a dispute between you and the buyer.
Where anything is in doubt, it should be expressly included in the contract for sale.
When first meeting with your solicitor, do not be surprised if your solicitor asks you to bring along identity documentation such as your passport, birth certificate, driver’s licence, marriage certificate etc. Under NSW laws, your solicitor will likely need to verify your identity and take copies of your identity documentation for your file.
One cost you should factor in to the sale is the agent’s commission. It is usually a good idea to shop around and compare commission rates of various agents as well as the services being provided. Agents are required by law to give you a written guide to their fees, commissions and expenses before you sign an agreement with them. You should have your solicitor review the agent’s agreement before you sign it.
What is exchange?
A contract to sell a property becomes binding when the buyer and seller sign their copy of the contract for sale and then ‘exchange’ them. At exchange, the buyer also usually hands over a deposit (usually 10 per cent). At an auction, exchange happens immediately after the winning bid is accepted. If the property is not sold at auction, your solicitor or agent will usually effect contract exchange by delivering your signed contract to the buyer and collecting the buyer’s signed copy as well as the deposit. However, it is not unusual to exchange contracts by mail or even email.
Often after exchange, if the parties direct, your real estate agent will invest the deposit in an interest bearing account until settlement (your solicitor may do this if you do not have an agent). When the sale is finalised any interest earned on the deposit will then usually be split equally between you and the buyer.
Duty, GST and CGT
In NSW, only buyers have to pay duty on a property transaction. However, there may be other taxes you will need to pay, particularly if you are selling an investment property.
GST does not generally apply to the sale of residential property. But you will be liable for GST if the property you are selling has a commercial use (and in some other limited circumstances). The sale of new residential premises and potential residential land may be subject to the GST withholding requirements. Where it applies, the purchaser withholds an amount from the contract price and pays that amount to the Australian Taxation Office.
Unless you purchased the property before 1985, the sale of an investment property will usually attract Capital Gains Tax (CGT).
However, you do not usually have to pay CGT on the sale of your own home. That said, the law of CGT is complex so you should see your solicitor if you are in any doubt about whether or not you will need to pay CGT.
If the price of the property is $750,000 or more, and you are an Australian resident, you will need to provide the purchaser with a clearance certificate from the Australian Taxation Office. Your solicitor can help you comply with this requirement if it applies. If you do not provide the clearance certificate, under the foreign resident capital gains withholding regime your purchaser will be required to forward one-tenth of the purchase price to the Australian Taxation Office.
What happens if a buyer wants to get in early?
Sometimes a buyer will want to occupy the property before settlement, especially if they have already sold their home. The standard contract for sale has a clause governing this scenario. It says that the buyer will have to pay you an occupation fee, creating a licence which runs until settlement date. It also says that the buyer must take out insurance and cannot make structural changes. Any adjustments to utility bills, taxes etc should also take into account the date of occupation.
Because risk ultimately rests with the seller, you should never let a potential buyer take possession of your house before settlement until you have consulted your solicitor. An alternative to early occupation may be to bring the settlement date forward.
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