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Five things investors need to know about property contracts

investment property contract stamp duty fine print termites inspection

Avoid unnecessary stamp duty

In Victoria, you can assign a contract to a “nominee” using the correct wording.

This allows you to change buyers – to an entity such as a company or another buyer – without paying stamp duty twice. Be careful to nominate correctly so you are not liable to pay stamp duty twice.

For example, on Saturday you buy a house at auction. On Monday your accountant advises that your company should be the buyer. You can then nominate the company. Although the first buyer is still liable if the nominee doesn’t settle, you don’t need to pay stamp duty to add the nominee.

For other states, the seller must consent to cancel the initial contract and enter into a new contract with the substituted buyer, at the first buyer’s legal cost.

Get your timing right

The dates for payment of duty and reporting various investment activities can be fuzzy when it comes to property contracts.

Stamp duty due dates vary from state to state and also change over time as governments introduce and remove incentives. In some states, first home buyers and pensioners are eligible for stamp duty reductions and exemptions for certain purchases  but investors need to pay on time to avoid penalties.

For tax purposes, the contract date is the start of your property ownership period, not the settlement date.

Settlement dates are very important. On signing the contract, you commit to pay in full on the specified future date.

People sometimes paint themselves into a corner by buying a property before they sell their own property, risking breach of contract because the money isn’t ready; you can lose your deposit and may also be compelled to pay the full purchase price as well as any damages this breach may have caused other parties. Selling a property and buying another simultaneously is extremely precarious, so obtain professional guidance.

Playing it cool

Cooling off periods can be deceptive.

Agents often present them as “get out of jail free” clauses but there are financial penalties if you pull out of the sale in the cooling-off period; for example, in NSW you forfeit 0.025% of the property purchase price. Do not sign a contract unless your finance is approved and you’re committed.

In states such as Queensland and Western Australia, other factors may be in play.

For example, contracts may be subject to finance, pest and building reports, so if a particular issue arises during a certain time frame  you can cancel the sale.

Be careful around the dates for these. I have seen cases where the pest clause expired but the finance clause had not – the buyer found a termite problem but the only grounds for getting out was failure to obtain finance, which they had organised. Result? They had to buy a termite-ridden property.

consumer confidence housing Westpac-Melbourne Institute Consumer Sentiment Index june 2017

In a fix

When you sign a contract, you agree to take the property in the state it was in at that time. Although you get another inspection before settlement, it is too late then to ask for things to be fixed.

In a private treaty purchase, as part of the negotiating process with the agent  you can frame your offer subject to repairs or other requirements.

Before an auction, your solicitor, conveyancer, settlement agent or the agent needs to have the seller approve your version of the contract.

At the auction, you bid on those terms. Should you be successful, the contract you sign with the seller will include the special terms you negotiated in advance.

No change

Once a contract is signed, you cannot make changes. Some buyers try to negotiate on names, timings and terms after they’ve signed but this needs to happen before you sign.

Many investors find themselves unnecessarily out of pocket because they haven’t taken a closer look at their contracts.

Don’t make the mistake of seeing all contracts as the same. It pays to read the fine print.

Written by Dominique Grubisa

Dominique Grubisa

Dominique Grubisa is the CEO and founder of the DG Institute, a wealth management education service specialising in making property investment possible for all Australians.

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