Understanding the Contract of Sale
Purchasing a property is about so much more than having a vendor and a purchaser agreeing to the sale. Often, there is back and forth regarding price, condition of the property and any other compromises required.
Once both sides have negotiated the deal though, a contract of sale is signed by both the vendor and the purchaser. A legally binding agreement between the parties, the contract of sale is negotiated through solicitors or conveyancers. Using your own solicitor or conveyancer is crucial in ensuring the contract is sound and the transaction is completed successfully. In more complicated cases, solicitors can also negotiate on behalf of the parties to ensure the contract is in line with what is required. Importantly, the process differs from state to state, which is why it’s so important to retain an expert.
Once both parties have signed the contract, it is ‘exchanged’, which means it is now a legally binding agreement, committing both the vendor and the purchaser to the sale. It is at this time, as well, that the buyer will have to provide a deposit.
Who prepares the contract of sale?
The contract of sale is prepared by a conveyancer, solicitor or real estate agent. Who actually prepares it largely depends on how the property is being sold and how complex the requirements are. For example, if the property is being sold privately, the real estate agent generally drafts the contract, which is presented to the potential purchaser to make an offer. This is why it is so important to choose the right real estate agent, who has the experience to draft and deal with a solid contract.
Contracts are checked and approved by solicitors or conveyancers for both parties, and negotiations are usually carried out by the legal representatives, together with the real estate agent.
What is included in the contract?
There are several details that must be included in a contract of sale.
- The names of the vendor and purchaser. This should also include the addresses of each party.
- The address of the property.
- The deposit amount and due date.
- The sale price.
- The date of the property settlement and whether there are any conditions. Conditions may include finance or any additional inspections. Each condition needs to be numbered and initialled by both parties.
- Whether the property is available as ‘vacant possession’ or ‘subject to a lease’
- Any other property that is being sold as part of the deal
- Inclusions and exclusions. These may also be referred to as the ‘chattels list’. Inclusions and exclusions cover things such as fixtures and fittings, carpets, curtains etc.
Remember though, each state has different requirements for what is necessary to include in the contract, so definitely do your research. And if in doubt, consult an expert. It’s a legally-binding agreement after all, and once signed, it can’t be undone. This means you need to ensure it includes all the correct information.
Key things to remember
Once you have officially signed on the dotted line, it is not all over and done with. There are still things both the vendor and the purchaser need to organise between exchange and settlement.
As the purchaser, hopefully before exchanging the contract, you will have some indication of what you can borrow from a lender. Once the contract is exchanged, you will need to contact your home loan lender and officially organise finance for the property. Whether it is taking out a new loan, using a loan portability feature or organising bridging finance, you will need to jump on this very quickly to ensure payment can be made.
A contract of sale may include conditions such as inspections or valuations. Any special conditions outlined in the contract need to be fulfilled between exchange and settlement. This includes any work required by the vendor.
A pre-settlement inspection will need to be organised, and once the purchaser is happy that everything is in the required state, the vendor will need to organise the handover. This means providing the keys to the real estate agent for the purchaser on settlement day.
Key things to watch out for
Of course, not every contract of sale is a smooth process and there are some red flags to keep an eye out for. Before signing any contract, both parties should do their due diligence.
Things to look out for include:
- A party not willing to negotiate on property price.
- No disclosure about the condition of the property by the vendor. This includes the history of the property. Remember, without this knowledge, a purchaser is essentially entering the contract blind, as there is no prior knowledge of what the property has gone through.
- A bank valuation coming in lower than the asking price. While this cannot be predicted, a purchaser has the right to ask for an upfront valuation first.
- Look also at the possession condition of the property. As a purchaser, does it suit you if it is subject to a lease?
It is a good idea to check the contract of sale towards the beginning of the property search process. Many potential purchasers will only look through the contract once they have fallen in love with a property. However, there may be conditions in the contract that don’t suit your requirements. If these clauses cannot be negotiated on, there is no point prolonging the process or getting invested in the purchase if it is not going to suit your needs.
As a vendor or a purchaser, if you are happy with the contract and all the conditions, sign on that dotted line. Before, though, remember to check every clause and ensure negotiations are carried out accordingly. Having a thorough understanding of what a contract of sale is, what it should include and how to make it a seamless process as possible is crucial. A property transaction is one of the largest financial decisions many people make. Why make it harder than it should be?
And when you need a helping hand, whether you are a vendor or a potential buyer, our experienced LJ Hooker agents are waiting to assist you. We offer you experience alongside excellent market knowledge that helps make the buying or selling process as smooth as possible. Voted Australia’s number one real estate brand, a little help from the team at LJ Hooker can be invaluable when it comes to buying or selling your home.
DISCLAIMER - The information provided is for guidance and informational purposes only and does not replace independent business, legal and financial advice which we strongly recommend. Whilst the information is considered true and correct at the date of publication, changes in circumstances after the time of publication may impact the accuracy of the information provided. LJ Hooker will not accept responsibility or liability for any reliance on the blog information, including but not limited to, the accuracy, currency or completeness of any information or links.