7 First-time real estate buyers FAQs


Questions Answered



Being a first-time real estate buyer is daunting but there are many concerns that are shared by many. Below are many first-time buying questions and answers that may help you on your way.



Q1. How do I make an offer on a property?



A1. Offers need to be made to the selling agent and must be in writing.  An email is a written document that forms part of the sale’s history. If you are submitting a low offer more detail will be required as many vendors might be insulted and discard any further negotiation. Low offers are more acceptable if the vendor can see the reasoning or rationale for the offer.



Q2. What is the lowest price the seller will take?



A2. Many properties are offered with a price range and this is interpreted in many ways. Agents often use a range that will invite interest and also satisfy their sellers. As you can imagine the buyer wants the bottom of the range and the seller wants the top. Therefore, it is wise to start at the lower end and start the negotiation. The vendor may reject the lower offer but as the guide is known they cannot be offended. Real estate can NOT have an exact price it is what the two parties agree to.



Q3. Are online valuations reliable?



A3. In a word No. When you look up an online valuation it is not a valuation. At best it is a market appraisal and it cannot take into account whether the house has been updated or renovated. What is a better indicator is to look up similar houses/units in the street and compare like with like. Look for the size of land, accommodation, aspect, noise, etc.



Q4. What about buying in a strata?



A4. Buying a unit or townhouse is different from buying a house because you are not buying land – you are buying air space. That means you need to understand your rights and obligations living with other owners. Strata complexes attract levies and you need to know what they are used for. Levies are paid per quarter and as a first-time buyer, you need to ask for what that amount is and how that money is being managed.



You will need to see a strata report before you buy that will outline how the building is managed and whether there are any works scheduled that you will have to pay for. There are two main financials you need to focus on – the Sinking Fund and the Administration Fund. The Sinking Fund is money in the account for any repairs and maintenance and the Administration Fund covers areas like insurances and strata administration. Most importantly there must be money in both so that you don’t get a bill for repairs you were not expecting and did not budget for.



Q5. What is lender mortgage insurance (LMI) and why do pay for it?




A5. LMI is an insurance you pay for to protect the bank. As the bank considers loans greater than 80% risky, they make you cover their risk. If your deposit is less than 20%, you’ll need to pay for LMI. Many first-home buyers don’t understand lenders’ mortgage insurance covers the lender and not the buyer.



Low deposit areas are also the most impacted by property prices which is why many established areas see very little price discounting. When the media reports of price drops, they are referring mainly to highly geared areas. Banks make sure you pay for this risk.



Q6. What are the upfront costs of buying a home?



A6. In addition to mortgage repayments, you need to be aware of the upfront costs involved in buying a home. These upfront costs include:


Stamp duty/transfer duty. This is a state tax that is a one-off payment that you need to factor into your budget. There are many stamp duty calculators on line. The First Home Buyer’s Assistance Scheme means you may be exempt (partially or fully) from the stamp/transfer duty. You may also be eligible for a grant, the First Home Owner Grant (New Home), in addition to the First Home Buyer’s Assistance Scheme benefits.

Legal and conveyancing fees. A conveyancer or solicitor will help you meet all legal requirements involved with purchasing your home budget somewhere between $700-$2500.

Removal and cleaning costs. Removal costs will depend on distance, how much furniture you have, and who is doing the packing. The NSW Government’s A Guide to the Cost of Home Purchase gives an approximate cost of $550 – $3,500.

Pest, building and strata reports. Purchasers should get a pest and building report to ensure they will not have expensive repairs that could potentially be dangerous or affect value. A property inspection report is a comprehensive account of a property’s general condition. It informs both the seller and the buyer of any problems that are present. Property inspections must also comply with Australian Standard (AS 4349.1). If you are buying into a strata a strata report will also be required.



Q7. What is a cooling-off period?



A7. After discussing the contract with your solicitor or conveyancer and making the proper inquiries and necessary financial arrangements, you will be ready to exchange contracts.



There will be two copies of the sale contract: one for you and one for the vendor. You each sign one copy before they are exchanged. At the time of the exchange, you will be required to pay a deposit that is usually 10%. However, most contracts are exchanged with a smaller deposit of 0.25%. This provision called the cooling-off period allows the buyer to have a change of heart and cancel the contract. During this period, the seller is forbidden from selling the property to another buyer.



A cooling-off period does not apply if you buy a property at auction or exchange contracts on the same day as the auction after it is passed in. If you use your cooling-off rights and withdraw from the contract during the 5-business day period, you will have to pay the vendor 0.25 percent of the purchase price. This works out to be $250 for every $100,000.



To conclude

First-time buyers need to be prepared It is like that old expression measure twice cut once. Be prepared and then you can enjoy the property without regret.