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Partner of MBA Lawyers at the Gold Coast and the author
of the ‘Made Simple’ series of publications available from
For some time now I’ve promoted a strategy to help people
avoid being gazumped when buying property in the big
eastern seaboard states of Victoria and New South Wales.
My suggestion is that you instruct your solicitor to exchange
contracts immediately when a sales note has been signed,
without waiting the usual three to four weeks to carry out
searches of the property.
Exchanging contracts earlier would tie the property up for you
as an investor, take it off the market and avoid being gazumped.
But comments that I get back about this approach include “but
you can’t do this in New South Wales because you can’t add
clauses to a contract once it’s exchanged”. This isn’t correct.
You can, but you don’t usually do so, because there’s no need in
most residential contracts to include any special condition as all
searches, due diligence, pest and building inspections and even
finance approval are usually satisfied during the period from
signing the sales note to exchange of contract.
Thus, there’s no need, usually for protection or special
conditions in the contracts when exchanged.
But this delay means you can be gazumped at any time until
exchange of contracts. So when real estate agents or solicitors
respond in this way, stand up for yourself and go on the front
foot. They usually react this way out of ignorance and the desire
to preserve the status quo. But it doesn’t serve you at all, nor
provide a fig leaf of security against the risk of being gazumped.
So, if you fear that you may be gazumped, exchange contracts
as soon as possible to avoid this dilemma. Protect yourself by
adding a simple clause, making the contract subject to a due
diligence. Tell your solicitor to exchange now, but subject to
a due diligence during which time you can do searches, get
finance approval etc.
If there’s a push back from the seller, or the agent, that this is
unsatisfactory to the seller as they’re left with the uncertainty
of a contract which is still subject to due diligence, the obvious
response is they at least have a contract where all of the issues
have been resolved eg. purchase price, deposit, settlement date
etc. and the only outstanding issue is searches.
Aren’t they more advanced, and in a stronger position, than
just being the holder of a sales note under which the buyer could
try and rewrite the terms of the sale or walk away at any time
prior to the exchange of contracts? If the seller knows there’s
nothing wrong with the property, why would they baulk at
exchanging contracts, subject to a due diligence?
It’s also worth remembering that a number of the big property
cases that have gone to the High Court over the past 10 years
have involved New South Wales contracts where the parties
have agreed to time of the essence and the inclusion of
conditional clauses in the exchanged contracts.
It’s common enough still to see contracts exchanged in
NSW subject to special conditions, eg. development approval,
feasibility, securing other partners to develop the property.
Admittedly, these are mainly commercial sales but the principles
are the same. That is, it’s legal to exchange contracts subject to
conditions, but it’s not usual to do so with residential sales, as
most of the issues requiring the protection of special conditions
are resolved between the sales note and exchange of contracts
when usual enquiries and searches are carried out.
So, you can and should exchange contracts earlier, subject to a
due diligence, if you want to avoid being gazumped.
We all know that lenders will usually require a valuation, or at
least a market appraisal, of the property that you’re buying
where they’re asked to advance money against it.
But property owners don’t give enough attention to the issue of
valuation when they’re selling.
The question often overlooked by sellers is, “Should I do a
valuation before setting a price for the sale of my property?”
Usually it’s a good idea. Especially when there’s not been much
activity in the area over recent times or the property is unique
and difficult to value eg. a rural/residential acreage property.
The benefit of obtaining a valuation before you put the property
on the market is that it sorts out the hype and the noise from
agents trying to get the sale of your property.
Now that we’ve got that issue out of the way, the next most
frequently asked question is, “Should I provide a copy of the
valuation to potential buyers or at least disclose the amount
of the valuation to them?” In almost every case the answer is
You’d only disclose a valuation to a potential buyer when it’s
to your negotiating advantage to do so. That is, you have a real
buyer for your property who has made an offer at close to your
price, but you just can’t seem to move them those extra dollars.
That would be a time when you would provide a copy of the
valuation to give them the confidence to dig deeper to come up
with your price.
But always appreciate this. Once the valuation is revealed,
understand that it’ll be very unlikely that you’ll ever sell the
property for more than that. API
LEGAL HELP DESK // ROB BALANDA
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