Hi guys, it’s Naomi here, back for another episode of nifty renovation tips.
Are you ready to kick up some dust and make some money?
Have you found the perfect property, but not sure how you’re going to go about the buying side of things?
Before your get your hands dirty with a renovation, you need to snap up a property first.
But if you’re confused as to how that process actually works, don’t be. That’s what today’s post is all about.
It’s important to know this nitty gritty stuff so you’re not left in the dark on how long it will all take before you can actually start knocking down walls and slapping on paint.
There are two main ways of buying a property: the first is what’s known as a private treaty, and the second is an auction.
Today I’ll dive into the ins and outs of a private treaty.
No, this has nothing to do with eye patches, parrots or wooden peg legs. That would be a pirate treaty.
A private treaty is just a fancy term for a normal property sale.
Most homes in Oz are sold through this private treaty. Of course, when the market gets really hot, a lot of owners will choose to auction off their property in the hopes of riding that wave. But those aren’t the properties you are looking for anyway, because they usually involve overpaying, and that’s not what your renovating for wealth business is about.
This normal property sale has four main terms that you should keep in mind. Even though you would probably have your lawyer looking over all the details of the property sale, it’s always good to be in the loop, especially one that involves such a big amount of money.
When it comes to a private treaty, the owner will set a price that they would like to get for their property.
You, as the buyer, would then come along and offer what you think the owner would accept. Your offer would be one that you have worked out from your assessment of the property – if you’re not sure what I’m talking about, take a look at my recent post on assessing the property to make sure if fits your goals and budget.
Don’t feel pressured to give a higher amount than the price listed. This isn’t an auction, and a lot of the time the price has been set on the higher end of the scale – you want to negotiate down from the owner’s asking price.
This is also the part where it would be a good idea to find out as much as you can about the owner and their circumstances. Remember last time I talked about the four D’s that drive an owner to sell? If the owner is in a rush to sell because they’ve already bought another place, or are moving overseas, you would be in a better position to come in with a lower offer and score yourself a better deal.
2. Exchanging contracts
If you have made an offer on a property, and the owners are happy with the price, that’s great news! But don’t throw a big party just yet.
Shaking hands is one thing, signing on the dotted line is another. Once you have settled on a price, it will be set in stone when the contracts have been exchanged. And when it is down in writing, the seller can’t gazump you later by accepting a higher offer.
All this means is that you will sign your copy of the contract and send it to the owners (or more likely the owner’s real estate agent), and the owners will do the same. Just make sure you don’t sign stuff your lawyer hasn’t looked at – contract terms can be sneaky, even if you have done all of your research.
This is also the part where you would hand over a deposit, which is usually 10% of the agreed selling price. So, make sure your finances are locked and loaded and ready to go.
3. Conditional exchange
There are two types of contract exchanges. The first is a conditional one. What this means is that you, as the buyer, have a “cooling off” period to decide whether you actually want the property or not. You essentially have an escape route if things are not to your liking.
It’s almost like a money back guarantee – if you happen to find something wrong with the property, you can choose to return it to its original owner. The difference is that instead of a whole 30 days to think about it, you only get a few days – between 2 and 5, depending on what state you’re buying in. And it also means that you would lose about a quarter of a percent of the purchase price, which kind of acts like compensation for the owner.
So, make sure you don’t waste any time doing all the deep checks on the property during that cooling off period.
4. Unconditional exchange
The second type of contract exchange is an unconditional one. And yep, you guessed it – there is no cooling off period, hence the “un” part. Once you pay sign on the dotted line and pay the deposit, there’s no backing out without some serious consequences.
This might be a little risky because you haven’t done all the relevant checks yet, but sometimes it can mean the difference between landing a renovation project at a good price or missing out because another buyer came along and agreed to a no cooling off period.
Sometimes owners want to sell fast – and that urgency can be used to your advantage. The quicker you can settle, the more likely you are to end up landing that property at a good price. And settling quickly will mean that your renovation will be up and running ahead of schedule.
The faster you start a renovation, the faster you will finish, and the less money that will be wasted on council fees and loan repayments. All of this will mean a higher profit for you at the end of the day.