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Hi guys, it’s Naomi Findlay here, your rapid renovation expert.
Did you know I have a renovation course? You can check it out here!
So, I’ve gone through the main differences between a private treaty and an auction. Each has their own pros and cons, but one thing’s for sure: you as the buyer tend to have more wiggle room when it comes to a private sale.
That’s because you don’t have to sign on the dotted line right away.
So, how do you use that flexibility to your advantage?
Are you aware of what parts of the contract you can negotiate to benefit your renovation project?
“But don’t I already have a lawyer paid to do that for me?” I hear you ask.
Now, I know you will most likely have a lawyer looking over your contract and giving you these tips anyway. If you don’t, I strongly suggest that you get one who will end up falling part of your A-Team (and if you’re not sure what I’m talking about, have a look at my previous post on this).
Yes, your lawyer is your right-hand person when it comes to all this nitty gritty legal stuff. And yes, they are your expert who will guide you down the best route when it comes to buying for the purpose of renovating for wealth.
But, it’s also good to know the main points in a contract that would see you finishing your project early and saving money. After all, if you don’t know, you won’t know what to ask for.
Don’t have time to watch? Listen to it on the go here!
So, first thing’s first.
Use contract clauses that keep relationships happy
Your goal is to get a contract with clauses that benefit you, without stepping on anyone else’s toes. And your lawyer should also keep that in mind when suggesting clauses you should add.
But what is a clause?
Well, it’s definitely not a jolly big man in a red suit riding around in a sled pulled by reindeer.
Not to bore you too much, your property contract is made up of a whole bunch of information. And a big chunk of that is aimed at defining your duties and rights, as well as the owners’. These will usually come under the heading: “General conditions”. And like the name implies, they are the stock standard rules that most property contracts come with.
Stuff like how long you have to change your mind and back out (that is the cooling off period), and how long you have to get your finances in order are usually part of the generic clauses.
But what you are more interested in, are the clauses you can add.
Additional clauses are the ones that your lawyer will throw into the contract that will benefit you. Just keep in mind that if you have a ten-page list of these extra conditions, an owner might run in the opposite direction.
I mean, if you sat down to shake hands and were given an encyclopedia of conditions instead, you might run away too.
It doesn’t matter how many dollar figures you have laid out on the table, if the length or depth of your conditions is intimidating, sellers will look elsewhere. After all, that extra cash wouldn’t be worth the hassle of conforming to all your demands.
The other thing you have to keep in mind is your relationship with the agent. Keep your friends close, and your real estate agents closer – that might not be a mainstream saying, but it sure applies when you’re in the property renovating game. The last thing you want to do is scare off the guy who is giving you all of your property leads.
Having said all of that, adding clauses to the contract is a good idea. As long as they are well thought out and will truly benefit your renovation. Remember, the goal here is to buy the property hassle free, not to come up with a million ways that you could back out of the contract without being penalised.
What are some of the standard clauses you want to see in your contract?
There’s a lot of mumble jumble in a contract. Luckily for you, your legal guru will help you sort through it all. But there are four common – and beneficial – clauses in a contract that are really handy to know.
1. Building inspection
This is one of the best ways to make sure you are getting a property that is structurally sound. After all, you’ve already done so much work and research getting to this point, and have already worked out your budget and the specific things you want to renovate.
When you make a contract subject to an acceptable building report, you are essentially safeguarding your renovation budget.
Imagine, the building report comes back and it turns out that all the supporting pillars under the house need replacing, and that the timbers under the bathroom have rotted through because of water damage. If you don’t have a building inspection clause in your contract, you won’t be able to back out because of all this unforeseen damage. And you will most likely end up blowing your budget – as well as your end profit – if you hadn’t taken this damage into account when assessing the property for renovation.
A building inspection clause will give you peace of mind to know that there aren’t any hidden structural costs that will come up when you actually jump on the tools.
2. Pest Inspection
A pest inspection is usually done together with the building one. This clause works in the same way as the building clause does, in that if the inspection comes back with some serious issues, you can pull out of the sale.
Just like the building clause, this one is extremely handy in preventing budget blow-outs. If it turns out there is a huge termite infestation and half the structural timbers have been eaten, the property probably wouldn’t be worth your while to fix. You can then move onto another property lead without losing your deposit.
3. Settlement Date
The settlement date is the date the property officially becomes yours. It is different from the contract exchange date – you may have signed the contract, but until all the other paperwork and finances get sorted, the property is still the seller’s.
This “final” date can be a huge bargaining chip for you. If it’s coming up to Christmas, the seller probably wants the property off their hands as soon as possible. Or they may want the opposite; a longer settlement date would let them enjoy their last Christmas and New Years in the house and then give them time to find another place.
You, as the renovator, want a longer settlement. Why? Because this would give you the time to get all your materials and tradies lined up and ready to rumble. If you can also get the owner to give you access to the property BEFORE the actual handover date, it will also give you a head start on your renovation.
Unless you have a huge wad of cash lying around, you are probably going to get your finances from a bank. The best way to go about this is to first get a pre-approval.
This can be as early as six months before you actually exchange contracts, and will give you a good idea of how much you can borrow. That way you can make an offer on the property, without wondering whether you even have access to that much money.
But just because you have a pre-approval, does not necessarily mean that your finances are set in stone. That’s why it is handy to have a finance clause in the contract. If it turns out your bank doesn’t want to give you the pre-approval amount, or doesn’t give it to you in time, you can walk away from the sale and keep your deposit.
So there you have it. You get a lot more say when it comes to your private treaty contract. Use it to your advantage without treading on anyone’s toes, and you will be one step closer to renovating for wealth.