There are many reasons you might decide to ‘pull out’ of a property purchase or indeed not proceed to purchase in the first instance: Building faults. Pest damage. Finance troubles. The valuation comes in under. Surprises in the title search. DIY upgrades completed without a permit. Any of these things, and a whole host more, might cause you to rethink your next property purchase.
Our experts here at Entourage Conveyancing caution you to ensure that you have a really good look at the contract before you sign. Get a legal professional to look it over and make sure you have the option to withdraw if you need to. And where possible, try and do as much as possible prior to signing anything (contracts by and large put the onus on a Purchaser to have made all of their own enquiries prior to purchase) – so, if you haven’t formally committed to a purchase then it’s far easier to walk away though not always practical.
If you come across some of the below issues (though of course not limited to these issues), you want to be able to walk away with your deposit intact and back in your account without deductions.
The valuation comes in low
If the valuation of the property comes in less than your contract price, it can have an impact:
A) On your finances and ability to get approved to the amount that you require to borrow to complete settlement; and,
B) Illustrates that you might have offered to pay more than the property is worth.
This might mean you need to pull out of the contract if you can’t meet the shortfall, or possibly renegotiate your offer.
With lenders tightening their lending belts at the moment, getting finance for a home is not a given. If you’re buying at auction you don’t have a finance clause available to you and the contract is deemed to be unconditional, so make sure you’ve got yourself finance pre-approval and have had all of your inspections done to your satisfaction before you ‘put your hand in the air’ and find yourself the ‘winner’ of the auction with ‘buyers remorse’ after the fact with a purchase that you cannot return nor get a ‘refund’ for.
For those buying at private sale, having a finance clause and whichever other special conditions are required (including but not limited to pest and building reports) allows you the option of pulling out of the sale. If you can’t get funding or the property is not structurally sound or has mites – then you certainly don’t want to lose your deposit and you want to be in a position of power where you can ‘walk away’ without financial loss to you.
Surprises in the title search
Here’s a fun one. A title search tells you a number of things including who owns the land, whether there are any easements (such as areas reserved to council or a water authority for services or right of way), covenants or restrictions on the land, caveats or mortgages against the property.
You might discover a covenant that dictates how many buildings can be on the land (a bummer if you’re looking to develop when there is a covenant that restricts the land to a single dwelling) and/or dictates what type of building materials you have to use – for example 30% of the property must be rendered).
Worst of all, the person trying to sell the property might have a caveat or co-owner that’s not mentioned in the contract and you definitely don’t want to jump in that instance as it can prove to be fatal in terms of settlement deadlines and the like.
It could be anything from major structural damage, subsidence, asbestos, poor ventilation, roof issues and electrical or plumbing issues. The cost of removing or repairing any of these concerns can be hefty and have a big impact on your wallet. In some of these instances with forewarning having done your due diligence, you can negotiate a lower sale price, in others it just makes sense to walk away.
From a contract perspective, make sure the building fault clause allows you to pull out of the contract for ANY building fault, not just major building faults. We tell clients time and time again that there is no ‘legal’ definition of a ‘major building defect’. We have had clients fall in to the trap of agreeing to a generic clause including the words ‘major building defect’ – there was $100k worth of works deemed to be defective, no single item was ‘major’ and the client had to proceed – had they used our preferred wording for the building clause they could have and would have ‘walked away’ deposit in pocket ready to find the next home.
If there’s substantial (or any) pest and termite damage then it’s going to cost you. Probably big time. As with building faults mentioned above, make sure the pest infestation clause allows you to pull out of the contract for ANY pest damage/infestation, not just major damage/infestation (or indeed ‘live’ infestation which is a doozy – there may no longer be live ‘pests’ at the property but those that have been and gone may have left some major issues that have not been dealt with and may invite future pests back to destroy the property – costly to a new owner one way or another).
Chat with the team at Entourage Conveyancing on 03 9421 1651 or contact us here before you jump in and sign the property contract and make sure your rights (and deposit!) are protected.