Potential buyers are advised on basic auction tactics. The successful bidder will be asked to sign the legally binding contract immediately the auction is complete. Cooling off rights do not apply to auctions but a three-day period applies to private agreements. By law successful bidders cannot be gazumped by late bids. The deposit must be returned if the deal falls through but buyers forfeit their deposit if they break the contract. Buyers should lodge a caveat over the seller’s title and conduct a title search at the Land Registry.
Whether the contract is a private treaty or an auction contract, you must approach negotiations carefully. You should never bid up the price beyond what you think the property is worth on a fair and objective assessment.
Normally, the contract is a cash contract and provides for payment of the purchase price in two payments. Possession is given on payment of the price at settlement, when the buyer receives a transfer of the land from the seller. The settlement date is normally 60″“90 days from the date of the contract. The whole or part of the price can be provided by a lender who will pay the mortgage money at the settlement to the seller.
You should ask for a copy of the contract and vendor’s statement before the auction so that you can make enquiries about the contract, especially any special conditions, the house, the boundaries and the title before bidding. You may make an offer to the agent to buy the property before the auction. The agent will advise the vendor of the offer. If the vendor accepts the offer, the auction is cancelled.
You can appoint someone else to bid for you, but do not arrange to have someone else sign the contract on your behalf or rely on the nominee clause in the contract without first seeing a solicitor, who will ensure that the transaction does not attract double stamp duty.
Where there is more than one buyer, all buyers should be ready to sign the contract at the auction. If this is not possible, you should ask your solicitor to arrange for a power of attorney to be given.
Most auction contracts allow the seller to place bids. It is common for the agent to bid on behalf of the seller. You can also ask the agent to confirm that the property is on the market, or if they intend to interrupt the auction to seek instructions from the seller. Recent reforms to this area of practice require the auctioneer to clearly disclose when a vendor’s bid is being taken so other bidders know the source of the bid. The contract must permit this to be done.
The agent normally stops the auction when the bidding lulls and talks to the seller in private about the final price. The auctioneer then returns and advises the audience about these discussions. Normally, the bidding process is resumed. It continues until the property is passed in or sold to the highest bidder. If the property is passed in, the agent begins post-auction negotiations with the person who made the highest bid.
The auctioneer should announce when the property is “on the market” (i.e. when the bidding reaches the stage at which the seller will sell the property). When this announcement is made, the auctioneer will knock the property down to the highest bidder, and will not pass the property in.
As a bidder, set a maximum price and do not bid above this. You can decide not to bid at all until the auctioneer announces that the property is for sale or on the market. Until this announcement is made, there is little point in bidding, because this raises the price that might ultimately be negotiated when the property is offered for sale during the auction or is passed in. If the property is passed in, you can contact the agent and make a post-auction offer above or below the passed-in figure.
The law requires contracts for the sale of land to be in writing. The agent will expect the successful bidder to sign the contract immediately the auction is completed. The vendor should sign at this time also. The buyer is legally bound when they sign the contract. The buyer must also give the agent a cheque for the deposit. Cooling-off rights do not apply to auctions.
In July 2008, new legislation commenced that prevents bids being accepted after the fall of the hammer at house auctions in Victoria. This removes the dubious practice of a successful bidder being gazumped by a late bid. Also, auctioneers are required to display the rules of the auction and to explain them to bidders before the auction begins.
Many properties are sold by private agreements that result in buyer and seller signing a contract. The contract is prepared by the agent, and must be accompanied by the vendor’s statement. If negotiations become difficult, you can make an offer in writing by signing the contract, paying the deposit and instructing the agent to communicate the offer to the seller for acceptance or refusal within a specific time. The offer can be for less than the agent advises the seller is willing to accept. The deposit will be returned if your offer is not accepted.
The advantage of the private treaty contract is that the buyer often has a right to cool-off. If the land is residential the buyer can end the contract during the next three business days after the contract is signed. The buyer can recover money paid to the seller or the agent less $100, or 0.2% of the price, which the seller is allowed to keep. The right is not available to buyers who have entered into an earlier contract with the same vendor and in substantially the same terms; purchased within 3 days either side of an auction or at auction; the buyer is an estate agent.
Estate agents use contracts in the form prescribed under the Estate Agents Act 1980 (Vic) and the Estate Agents (Contracts) Regulations 2008 (Vic). The contract contains the terms of the purchase, the parties, the price, how it is payable, the day of sale, a description of the property and chattels, and the day that possession is available.
Normally, the agent obtains the purchaser’s signature on the contract and submits it for signature by the seller. When you sign the contract you make an offer to the seller. You are bound by the offer when the seller accepts it. When the seller has signed the contract, the buyer can enforce the contract against the seller.
In auctions, and in private treaty sales, a contract of sale is used. The contract of sale is prepared by the vendor’s solicitor. You should read every clause carefully to ensure that you understand its effect before you sign.
There is now only one prescribed form of contract of sale of real estate in Victoria. The previous abridged version, known as the “contract note” has been abolished. Unless an estate agent is provided with a contract by the seller’s solicitor or conveyancer, the agent is permitted to use the prescribed form of contract only. This form of contract is located in the Estate Agents (Contracts) Regulations 2008. It uses reasonably plain English.
Use of this prescribed form is not obligatory (except by agents when they are initiating the sale documents and have not been supplied with any other form of contract). Solicitors and conveyancers are able to use their own versions of a contract of sale, and many do. Versions of a contract that are not in the prescribed form should be read carefully and understood before signing takes place. Particular attention should be paid to any Special Conditions, as these may differ from the usual wording of the prescribed form.
The deposit can be paid by one sum, or as a preliminary deposit and balance. The deposit should be the smallest sum the buyer can negotiate. Usually, the seller will require that 10% of the price be paid immediately.
The SLA requires agents, solicitors or sellers to place deposits in trust or special bank accounts. Agents or solicitors who hold deposits cannot use the money for their own purposes and must return the money to the appropriate party if the contract falls through. If the buyer breaks the contract, the seller is entitled to keep the deposit. The contract provides for a written notice of intention to forfeit the deposit to be given by the seller to the buyer in breach.
The deposit is usually held by the agent or solicitor until the contract is settled. If the seller requires the money sooner, a statement under sectionÂ 27 of the SLA must be given to the buyer to allow the deposit to be released.
If the seller and buyer agree, the deposit can be put into an interest-bearing account in their joint names; however, the payment of the deposit out of the account requires the signature of both parties. While this strategy allows interest to be earned, the accessibility of the deposit is diminished.
Sometimes a contract provides that the deposit must be paid directly to the seller’s solicitor for investment in an interest-bearing account until the contract settles. Solicitors, but not agents, can arrange these accounts.
If land is bought by two or more people, they need to choose how the title will be shared. All the owners should have their names on the title. They can decide to be joint tenants, which means that their shares are equal and the survivor will receive the entire property if the others die first regardless of any contrary provision in their wills.
The alternative is to own the land as tenants in common, in shares calculated on the basis of each individual’s contribution to the price. Each owner can have a separate title for their share and that share can be disposed of by will. Be careful to ensure that the proportions owned as tenants in common remain the same from contract date to paying stamp duty on the transfer. A change in shareholdings risks being seen as a new sale with stamp duty implications.
As soon as the contract is made, the buyer should lodge a caveat on the seller’s title to prevent the seller dealing with the land except to complete the contract.
The caveat form can be obtained from law stationers (listed in the Yellow Pages). The buyer should complete the form by claiming “an equitable estate in fee simple” in the panel “estate or interest claimed”. In the “grounds of claim” panel, add “by virtue of contract of sale dated “¦ (insert the day of sale of the contract of sale) between “¦ (insert the names of the parties)”. The caveat should prohibit the registration of any interest “except a transfer to the caveators”. Delete “absolutely”.
The caveat can be mailed to the Land Registry with a cheque payable to the Registrar of Titles for the lodging and mailing fees, or it can be lodged personally. See “Contacts and resources” for The Land Registry details.
Builders must have professional indemnity insurance to cover building losses and defects, under sectionÂ 135 of the Building Act 1993 (Vic).
Fire insurance is usually carried by the seller. SectionÂ 35 of the SLA allows the buyer to take the benefit of any insurance contract that the seller has for damage or destruction. Generally, buyers take out their own insurance when the contract is made. A buyer who relies on the seller’s insurance should ensure that premiums are paid up and the cover is adequate.
If the house is destroyed or damaged before settlement so that it is unfit for occupation, the buyer can rescind the contract by notice in writing to the seller within 14 days of becoming aware of the damage, under the provisions of sectionÂ 34 of the SLA.
Particular care should be taken when considering the necessary insurances required by an owners corporation. The common property and shared services must be insured by the owners corporation. For further information, see Owners corporations.
The title at the Land Registry must be searched, and the rate, tax and zoning information provided by the seller must be checked.
Buyers should always examine:
- a zoning certificate from the Department of Planning or the local council;
- a VicRoads certificate about road making or widening plans;
- rate certificates from the relevant water authority;
- a certificate from the SRO showing the taxable value, arrears of land tax and tax payable on the land;
- a land information certificate from the local council showing rates, road charges and other municipal records;
- building approvals and notices from the local council (forms 2.10 and 10 Building Regulations 2006 (Vic));
- an encumbrance certificate from the water authority (if applicable) showing unregistered encumbrances in its records; and
- the building guarantee or builder’s insurance, for homes built or renovated in the previous 10 years (where appropriate).
All applications for certificates are made on special forms and for appropriate fees. The list above is not exhaustive. Sometimes certificates from the Historic Buildings Council and other agencies are necessary. Often the local council should be asked about flooding, filling of the land, or slippage on hillsides. An incomplete registry of land affected by chemical pollution is held at the Environment Protection Authority. The Department of Sustainability and Environment (Agriculture Victoria) can give advice on land affected by the use of chemicals.
If the prescribed contract is in use, there is no right to requisition.Â Other contracts might remove or limit the right to requisition.
The buyer must prepare and sign the transfer and send it to the seller for completion. This should be done at least two weeks before settlement. A copy of the draft transfer must be sent to the lender as soon as possible. The seller signs and retains the transfer until settlement.
The buyer must prepare a rate adjustment statement and send the seller a copy before settlement. They must also check search the title at the Land Registry and prepare a notice of acquisition of land for the SRO. All rates and taxes are adjusted, and the cost of clearing the seller’s title (by removing existing caveats and mortgages) is allowed to the buyer. All rates outstanding on the property are the responsibility of the vendor and should be paid at settlement.
The sale is finalised at settlement, which usually takes place at the office where the title is kept. The seller, or their solicitor, hands the buyer the completed transfer, a discharge of any mortgage, a withdrawal of any caveat, the certificate of title, and a statutory declaration about the value of any chattels, which is required by the SRO. The buyer must lodge all the documents for payment of stamp duty at the SRO, and for registration at the Land Registry. The buyer must give their lender the notice of acquisition or, if there is no lender, lodge the notice at the Land Registry with the transfer. The seller is not legally required to notify the SRO of the sale, but should do so. They should notify the relevant council and water authority of the sale.
The buyer (or lender) hands the seller a bank cheque for the balance of purchase money plus or minus adjustments for rates, taxes and other charges. Vacant possession is given to the purchaser upon settlement, or, if the property is sold subject to a tenancy, the buyer is entitled to receive the rent. The keys are usually held by the agent and given to the buyer after the settlement is confirmed by the seller’s adviser.
The seller should arrange final meter readings for water, gas, electricity, cable and telephone services for the day of settlement. The buyer should arrange for reconnection of the services.