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Conveyancing is the process of transferring ownership of a property from the seller to the buyer. It may involve preparation of legal documents, checking for problems or restrictions relating to the property, and transfer of large sums of money.
DIY involves risk (the greatest one being: discovering a problem about the title or the building after signing the contract!).
The Conveyancers Act 2006 (Vic) was introduced to provide a statutory base for the regulation of (non-solicitor) conveyancers in Victoria. Licensed conveyancers are able to conduct full conveyancing services.
Solicitors give advice about all the elements in the transactions relevant to both buyers and sellers.
Solicitors carry professional indemnity insurance to protect you against negligence. This insurance fund compensates clients who lose money through a lawyer's dishonesty.
The sensible place to keep your savings is with the financial institution that you use for the home loan. Select an institution that gives a reasonable return and protects your capital. Inquire if it offers the government guarantee.
Selling first and buying second is more sensible: your financial position is clearer and you have leisure to search for a new home, even if you have to rent in the meantime. The proceeds of the sale should be kept in an accessible, interest-earning investment in the buy-sell interim.
If you plan to buy before you sell, investigate the availability and terms of bridging finance. Even if the settlement dates in the contracts are very close or identical, the sale of your existing property might not be completed on time, or even at all.
Information to be considered when taking a loan:
- All expenses related to establishing the loan
- When and how the payments are to be made
- Administration charges
- Other periodic charges
- Rate of interest and expected fluctuation
- Whether the rate is fixed, variable or mixed
- Whether the payments of interest are in advance or in arrear
- Whether extra instalments of principal can be made during the period of the loan
- Whether the interest on these advance payments is saved and, if so, how much
- Whether the loan can be fully repaid at any time and the penalty for so doing
- Policy of the lender about late instalment payments
- Other services available with the loan
- Whether mortgage loan insurance is required and the premium payable.
- Whether a minimum level of savings will be required to qualify for a housing loan
Variable Rate Mortgage
This is the typical home loan. It allows the lender to change the interest rate (and your repayments) as the market rates change. Your instalments are calculated to pay off the loan in an agreed period: usually 15 to 30 years. You can increase your repayments or pay out the loan without an excessive penalty.
Fixed Rate Mortgage
This allows the lender to charge a fixed rate for a period, usually one to five years. If you want the loan to continue, you must renegotiate the terms. If you want to pay out the loan during the period, the lender will negotiate the terms of the pay-out and charge a penalty to cover the lost investment.
There are also less common types of mortgages such as :Indexed Rate Mortgage,Capped Rate Mortgage and High start and low start mortgage.
Different types of lenders:
- Banks: lends up to 80% and runs from 10-30 years. Borrowers’ income is generally taken into account when calculating repayments.
- Mortgage originator/mortgage brokers: sources of their funds are often big insurance and trustee companies. These operators will have the mortgage documentation prepared by a nominated firm of solicitors and all costs and disbursements will be spelled out as part of the transaction costs.
- Building societies: lend up to 90-95% of the value up to 30 years.
- Insurance companies: Insurance companies provide loans and usually require borrowers to take out life insurance.
- Credit unions: Credit unions provide housing finance to their members and are competitive on rates.
- Finance companies: They lend on first and second mortgages. You pay higher interest and the loan period is shorter than bank and building society loans.
- Solicitor’s trust funds: available from some specialist law firms. They are usually available on a short, fixed term at fixed interest, and require only payments of interest for the duration of the loan. The capital must be repaid at the end of the loan or the loan must be renewed.
- Certification of independent advice: If the loan involves a company or a guarantee, the lender may require some of the parties to obtain a certification from a lawyer that they received independent advice before the loan is made.
The lender attends the settlement of the contract and pays the loan money to the vendor. The lender deducts all expenses of the loan, mortgage loan insurance premiums, stamp duty on the transfer, expenses involved in clearing the seller’s title, lender’s solicitor’s fees, and registration fees on the transfer and mortgage.
The lender takes all the documents and arranges payment of stamp duty and registration of title documents at the Land Registry. The mortgage appears on the title. When the loan is repaid, the borrower is given the title documents and a discharge of mortgage. The discharge should be registered at the Land Registry immediately.
Vendors can provide buyers’ finance in two ways. The first, and safest for borrowers, is by giving the buyer a transfer and taking a mortgage back. The second is by selling on terms. Terms contracts are highly regulated by the Sale of Land Act 1962 (Vic).
Tips: As soon as the contract is made, the buyer should lodge a caveat on the seller’s title at the Land Registry in order to prevent any other person claiming the land and to give notice to the world of the buyer’s interest in the land.
For more information on this subject refer to: http://www.lawhandbook.org.au/handbook/ch14s01s04.php.
You should never bid up the price beyond what you think the property is worth on a fair 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 to 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.
- Where there is more than one buyer: all buyers must be ready to sign the contract at the auction. If this is not possible, arrange for a power of attorney to be given.
- Bidding arranged on behalf of the seller: most auction contracts allow the seller to place bids. Recent reforms require the auctioneer to clearly disclose when a seller’s bid is being taken.
- 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. 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 auction contract: note that 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 seller should sign at this time also. The buyer is legally bound when he or she signs the contract. The buyer must also give the agent a cheque for the deposit. Cooling-off rights do not apply to auctions and contract notes are not used.
Many properties are sold by private agreements which result in buyer and seller signing a contract note. The contract note is prepared by the agent and must be accompanied by the vendor’s statement. 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.
Cooling off: 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 consulted a solicitor before the purchase, to corporate buyers, or in auction contracts.
In auctions and private treaty sales, a contact of sale is used. This is prepared by the vendor's solicitor or conveyancer or, in some cases, by the vendor's agent. You should read every clause carefully to ensure you understand its effects before you sign,
Agents must use prescribed, or permitted, forms. A contract of sale may be a prescribed form, a standard form approved by the Law Institute of Victoria, or a contract prepared by a lawyer acting for the buyer or the seller. Estate agents use contracts in the form prescribed under the Estate Agents Act and the Estate Agents (Contracts) Regulations 2008 (Vic).
These should be read very carefully before you sign, to ensure that the terms are not onerous or adverse.
Special conditions: The forms allow special conditions to be added. This facility is always used for auction contracts and sometimes for private treaty contracts. The special conditions are identified by a heading. You should read these conditions carefully before you sign.
General conditions of the contract: The contract of sale includes the general conditions that appear in the prescribed form. These conditions define the standard arrangements for settlement, possession, insurance and chattels. They can be changed by the parties but the change must be made in the contract note or contract before it is signed.
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 Sale of Land Act 1962 (Vic) (“SLA”) requires agents, solicitors or conveyancers or sellers to place deposits in trust or special bank accounts. The terms of the contract provide that if the buyer breaks the contract, the seller is entitled to keep the deposit.
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 section 27 of the SLA must be given to the buyer to allow the deposit to be released.
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 his or her share and that share can be disposed of by will.
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 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.
Builders must have professional indemnity insurance to cover building losses and defects, under section 135 of the Building Act 1993 (Vic). The guarantee available under the Housing Guarantee Fund has been given a new lease of life via the House Contracts Guarantee (HIH) Act 2001 (Vic). Generally, buyers take out their own insurance when the contract is made.
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 section 34 of the SLA.
The buyer can ask the seller questions about the title and the land generally. These are called requisitions. To make requisitions, the buyer must investigate the title thoroughly enough to identify any difficulties. 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 VicRoad certificate about road making or widening plans; a rate certificate from relevant water authority; a certificate from the State Revenue Office showing the taxable value and any arrears of 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; 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).
If the seller refuses to answer the requisitions, the buyer can avoid the contract. If requisitions are not sent in 21 days, the buyer is deemed to have accepted title. Some sellers restrict the scope of requisitions in the contract.
The buyer must prepare and sign the transfer and send it to the seller for completion. This should be done when requisitions are satisfactorily answered and 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 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 seller and should be paid at settlement.
The sale is finalised at settlement. 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 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 buyer upon settlement, or, if the property is sold subject to a tenancy, the buyer is entitled to receive the rent.
For more information on this subject refer to: http://www.lawhandbook.org.au/handbook/ch14s01s05.php
- advising the buyer before the contract is signed about special conditions that are included and the effect of signing the contract. If the buyer receives this advice, the cooling-off right is lost;
- checking the contract, and the vendor's statement;
- conducting searches and making applications for certificates, and reporting to the buyer. The buyer is expected to examine the property;
- exchanging contracts with the seller's solicitor (if a contract of sale is used);
- preparing the transfer of land;
- advising the buyer about finance and providing all the information that the lender requires about the title to the land;
- checking the mortgage documents and advising the buyer;
- preparing a statement of adjustments and settlement statement showing how the cheques are drawn and paid;
- arranging and attending settlement on the buyer's behalf;
- lodging a notice of acquisition of land at the State Revenue Office;
- notifying the council and the water authority of the purchase; and
- paying stamp duties and lodging documents for registration unless the lender does so.
- preparing a vendor's statement and special clauses to go into the contract;
- preparing a contract of sale;
- exchanging contracts with the buyer's solicitor;
- checking the transfer, statement of adjustments and settlement statement;
- preparing the statutory declaration about the value of chattels in the sale;
- arranging for discharge of the seller's mortgages and for a clear title;
- attending settlement on the seller's behalf; and
- notifying the council and the water authority of the sale
If you employ a solicitor, the fees and charges may be paid on your behalf and will appear on the solicitor’s bill as disbursements.
- Land Registry search fees;
- registration fees to the Land Registry on the caveat, transfer, and mortgages;
- Stamp duty - based on the purchase price recorded in the transfer.
- fees for the certificates, totalling about $150; and
- solicitor's costs
- estate agent's fee (which is usually deducted from the deposit);
- expenses of the sale, including advertising expenses;
- fees for certificates and searches necessary to prepare the vendor's statement;
- solicitor's fees; and
- registration fees on discharges of mortgage and withdrawals of caveat necessary to clear the title
For more information on this subject refer to:http://www.lawhandbook.org.au/handbook/ch14s01s05.php
The Business Licensing Authority deals with disputes between agents and their clients or purchasers. The Authority provides advice and handles consumer complaints. The service is free. If the Authority believes that the agent has breached the Estate Agents Act 1980 (Vic) (“Estate Agents Act”) or its regulations, including the professional rules, it can refer the matter to the Disciplinary Tribunal. The Tribunal cannot order that you be reimbursed for a loss caused by unprofessional behaviour of an agent, but can order compensation if the complaint concerned took excessive commission.
Complaints against lawyers were previously handled by the Legal Practice Board and the Legal Ombudsman. Under the new Legal Profession Act 2004 (Vic), which commenced in 2005, the legal profession is regulated by a Legal Commissioner. The new Act has replaced the Legal Practice Board with the Legal Services Board and has abolished the office of Legal Ombudsman.
The contract of sale is a short document, but it incorporates statutory conditions which apply when there is a dispute between the parties. These conditions are contained in Table A in the Seventh Schedule of the Transfer of Land Act 1958 (Vic). Disputes about contracts are settled by the courts according to the conditions and terms of the contract.
There are alternatives to litigation in the courts. The Law Institute provides a Conveyancing Disputes Panel, which determines disputes between lawyers (typically, a lawyer for a vendor and a lawyer for a buyer) about conveyancing law practice. The service costs $100 (plus GST). It is a very efficient mechanism for resolving conveyancing disputes.
Mediation: Parties can take their dispute to a mediator. The Law Institute of Victoria gives advice about who is a qualified mediator and the standard charges, or the parties can choose their own mediator from the ranks of professional mediators. The process can bring about a cheap and timely resolution of a dispute without expensive litigation.
Information on options for alternative dispute resolution can be obtained by telephoning the Law Institute of Victoria on 9607 9311, or go the website at: www.liv.com.au.
For more information on this subject refer to The Law Handbook chapter 14.1 Buying and selling a house
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