What are the different ways to purchase a property?

Before you start looking at any property purchase options, it’s a good idea to talk to your mortgage broker. They can help you figure out what’s right for you, make sure you’re not taking on more than you can handle, and guide you through the steps to buying your new home. Your broker can also help you get pre-approval for a loan if you need it.

Here’s a simple breakdown of the main ways you can buy a residential property.

Private Treaty

A private treaty sale is a method of selling where the seller sets a price and negotiates with potential buyers, typically through a real estate agent. It’s a common way to sell property, allowing for flexibility in price and terms through negotiation.

Here are the steps:

• Purchaser makes an offer on the property
• Vendor accepts the offer
• Purchaser has 2 weeks to exchange (pay their deposit)
• During this time, the Purchaser has the opportunity to have their finance approved, with valuations being conducted during the process
• If their finance is not approved, the purchaser can withdraw their offer with no monetary penalties involved and the vendor would have to relist the property
• Once exchange occurs, settlement will generally occur between 21 – 90 days

Auction purchase

An auction sale is a public sale where the home is sold to the highest bidder. This process involves a competitive environment where potential buyers make increasingly higher bids until the item is sold to the person offering the most.

Here are the steps:

• Purchaser must register for the auction
• Purchaser attends auction and makes winning bid
• Purchaser must pay the agreed deposit on the day
• Purchaser must agree to the settlement terms on the day listed on the contract

Due to these conditions, the Purchaser will not have the opportunity to have their finance formally approved or a valuation done, which could pose some serious risks, such as the valuation coming in short or a credit impairment that was not previously known. The Purchaser can apply for conditional approval and have a non-specific valuation done on the property prior to the auction date to give them some sense of security when attending and making their bid.

Off the plan purchase

An “off the plan” purchase refers to the purchase of a property, such as a house or apartment, before it has been fully built or even started construction. Instead of buying a completed property, the buyer commits to the purchase based on plans, designs, or a display unit.

Here is what you should know about purchasing “off the plan”:

• Generally, these transactions can take anywhere from 6 months up to 5 years.
• The Purchaser will usually pay a holding deposit and then a formal deposit on exchange (this is sometimes up to a year or more before the property is completed).
• Lenders will not grant formal approval on these purchases until they are able to conduct a valuation on the property, which is generally done between 6-8 weeks prior to the property being registered (meaning the property is officially recorded with a Land Registry or similar body).
• From the date of registration, the Purchaser only has 2 weeks before settlement will occur.
• Penalties will apply if the settlement does not occur within the 2-week period.
• The Purchaser can apply for conditional approval prior to them paying their deposit and exchanging on contracts however they need to be aware that if any of their financial circumstances change, this will impact their existing application.
• There may also be changes in policies within the lenders that could impact their application such as LVR restrictions.
• There is also a risk that the property value could fall during the construction period which could see the Purchaser having to cover more funds from their own pocket to make up the difference. There is also the bonus that the property could increase in value over the time of build

Building a home

Here is what you need to know if you decide to build a home:

• The land and the house are completed in two separate transactions even if the land is owned by the builder.
• There will be two separate contracts and you can sometimes set this up as two separate loans if that works best for the client.
• Generally, the build loan will be set up on an interest-only term during construction, with only interest being paid on the outstanding debt portion of the loan until the build is completed, at which stage it would generally revert to a P&I loan.
• The build will be broken down into 6 stages, with the deposit being included as one of the stages.
• The bank will complete a valuation on the land and build as 2 separate figures and then combine them to create an “on completion” valuation.
• The bank will also conduct further valuations once the slab is poured and then a final valuation once the occupancy certificate has been issued.
• During construction, the loan will have partial drawdowns (progress payments) occur to pay the builder at each stage. The bank remains in control of each of these payments with the clients’ funds being utilised up front prior to the loan funds being used. This ensures that there are no shortfalls at the end of the build due to the client spending the money or issues with the builders changing the stage costs without the bank’s consent or knowledge.
• A build will usually take between 3-12 months.
• All build contracts are completed using HIA standards.

Other Variations:

There are additional variations to this, including:

Owner Builder

This is where the owner takes control of the progression of the build, as they are generally in the building trade and will use this as an opportunity to save on costs.

There are a lot of additional requirements that need to be met in order to complete a build as an owner-builder. Here is what you should know:

• There are limited banks that will still allow owner-builder loans due to the high risks.
• There are stronger LVR restrictions with an owner-builder loan.
• Valuations are completed at each stage.
• The owner needs to pay for each stage in advance, and the bank will then refund them the funds once that stage is completed.
• Cost and time overruns are a regular occurrence with owner-builder loans, which is why lenders have put additional restrictions in place.

Kit Homes

A kit home is a home that is partially constructed prior to its arrival on site.

Most lenders are not keen on lending for this purpose; however, they are starting to relax on their policies due to the popularity of the concept.

The lender would generally expect the borrower to cover all costs up until the dwelling is erected, and they will then pay any required funds to the builder to complete the final fit-out and get the occupancy certificate.

If you have any more questions, or want help navigating your options, get in touch with us today. Call 1300 815 921 or click here to arrange a no-obligation meeting—we’re here to help you understand the in’s and out’s of all options.