Are you looking at buying owner occupied or investment property in Victoria? It is essential you are aware of your rights and obligations when making an unconditional offer. Are you looking at potentially selling property? It is just as important to know how unconditional contracts can impact you as a vendor. The risk of making an unconditional purchase offer will be discussed in detail.
Each Contract of Sale is uniquely drafted to include specific conditions. It is advisable that you have the Contract of Sale and Section 32 Vendor Statement reviewed by your legal representative before proceeding to make an offer or execute documents.
The Contract of Sale may have been drafted taking into consideration that the property is being sold either at auction or through private treaty. When purchasing at auction, note that you will be making an unconditional purchase of property with no right to cool off. Similarly, if you are purchasing an off the plan property, you will be making an unconditionally offer.
If you are purchasing through private treaty, your offer may be subject to certain conditions.
Examples of conditions that may apply include:
- Subject to finance clause – the sale is subject to the purchaser unconditionally obtaining finance;
- Subject to a building inspection;
- Subject to a pest inspection;
- Subject to review of contract of sale by the purchasers legal representative;
- Any additional special condition the parties deem fit.
We reiterate that is important to get a Contract of Sale and Section 32 Vendor Statement reviewed before signing in order to avoid any issues arising and to mitigate any risks that may arise.
What is an unconditional contract of sale?
Going unconditional means that a purchaser is proceeding with the purchase of a property without any conditions. The purchaser is then obliged to settle on the property and cannot end the contract. Such a contract will have specific conditions in place to reflect this.
A conditional contract means there are conditions to the purchase, this reduces the risks of a purchaser being unable to settle on time.
Private purchases of property are generally conditional contracts – however, this is not always the case. Unconditional offers can still be made on privately sold properties.
When you purchase a property at auction in Victoria, you are purchasing the property with no conditions. Therefore, the purchase is immediately considered to be a “unconditional contract”.
What are the risks associated with going unconditional?
The risks associated with making an unconditional offer privately or at auction, will depend on each persons circumstances.
Examples of risks you may face include:
- Finance not getting approved prior to the settlement date;
- Losing your deposit;
- Being unable to settle on time;
- Potentially facing additional costs – penalty interest rate and legal costs.
Can a seller cancel an unconditional contract?
The unconditional agreement can be confirmed by the vendor’s signature. If buyers have already made the unconditional offer but wish to back away from the contract, the only way to do so is if the Vendor has not signed yet and your offer to purchase is withdrawn.
How to mitigate the risks associated with going unconditional:
KNOW YOUR OBLIGATIONS
Be aware of what going unconditional actually means. You have no cooling off period and are legally obliged to settle on the purchase.
It is best that any potential purchaser’s make a time to go and view the property in person before signing an unconditional Contract of Sale. Ensure that you are able to go through the entire property and conduct an in-depth inspection of the property prior to signing. Take images and video’s of the property for your reference. Some real estate agents try and rush these inspections, don’t feel pressured!
PRE-APPROVAL OR HAVING FUNDS AVAILABLE
Obtaining pre-approval from your bank or lender prior to signing an unconditional Contract of Sale will provide potential purchaser’s with an indication of how much money they are able to borrow and what conditions may be applicable to their loan.
This will save time, as once you sign the unconditional contract, your lender or broker can begin the process of obtaining final approval.
It is important that purchaser’s get in contact with their lenders or brokers and discuss the bank or lender’s position on purchasing a property unconditionally and how much time they require to have the loan formally approved after the Contract of Sale is fully executed. This will increase the likelihood of ensuring all necessary unconditional finance approvals are completed.
If you are purchasing a property out-right, the risks of being unable to settle on time are reduced.
Ensure you are aware of the approximate amount of funds needed to settle so that you are able to make the necessary arrangements.
BUILDING AND PEST INSPECTION
Organising for a professional to conduct a pest and building inspection prior to signing an unconditional Contract of Sale will reduce the risk of purchasing a property that may have major defects or issues that may result in substantial costs to rectify, that may be prone to pest infestations, poor physical condition and other related issues.
Being made aware of this prior to signing will assist in ensuring that you are aware of the condition of the property and can avoid making the purchase if required.
If any issues do arise from the inspection, purchasers can then determine whether making the purchase is worth it or not, being aware that an existing home is likely to have some fair wear and tear.
HAVING THE CONTRACT OF SALE AND SECTION 32 VENDOR STATEMENT REVIEWED
It is important that purchasers are made aware of the special conditions relating to their purchase, the potential costs associated with being unable to settle on time and the risks they may face as a result.
If exceptional circumstances arise and you have undertaken all of the above precautions and are unable to settle on time, consider other options available to you. For example – borrow money from a private lender, family member or friend. Also make sure that you obtain expert advice from a solicitor.
The Australian property market can be fiercely competitive and securing your dream home might be a daunting process. Ensure you are taking the right precautions, this will assist in making your property purchase a smooth one.
Do you need assistance with reviewing a Contract of Sale and Section 32 Vendor Statement? Contact our team on (03) 8590 8370 to obtain legal advice from our expert property lawyers and conveyancers. We can assist you with your property purchase or sale. We service all Melbourne suburbs and can also guide you through this complicated process.