You, the seller must present it well for sale. The real estate agent must market it well to attract a buyer who is prepared to pay you the best price.
The property lawyer must look after the conveyancing well to make sure that all goes smoothly to collect the sale price for you.
In this article, we answer 10 Frequently Asked Legal Questions to do with selling your home or investment property. Because each property and situation is different, the answers are generalized and specific advice should be obtained.
WHAT IS NEEDED BEFORE SELLING THE PROPERTY?
Q1: What legal paperwork do I need to have so that I can sell?
The essential legal paperwork is: a Contract for Sale which is legally binding when it is signed by the seller and the buyer, is exchanged and dated; and a Certificate of Title which is handed over at Settlement when the price is paid. The Contract for Sale is prepared by the seller’s property lawyer or conveyancer. The Certificate of Title is held in a safe place if the property is debt free, or by the lender / mortgagee if the property mortgaged.
Q2: What Certificates do I need to have for the Contract?
Have you ever noticed how home improvement and renovation experts concentrate on kitchen and bathroom makeovers, timber decking, polished floorboards and painting? The reason is that these renovations are cosmetic work which does not normally require Council Approval. More serious work, such as adding a pergola, sunroom, extension, garage, swimming pool or granny flat/studio to a house is structural work which must be Council Approved. In NSW, you need to attach to the Contract a Home Owners Warranty Insurance Certificate and a Compliance Certificate or Final Occupation Certificate for structural work completed within the past seven years. If the property has a swimming pool or spa pool, you need to attach to the Contract a valid Pool Compliance Certificate / Pool Safety Certificate. This requirement applies to selling strata home units and villas as well as to houses. When renovating a strata unit or villa, such as: installing a new bathroom, a full kitchen, a floating floor / tiled floor, an awning, and air-conditioning unit, owners corporation (body corporate) approval is needed. The approval – being a letter of consent or a new strata by-law, needs to be attached to the Contract.
WHAT DO YOU LOOK OUT FOR WHEN CHOOSING A REAL ESTATE AGENT?
Q3: How do I decide upon which real estate agent will do the best job?
The reason why most sellers choose a real estate agent to sell their property instead of selling themselves is that they are confident that the agent can close the deal with a buyer at the best price. But first, the real estate agent must close the deal with you, the seller, to have you sign a Sales Agency Authority to list the property for sale. The most important part of the real estate agent’s presentation for a listing is the appraisal – What should the listing price be, and what marketing strategy is best to achieve the price? In NSW the underquoting laws require that a reasonable estimate of likely selling price, supported by evidence of comparable sales, be given to the seller by the real estate agent. This applies to residential properties. The laws apply to price guides – either a fixed price is to be given (not ‘offers above’ or ‘offers over’ or ‘+’) or a price range such as $500,000 to $550,000 (the range must be within 10%).
Q4: What do I look for before I sign a sales agency agreement?
Before you sign, make sure you are happy with these provisions –
• The agent will want you to sign an ‘exclusive’ agency agreement. Do not sign this if you want to list the property for sale with several agents - you sign an ‘open’ agency agreement.
• The asking price / price guide needs to be agreed. The price can be revised later.
• The commission structure – usually, the commission is a fixed percentage of the sale price.
• The marketing expenses are payable in addition to the commission. Items to consider: Is it worthwhile to have newsprint advertising in addition to internet advertising? What kind of street signs, brochures and flyers are best? Are the expenses to be paid up front?
• The method of sale – is it to be private treaty sale where the asking price is set, or an auction sale, or a sale by expression of interest (a Fixed Date Sale)?
• How long will the agency agreement last? Is it to be the standard 90 days? The term is important because you cannot ‘sack’ the agent until the term ends. Even when the term ends, the agency agreement will continue until you or the real estate agent gives a termination notice in writing.
• The real estate agent is entitled to receive their commission if they introduce a buyer to the property while the agency agreement continues. If that buyer purchases the property after the agency agreement has ended, commission may still be payable.
THE ESSENTIALS OF THE CONTRACT FOR SALE
Q5: When does the Contract for Sale need to be prepared?
In NSW, the Conveyancing Act requires the Contract for Sale to be prepared before the property is marketed for sale. Almost without exception, the Contract for Sale is the standard form Contract approved jointly by the Law Society and the Real Estate Institute of NSW. Special conditions, are added; and also title searches and certificates to comply with conveyancing laws. The Contract must be complete when it is signed. Otherwise the buyer may have the right to terminate the Contract.
Q6: What items need to be covered in the Contract for Sale?
How many days must go by between entering a Contract and settlement (when the price must be paid)? The standard period is 42 days in NSW. Buyers and sellers can agree to a quicker settlement or to a delayed settlement.
Is the property sold with vacant possession or is it subject to a lease? A tenant cannot be evicted if the property is sold and they have a fixed term lease which has not ended. However, if the lease has ended, the tenant can be evicted in a short time if the property is being sold. In Dubai, some sellers will leave behind a luxury car in the garage if you buy from a property developer
What stays behind in the property? Until the 1960s, sellers used to take light fittings, fixed floor coverings, the stove and the clothes line with them when they moved out. These days, these fittings and fixtures, along with many other items such as range hoods, dishwashers, built-in wardrobes and shelves and air-conditioning systems are usually left behind. Valuable or useful items such as solar panels, cubby houses and garden ornaments tend to be excluded from the fittings and fixtures left behind.
Q7: What are cooling off rights and how do they affect a Contract for Sale?
Cooling off rights apply by law once the Contract for Sale is exchanged / entered into. They allow buyers to change their mind about buying a property after they have entered into a Contract for Sale. The cooling off period is 5 business days in NSW. The cooling off deposit payable is 0.25% of the price. The cooling off deposit is non-refundable if the Contract is rescinded during the cooling off period. The cooling off period gives the buyer time to obtain legal advice, to obtain pest, building and strata inspection reports, and to obtain unconditional finance approval. Longer cooling off periods can be agreed. Sellers and real estate agents hate cooling off rights because sellers are ‘locked in’ while buyers can ‘opt out’ of the Contract. So they encourage sale by auction where an exception applies to the cooling off law that buyers have no cooling off rights if the Contract is signed on the day of the auction. Or they insist upon a Certificate of Explanation (a Section 66W Certificate) from the buyer’s conveyancing solicitor before the Contract is exchanged / entered into and becomes legally binding. In these cases, buyers need to have pre-approved finance and have pre-purchase inspections carried out beforehand, because no cooling off rights will apply. Cooling off periods are not the same as making a contract subject to finance. Subject to finance clauses usually allow 14 days to obtain an unconditional loan approval, otherwise the Contract can be terminated and the full deposit be refunded. Contracts in Queensland and Victoria often contain subject to finance clauses, while Contracts in NSW do not.
Q8: What tax traps do I need to keep in mind when selling a property?
There are three main tax traps for property sellers –
- Capital Gains Tax (CGT) is payable if the property is sold at a profit – the profit is calculated as the sale price, less - sale expenses, purchase price, purchase expenses and capital expenses. No capital gains tax is payable if it is a main residence. This exemption applies even if you move out, and continues for up to 6 years so long as you don’t buy and live in another property. Because capital gains tax is triggered at the time the Contract is entered into unconditionally, it is better to sell in July than in June to defer the tax liability for a year. Also, it is worth waiting at least 1 year after buying a property before you sell it to take advantage of the capital gains discount, which reduces to one-half the CGT profit you need to include in your tax return.
- Goods and Services Tax (GST) is payable by a seller if they are registered for GST by holding an Australian Business Number (an ABN). Examples are sellers who carry on an enterprise, sellers of non-residential property, and new property sellers. Home owners who sell their home are not liable to pay GST. Some sellers of commercial property will use the ‘going concern’ exemption from GST by leasing the property before selling.
- Land Tax is an annual tax, which does not apply to a principal place of residence if it is owner-occupied. When it does apply, it is adjusted along with council rates, water rates and strata levies, as at the settlement date. Unpaid rates, levies and land tax are paid on settlement by the seller, as a general rule.
PREPARING FOR THE SETTLEMENT
Q9: What needs to be done to discharge the mortgage?
Your lender will be notified of the sale by way of a Discharge Authority signed by you. The exact amount needed to pay out the loan will be known only a day or two before the settlement. You need to keep making the loan repayments until settlement is due. If the proceeds of sale are less than the amount needed to pay out the loan, the lender can refuse to settle. This situation should be dealt with before entering into the Contract for Sale.
Q10: Do I need to be present at the settlement?
There is no need to be present at the settlement. Everything is done for you. Settlements take a lot of work to organize – the discharging mortgagee, the buyer’s conveyancing solicitor and their incoming mortgagee need to be organized to be at the settlement. If the settlement is a back to back settlement, the organization involves more parties. I’ve had a settlement with 27 parties in attendance to settle 10 properties at the same time. It took more than 1 hour! The net proceeds of sale will be banked into your account the same day, or the day after.
Contributed by Anthony J Cordato who is a Property Lawyer & Conveyancer. Contact him via
www.propertyinvestmentlawyer.com.au
