Step-by-step guide to placing an offer on a house

Placing an offer on your dream home is an exciting process, especially if you’re a first home buyer. As with any significant purchase, doing thorough research is vital before putting your pen to paper, and having a greater understanding of the buying process could help boost your confidence and bargaining power.

In this article, you’ll learn more about:

1. Considerations for getting your finances in order
2. Due diligence you could consider undertaking
3. The different sale types in the market
4. The pros and cons of unconditional vs conditional sales
5. How to determine how much you should offer
6. Tips to help you place your offer with confidence

1. Getting your finances in order

Firstly, it is important to determine your budget from the outset before you place an offer on a property. This will help mitigate issues such as offering too much for a home you can’t afford or taking on a mortgage you are unable to service. If you’re a first home buyer, it could also be a good idea to research whether any government grants may apply to you.

In the current Australian property market, a minimum deposit on a house can cost anywhere from 5% to 20% of the sale price. You will also need to factor in additional fees such as legal costs, building reports and Stamp Duty*. Additional costs will vary from buyer to buyer, so it is best to consult with a property lawyer about which ones apply to you.

*Stamp Duty is the tax associated with buying property in Australia. If you’re looking to purchase a new apartment which will be your primary residence, then you may be eligible for an off-the-plan stamp duty concession. While Stamp Duty concession policies vary state to state, the concept generally means that the duty you’re required to pay on the property you’re purchasing is heavily subsidised to account for construction costs.

For example, if you were looking to purchase a $500,000 off-the-plan apartment, but $400,000 of that is to be spent on construction costs, the dutiable value of your home would be $100,000*.

Once you’ve got a budget in mind, if you’re going to require a home loan then you’ll need to decide whether you would like to opt for a fixed rate or variable rate loan. A fixed rate is where the interest rate remains stable for a certain period of time. This can provide you with more certainty and enable you to set up an automatic payment to make weekly or monthly payments of the fixed rate.

However, a variable rate means that as interest rates fluctuate, so does your repayment rate. This option is more unpredictable, with the potential for your rate to increase or decrease depending on the market.

There are also two ways you may be able to pay your loan.

1. Principal + interest loan: This type of loan will mean you are paying both the principal (the amount you borrowed to purchase the property) and interest at the same time.
2. Interest-only loan: Interest-only loans can reduce the amount you pay weekly, but keep in mind you will only be paying the interest, without contributing towards the principal.

If you are unsure which repayment type suits you, it could pay to seek the help of a financial advisor.

You may also choose to apply for home loan pre-approval, which could be a useful way to understand how much you are eligible to borrow from a lender.

2. Undertaking thorough due diligence

Due diligence is the research required prior to placing an offer to check whether the property is a good investment for you. Due diligence is undertaken throughout many stages of the buying process, but before you make an offer, it can help you to determine if the property has been constructed to a high standard, using safe and healthy building materials – as well as a tool for deciding what the property may be worth. There are a number of things to look out for, and some of the key due diligence research can include:

• When considering buying an off-the-plan property, investigate the track records of developers by running a background check online and reading news articles. It could also be a good idea to consult property industry experts (such as town planners, master builders and environmental consultants) to ask for honest opinions of the quality of work produced by the developer. Another option is to arrange a meeting with buyers of the developer’s previous developments via the sales agent, to discuss whether they’re happy with their home and if it was completed on time.
• Research the suburb where the property is located including checking crime rates, public transport options, planned infrastructure, property value increases/decreases over time and local schools. These factors will impact the overall liveability, safety and value of the property.
• Research the architect and builder responsible for the home. Consider their credibility and visit their completed developments to assess whether you’re happy with the quality of their work.
• Acquire all supporting documents for the property you’re interested in and read through them with a fine-tooth comb.
• Study the minutes from past strata/body corporate meetings and find out what will be required from you time-wise and financially as a resident if buying into an owner’s corporation*
• Find out whether the property has a heritage overlay and what renovations and modifications you are allowed to make to the property
• Take a look at Geospatial data (known as GIS maps) to identify any risks posed by sea level rising; property boundaries; the location of water, sewer and stormwater services; and more.

*An owner’s corporation applies to shared residences where financial decisions need to be made for collective maintenance projects.

When you’re ready to place an offer

• Consult with a conveyancing lawyer who will outline your rights and obligations
• Find out how the sunset clause* could be enacted in your state and whether you’re protected against loss of finances and/or the off-the-plan property you’re purchasing
• Find out what your rights are if your off-the-plan property is not delivered on time
• Ask how you will connect your property to utility services

*The Sunset Clause is essentially the ‘expiry date’ of an off-the-plan development which gives both the developer and buyer the opportunity to dissolve a contract if the building has not been completed on time.

Getting your offer contract drawn up by a conveyancing lawyer

An offer placed on a property is a legally binding contract, so by engaging a lawyer in the process will help to mitigate any miscommunication within the agreement. A specialised conveyancing lawyer can also help you negotiate the best deal. For example, your lawyer may suggest including a clause which highlights that you will not proceed with the sale should the property fail any inspections undertaken by a master builder or surveyor. This could include issues surrounding soil contamination, asbestos, structural issues and more.

3. Understanding the different sale types

TENDER

A tender is often considered a silent auction where prospective buyers will submit an expression of interest offer in writing to the real estate agent, at a value they believe the property is worth. There is no suggested sale price apart from a capital value* to work from, but this is a good way for the vendor to assess how much the market is prepared to pay for their home – to which they can accept, provide a counter offer or decline.

*A capital value or CV is the recommended house and land value provided by a property valuer. If the valuation has been carried out over a year ago, it is worth engaging in a re-evaluation as the property market is constantly shifting, and house prices fluctuate.

SALE BY NEGOTIATION/PRIVATE TREATY

Sale by negotiation or a private treaty is where the vendor sets the price, and prospective buyers will either make an offer or provide a counter offer. If a subsequent counter offer is provided by the vendor, the buyer may engage in a bartering process so both parties reach a sale price and agreement that they are both happy with.

This sale type is often a longer process due to there being no set sale date, giving the vendor more time to settle on an offer they are comfortable accepting.

AUCTION

The auction process is simple – prospective buyers bid in a competitive environment, with the highest bidder often winning the property on the day if the reserve price is met. In some instances, interested buyers may place an early offer before auction day in an effort to secure the property before it goes to auction. In Australia, auction clearance rates are high, meaning many properties will sell on auction day, rather than progress to a tender.

BALLOTS

If there is high demand for an off-the-plan apartment a waitlist ballot could be created. Interested buyers can enter the ballot, and if their name is chosen at random, then they will be given the opportunity to purchase an apartment at a fixed price.

What do all three sale types have in common? Offers are made via a written contract

A contract offer can either be prepared by the buyer or the buyer’s lawyer. This is a legal document which states the amount the buyer is prepared to pay for the property and includes any conditions that need to be delivered in order for the sale to be finalised. It is encouraged that all offers are drafted with the help of a legal professional in order to help protect you against any unforeseen problems such as any hidden fees, unknown building rectification costs or any other issues that could arise between placing your offer to settlement and beyond.  

4. The difference between unconditional vs conditional sales

Generally, when you make an offer, you can choose whether your offer is conditional or unconditional. This will generally depend on your circumstances and the property you are purchasing. Sometimes unconditional offers can be a more desirable option for vendors as they can result in a quicker, more seamless sale, however conditional sales can give the buyer the chance to negotiate a better deal.

A Conditional Sale is exactly as the name suggests – a sale with conditions attached. These could include (but not limited to):

• Buyer’s finance is subject to approval
• Building/pest inspections still to be conducted
• The sale of buyer’s current home to be completed without any complications
• A certain fixture or fitting needs replacing
• The house needs to be professionally cleaned

Pros of conditional sale:

• If there are aspects of the home which need fixing, changing or even upgrading, buyers may include this in the conditions of sale. If the offer is accepted the vendor must honour these conditions before the buyer takes ownership of the property.
• Less risk involved if the buyer wishes to withdraw their offer, as a clause can be written to provide 14 to 21 days to finalise their decision about the purchase.

Cons of conditional sale:

• A conditional sale can span across a longer period of time while the buyer secures finance, which could result in the vendor accepting an unconditional offer if they’re looking for a quick transaction
• Unrealistic demands in your conditions may lead vendor to accept another offer

An Unconditional Sale means that the buyer is willing to accept the property in its current state and can sometimes secure the home for a lower price point because of this. The buyer will have already secured approval for a home loan and has the deposit ready for immediate finalisation of the sale. It is a good idea to consult with a conveyancing lawyer and a registered builder/building inspector before opting for an unconditional sale, as there may be unforeseen issues with the property that might outweigh the savings you made from the sale. While it is imperative that the vendor’s agent discloses all issues present within the building – it is also important to do your own due diligence.

Pros of unconditional sale:

• An unconditional offer provides security for the vendor and therefore is more likely to be chosen preferentially over a conditional offer of a similar value.
• Since finance is already secured, buyers are able to place their highest bid with confidence.

Cons of unconditional sale:

• No longer able to back out of a contract
• The buyer may overvalue the property if making a hasty offer and won’t be able to change it
• If home loan finance is not approved, the buyer may have to forfeit their deposit

5. Deciding how much you should offer

You’ve got your budget in mind, you’ve accounted for additional upfront costs, now it’s time to decide whether you can comfortably service your mortgage. A great way to figure out your weekly or monthly repayments is by using a comprehensive mortgage calculator. This will factor in your deposit paid, interest, and home loan rate.

CASE STUDY:

NAB have set their principal and interest home loan rate at 4.92% per annum. If a buyer was to borrow $500,000 then their weekly repayments would be $613 p/w over a 30-year term. If the buyer was to borrow an additional $50,000, then this amount would increase to $675 p/w (a difference of $62 p/w).

When determining the price-point of your offer, some factors you may want to consider include how much you believe the property is worth based on market value, the condition of the home and your how attached you are to it. To gauge how much other listing in the area are selling for, you can research market values online, visit open homes in the area and speak with the real estate agents and sign up to mortgage brokering newsletters to stay informed about market trends. But ultimately, you’ve got to be happy with the property and comfortable with price based on your budget.

Depending on the type of sale you’re engaging in, you can generally place a low-ball offer, and have it either accepted or receive a counter offer from the vendor. However, if you’ve found the dream house and have the funds to pay your allocated amount for it, sometimes offering a decent price will avoid the risk of losing the property to a higher bidder if the vendor is looking for a quick sale.

6. Top tips when making an offer

Know your budget before auction day

Auctions are generally a high-pressure environment, which may lead some buyers to spend more than they initially intended, however attending an auction with a clear budget in mind is the best way to ensure you don’t exceed your spending capacity.

Seek loan pre-approval

By securing your home loan before making an offer, your bid will have a stronger chance of being accepted as this provides more certainty to the vendor that you will be able to access the funds.

Have a contingency clause written up

Worried you’ll get cold feet about the purchase? You can have your conveyancing lawyer write up a contingency clause – a legal document which generally accompanies your offer and is personalised to your requirements. For example, it might allow you 14 days to view the property again before the contract becomes binding. This will give you time to confirm your decision.

Triple check your conditions of sale

If you’re asking the landlord to fix a window, but also want the property for $10,000 lower than the asking price – you might want to reassess your priorities. Consider the cost of your conditions versus the price you’re offering as the more conditions you can address yourself (and the shorter your list of requests) the more likely the vendor will be to take your offer over someone else's.

Include a personal letter

Finally, you may like to include a personal letter to the vendor, sharing some background information about yourself and why you have chosen their property. Perhaps you love the house for its Victorian ceiling roses that have been so meticulously restored, or maybe you’re a young family with kids who are going to attend the school nearby. There can be a lot of emotional attachment for both parties when negotiating the sale of a house, so it can be helpful if the vendor is reassured that the property will be going to someone who will appreciate it.