Contracts

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GUEST OBSERVER
Before You Bid allows you to search for a property and buy your independent building and pest, strata report and contract review without picking up your phone.
The website was created after the personal experience of spending thousands of dollars without getting close to buying a property.
I was concerned not just with the cost of these reports, but also the quality. People don’t want to allow others to buy their reports because there is nothing in it for them. That is why we set-up a cash back model so that everyone pays the best possible price.
We have also set up an Uber-style rating system so our customers can give direct feedback on their reports and we can feed that through our service providers to continually improve the quality.
Service providers can apply to Before You Bid to be on their panel and have their qualifications and insurances checked. In one instance there was an inspector who had a builder’s license number on their website and it was fake. We take those worries out of the consumers’ hands. 
And how do they address the independence issue?
We found in the ACT that the agents have a tendency to pick report inspectors who write favourable reports. We have contacted a number of inspectors who admitted that their agent-instructed reports were not as thorough as their buyer ones. We don’t think they are worth the paper they are written on and that buyers deserve better. That is why we don’t allow agents or vendors to have any influence over our panel of report writers and don’t accept any money from them for advertising. We are exclusively buy-side focused.
With our share cost model interested parties can pay as little as $149 for an independent building and pest inspection and $79 for an independent strata report or contract review. We consider this an innovative solution to a market failure.
Rhys Rogers is co-founder and chief executive officer of Before You Bid and can be contacted <a href="https://www.beforeyoubid.com.au" target="_blank">here</a>.
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Uber-style report rating system for building, pest and strata reports

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<img src="https://counter.theconversation.edu.au/content/80059/count.gif?distributor=republish-lightbox-advanced" alt="The Conversation" width="1" height="1">
GUEST OBSERVER
While you may think signing a retirement village contract is similar to buying a house or apartment, it isn’t.
Retirement village contracts resemble insurance contracts more than purchase agreements, only they aren’t regulated like insurance products. 
The lack of regulation increases the risk for retirees. They face considerable delays in receiving their payments when they leave, costs due to the delay, and the potential loss of all payment from companies that don’t need to meet the financial standards of an insurance company.
Most retirement village contracts provide the consumer with a combination of the right to reside in the retirement village (until death, incapacity for independent living, or voluntarily relocation) and an “exit payment” upon leaving. As both the amount and timing of this payment depends on the resident’s death or ill health, the payment is a de facto insurance payout.
This makes the retirement village contract a combination of the right to reside and a de facto insurance policy. But the insurance policy comes from companies that wouldn’t normally be allowed to sell insurance.
Retirement villages are mostly small private companies or not-for-profit organisations. This means they aren’t required to publish their annual financial statements, hold reserves, or have reinsurance arrangements like an insurance company. The consumer can’t be confident that the retirement village is financially healthy and able to pay out the exit fee, due to the absence of information about their accounts and financial condition. 
<h2>Fees and more fees</h2>
There is a great variation in the structure of the fees that retirement villages charge – entry fees, ongoing fees and a so-called “<a href="https://www.fairtrading.nsw.gov.au/Factsheet_print/Tenants_and_home_owners/Retirement_villages/Leaving_a_village/_Departure_fees.pdf">deferred management fee</a>”, which is an amount taken out of the money refunded to departing residents.
These fees <a href="https://www.retirementliving.org.au/industry/services/census/">can be substantial</a> – the entry fee alone is often comparable with the cost of buying an apartment. Although the amount varies by location, one operator told a <a href="https://www.propertyobserver.com.au/https://www.parliament.vic.gov.au/lsic/article/2972">Victorian parliamentary inquiry</a> the entry fee was equivalent to 80% of the cost of a house nearby.
A retirement village contract might have an entry fee of A$1 million, a deferred management fee of 6% of the entry fee per year of residence, and a maintenance fee of A$500 per month. 
For a contract with a A$1 million entry fee, after five or more years of residence, the deferred management fee is A$300,000, so the exit payment is A$700,000. But the deferred management fee can vary greatly. It may be 10% per year for three years, or 3% for 10 years etc.
The exit payment can also include some share of the resale value of the apartment. But the retirement village needs to be able to pay out this exit payment.
<h2>The need for proper regulation</h2>
The assets held by retirement villages are almost all invested in real estate. This is risky, as they aren’t diversified and their assets can’t be easily turned into cash. 
When a retirement village has to pay a departing resident their exit payment it may take a long time to sell their apartment, which could involve a loss on resale. This can also lead to delays in receiving exit payments.
After signing their retirement village contract, residents are also in a weaker bargaining position than a traditional tenant in a normal pay-as-you-go rental arrangement. This is because residents have already paid their rent in advance for the rest of their life, and it usually costs a lot of money to get out of these contracts. 
In some retirement village contracts the resident may be forced to spend a lot of money on renovations – such as for a new bathroom and kitchen – so that the apartment can be sold and they can get the exit payment. 
This issue is compounded by the complexity of the contracts, which can be hard <a href="https://www.propertyobserver.com.au/https://www.parliament.vic.gov.au/lsic/article/2972">for both consumers and financial advisers</a> to understand.
This creates substantial risk for consumers, and the lack of a requirement to publish financial statements and related information makes it very difficult to assess the financial soundness of a retirement village operator.
If retirement village contracts are in fact insurance agreements, then they should be regulated differently – by the Australian Prudential Regulatory Authority and not by state governments, as is now the case.
If retirement villages were properly regulated then consumers would be better protected from failure of operators and better protected from delays and capital losses when they get their exit payment.
Timothy Kyng is Senior Lecturer, Department of Applied Finance and Actuarial Studies, Macquarie University and author for The Conversation. He can be <a href="https://theconversation.com/profiles/timothy-kyng-386308" target="_blank">contacted here</a>.
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Why retirement village contracts need to be regulated like insurance

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All nine Australian real estate institutes have called on the government for changes to laws that will allow contracts for the sale of land and other property-related documents to be created via online forms that are safe and simple to understand and use.  
The real estate institutes have called for the repeal of Electronic Transactions (ET) legislative provisions ("exemptions") which are confusing what procedure should be followed if an e-contract needs to be signed by a company; if a signature needs to be witnessed and, in the case of South Australia only, if an e-contract relates to a land transaction.
A joint submission was made to all Australian governments on November 18, co-ordinated by Tim McKibbin, CEO of the Real Estate Institute of New South Wales and Mark Morgan, a property partner at Colin Biggers &amp; Paisley. 
Morgan said the exemptions were a barrier to the development of easy-to-understand e-contracts for most property related-transactions including land sale contracts, sales agency agreements, residential and retail lease agreements and property management agreements. 
“The exemptions leave property industry professionals and consumers unable to utilise the existing national ET code as a guide for procedure in relation to the creation, transmission and signing of e-contracts,” Morgan said.
“This has led to uncertainty and confusion as to what procedures should govern property industry e-contract transactions, and as a result has seriously delayed the development of property industry e-contracts that a consumer can easily access by computer and are safe and simple to understand and use.”
“We all recognise the importance of removing the barrier to widespread use of e-contracts and call for changes to Commonwealth, State and Territory legislation to address unintended consequences within the regulations,” added McKibbin.
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