How to buy your first house from a private seller
Buying your first home is an exciting milestone, but when purchasing from a private seller (as opposed to through a real estate agent), the process may seem less familiar. Whether you’re looking for a deal, prefer direct negotiations, or just happen upon a private seller with the home of your dreams, understanding the process will help ensure a smooth transaction. In this article, we'll guide you through each step, from deciding how much to offer to signing the contract and paying the deposit.
Step 1: Deciding how much to offer
When purchasing from a private seller, one of the trickiest parts can be determining how much to offer, as there may be less market information readily available compared to properties listed by agents. Here's how to navigate this crucial first step:
Research comparable sales
The key to making a solid offer is researching comparable properties in the area. Look at recent sales (preferably within the last six months) that are similar in terms of size, condition, and location. Websites like realestate.com.au and domain.com.au offer useful sales data. Additionally, if you can, seek professional advice, either from a property valuer or real estate consultant, to get an accurate picture of the property's value.
Initial offer
Once you have a sense of the property’s market value, it’s time to make an offer. Your initial offer should reflect the market data but also leave room for negotiation. In general, it's common to offer 5-10% below the asking price, but this depends on market conditions (e.g., in a hot market, offers closer to the asking price may be more appropriate). Be respectful but assertive with your offer.
Step 2: Negotiations
Once your initial offer is made, the seller may counter-offer. Here’s how to manage the back-and-forth:
Stay calm and objective
The negotiation process can be tense, but it’s essential to stay calm and not let emotions dictate your decisions. Focus on the property’s value and what you are comfortable paying.
Counter-offers
The seller may come back with a counter-offer higher than your initial one. You can either accept, make a new counter-offer, or stick to your original price if you feel strongly about your evaluation. During this phase, it can be helpful to consider factors like:
- How long the property has been on the market (A property that’s been listed for a while may lead to a more flexible seller).
- Your financing situation (Being ready with pre-approval can give you leverage).
- Any unique conditions of sale (such as the need for a quick sale from the seller's end).
Conditional offers
If there are aspects of the property you’d like to investigate before committing fully, you can make a conditional offer. This means your offer is valid as long as certain conditions are met, such as a satisfactory building inspection, pest inspection, or securing financing. These conditions protect you, ensuring that you aren’t locked into a contract if something goes wrong.
Step 3: The Contract of Sale
Once both parties have agreed on a price, it's time to formalise the agreement through the Contract of Sale. This is a critical legal document that outlines all the terms of the sale and is usually prepared by a solicitor or conveyancer.
What’s included in the Contract of Sale?
The Contract of Sale typically includes:
- Price: The agreed purchase price.
- Deposit: The amount to be paid upfront as a deposit (usually 5-10% of the purchase price).
- Inclusions and exclusions: A list of what is included in the sale (e.g., fixtures, appliances) and what is excluded (e.g., furniture).
- Conditions of sale: Any conditions that have been agreed upon, such as the need for a building inspection, financing approval, or repairs.
- Settlement date: The date by which the final payment will be made and ownership transferred (usually 30-90 days from signing).
- Parties involved: Names and contact details of the buyer and seller.
- Cooling-off period: The timeframe during which the buyer can withdraw from the contract without penalty (varies by state).
When is the property considered sold?
The property is considered sold when both the buyer and seller sign the Contract of Sale, and the buyer has paid the deposit. It’s crucial to ensure that all agreed terms are included in the contract before signing, as it becomes legally binding once signed.
Step 4: Paying the deposit
After signing the contract, the next step is to pay the deposit. This is typically a percentage of the purchase price (commonly 5-10%) and shows the seller you are serious about the transaction. The deposit is usually held in a trust account (often managed by the seller’s solicitor) until the settlement date.
The deposit terms, including the amount and payment method, will be outlined in the Contract of Sale. Make sure to follow these instructions closely, as missing deadlines or making incorrect payments can complicate the sale process.
Step 5: Cooling-Off Period
In most states in Australia, buyers have a cooling-off period after signing the Contract of Sale. This period allows you to reconsider the purchase and withdraw from the contract without facing major penalties (though a small fee may be incurred). The length and availability of the cooling-off period depend on the state or territory where the property is located:
- Victoria: 3 business days
- New South Wales: 5 business days
- Queensland: 5 business days
- South Australia: 2 business days
- Western Australia: No statutory cooling-off period
- Tasmania: No statutory cooling-off period
It’s important to note that the cooling-off period typically does not apply to auctions or properties bought through auction.
Step 6: Additional documentation for First Home Buyers
If you’ve utilised grants and schemes:
When lodging your application with a participating lender (see the full list here: https://www.housingaustralia.gov.au/home-guarantee-scheme-participating-lenders), you will also need to supply a declaration form that is signed and dated by an approved person, such as an accountant, police officer, teacher, etc. Generally your chosen lender will supply this form for you, and at Beck McLean Finance we will fill in this form based on our in depth discussions and email it to you to sign and send back to us. Additionally, when applying for grants or schemes, you will need to supply a copy of your Medicare card. Generally you will supply these when you’ve completed a pre-approval, but it’s important to make note of if you haven’t applied for a pre-approval.
When can you withdraw first home super saver scheme savings?
You can withdraw your FHSS savings when you are looking to purchase a home. You have a 24 month time frame (inclusive of a 12 month extension) to purchase a house from the time you withdraw your savings, so you do not need to have a property in mind.
You must request to withdraw your savings before owning a property. If ownership of a property has been transferred to you, you’re no longer eligible to release your savings.
How much can I withdraw?
You can withdraw up to $15,000 of your voluntary contributions from any one financial year, up to a total of $50,000 across multiple years, including earnings made. The maximum release amount includes:
- 100% of your eligible personal voluntary super contributions you haven't claimed a tax deduction for (non-concessional contributions)
- 85% of your eligible salary sacrifice contributions (concessional contributions)
- 85% of eligible personal voluntary super contributions you've claimed a tax deduction for (concessional contributions)
- deemed earnings associated with these contributions (this will be different from actual earnings in your super fund)
How do I withdraw my first home super saver scheme savings?
Follow the following steps to withdraw your savings from super:
- Sign into ATO online services through myGov.
- Request a determination. The ATO will advise your maximum release amount.
- Request a release of your savings. The ATO will arrange for money to be released from your super and will pay it to you. They will withhold an estimate of the tax owed on the withdrawal amount.
What if I don't end up buying a property?
If you don’t purchase a home, you have 2 options: recontribute the funds back into your superannuation, or pay a tax equal to 20% of the concessional amount released, removing the tax benefits of utilising the FHSSS.
Step 7: Settlement
After the cooling-off period (if applicable), and once all conditions of the sale are satisfied (e.g., building inspection, finance approval), you will move towards settlement. On the settlement date, the balance of the purchase price is paid, and ownership of the property is transferred to you. The conveyancer or solicitor will handle most of the legal paperwork, ensuring that the property title is transferred into your name and that any outstanding payments, such as rates and taxes, are settled.
Buying a home from a private seller offers unique benefits, including the potential for more personalised negotiations. However, it also comes with the responsibility of managing the process more independently. By researching the property’s value, making a reasonable initial offer, navigating negotiations, and understanding the key elements of the Contract of Sale, you can buy your first home with confidence.
Having a professional (like a solicitor or conveyancer) guide you through the legal aspects of the sale can help safeguard your investment, ensuring a smooth purchase process.
