Attwood Marshall Lawyers’ Property & Commercial Special Counsel Barry van Heerden discusses how important it is for sellers to get the right advice on prospective sale contracts, as house prices continue to drop from record-high peaks in reaction to interest rate rises, skewing the market in favour of buyers.
Property prices have fallen 8.4 per cent since the Reserve Bank of Australia started its campaign of rising interest rates in May 2022, according to statistics from the CoreLogic Daily Home Value Index. The data company also found that between October and December, more than 80 per cent of suburbs across the nation experienced a slump in the value of houses and units – a significant change from just 10 per cent recorded a year ago.
Those declines are set to continue with the RBA not expected to halt its regular rate increases any time soon.
In a market that favours the buying side, sellers that are not rushed to put their houses on the market may choose to hold off. Others however may be in a more distressed situation and feel they must sell their home, whatever the state of the market.
Indeed, sales are picking up. Figures from conveyancing platform PEXA show that New South Wales was the best performing state in December 2022, with residential settlements up 8.2 per cent compared with November.
Despite the mostly negative reporting on the property market there remains high activity on the Gold Coast. Information from Gold Coast Tourism indicates a record number of visitors to the Gold Coast. A significant portion of those visiting came here with the purpose of taking the opportunity to look at properties available on the Gold Coast.
A lot has to do with lifestyle choices. This was really triggered by Covid and the feeling that there will be more pandemics moving forward. People are moving away from congested cities to less congested regions.
Despite the recent (and still to come) rate rises, the interest rates are still below the level before Covid and in line with normal interest rates over the past decade.
It appears buyers are not overly concerned about the interest rates. There is no lack of interest in buying but it is a negotiating process with sellers favouring in some small way the buyers.
So, what should sellers be aware of when negotiating in a more competitive market?
Keep an eye out for special conditions required by the buyer
Typically, when the real estate sector is experiencing a price correction like this one, buyers can have more power to negotiate a cheaper price or include special conditions and clauses into the contract of sale.
Given today’s precarious economic climate, it’s not surprising a buyer may push for added protections in case the sale doesn’t go according to plan. Several ducks need to be lined up in a row, and just one disruption is usually enough for the deal to collapse.
Banks are taking a more conservative stance to lending, for example, and may unexpectedly pull the plug on a loan if they believe the property isn’t worth what it was valued just a few months prior to signing on the dotted line.
Most contracts are subject to a number of special conditions including pest and building reports relating to the property and, where units are involved, a body corporate inspection report. These special conditions are usually drafted in such a way that a buyer can terminate the contract only if the buyer can prove it is reasonable to do so.
This is different from an open due diligence clause, which will allow a buyer to walk away for any reason whatsoever.
When a contract is unconditional there are very limited circumstances for a buyer to negate on the deal.
The terms of a sale agreement should be closely reviewed by an experienced property and conveyancing lawyer to make sure that unreasonable conditions have not snuck into the fine print. You also need an experienced property lawyer to act on your behalf in the sale so that the buyer will not try to ‘pull the pin’ on a contract unless it is reasonable and done strictly in accordance with the contract terms and conditions. For example, some buyers attempt to terminate the contract under a pest and building report for very minor issues. This is not a sufficient ground to terminate under that clause, so sometimes you need to ‘dig in’ and hold the buyer to the contract.
Buyers can also purport to terminate under the finance clause but further investigation reveals their finance has been approved! You need to be vigilant about these conditions and make sure you have the right lawyers acting on your behalf to keep buyers honest.
Deadlines, Deadlines, Deadlines
All parties to a property contract must carefully scrutinize and note down critical dates in the selling process. The penalties for missing such deadlines can be significant! In Queensland, time is of the essence and if a time is specified in the contract the parties must comply otherwise termination of the contract may follow.
It is therefore important for both sellers and buyers to obtain adequate legal and financial advice before committing to timeframes and deadlines in a contract. Unfortunately, banks are renowned for delaying settlements and even though parties usually agree to an extension to certain dates, it may not always be the case.
An experienced property lawyer can work with a client to develop a step-by-step plan for each stage of the sales process and ensure the contract properly covers all aspects of the sale. That old adage of not signing anything until you get the right legal advice is particularly apt in a sliding property market.
Attwood Marshall Lawyers – helping sellers protect their rights
It’s very important for sellers to check with an experienced property lawyer before signing anything. Having a lawyer on hand throughout the purchase process is also key to reducing the risk of disputes arising when one party has not met their obligations.
Sellers have several routes for recompense if a sale is terminated unfairly or illegally. They can pursue a buyer for damages, to cover any legal fees or commissions owed to a broker or selling agent for example. The difference between what a seller eventually sold the house for and what they could have got if the initial buyer had honoured their contract can also be up for grabs. Another remedy available is to take proceedings for ‘specific performance’ of the contract, which holds the buyer to the deal and forces them to complete.
If a buyer breaches the conditions of the contract, the seller is entitled to claim any other reasonable costs or losses arising from selling the property.
Our property law experts at Attwood Marshall Lawyers are always available to give sellers trusted advice and clear instructions to negotiate the best deal to protect their interests.
For legal assistance with a conveyance or general property law advice, contact Property and Commercial Department Manager Jess Kimpton on 07 5506 8214, email firstname.lastname@example.org or call our 24/7 phone line 1800 621 071 today.
We also have a dedicated team of lawyers who practice exclusively in property disputes. If you are involved in a dispute and need advice, please contact our Litigation Department Manager, Amanda Heather, on direct line 07 5506 8245, email email@example.com or free call 1800 621 071 to find out where you stand.
Our lawyers are available for appointments at all our conveniently located offices at Robina Town Centre, Coolangatta, Kingscliff, Brisbane, Sydney, and Melbourne. If you can’t see our team during business hours, our Robina Town Centre office is open Thursday night until 9pm and Saturday morning until 12noon.