Successfully buying and selling property entails becoming familiar with aspects of the process you might not have considered before.
If you’re selling a property, there are things to consider like choosing a real estate agent, valuing your property, and – a big one – should you go to auction.
The valuable tips we’re about to provide you are designed to make the process easier to navigate for a successful outcome.
The buyers agent
A buyers agent, sometimes known as a buyers advocate, represent your best interests in the purchase transaction. At Blue Key Finance, we utilise multiple buyers advocates to assist our clients in purchasing an owner occupied home or an investment property, so feel free to reach out to us to seek a recommendation.
Typically, what we have found is buyers agents have industry connections to source off-market properties that the average buyer would not be able to find on their own or at least can provide you with the first opportunity to view properties before they come to market. This can work to your advantage because less competition and no option to go to auction which means the purchase price may not run as high. Main reasons why there are a lot of properties ‘off market’ is because the seller may want privacy and don’t want people coming through their homes or because it can cost less.
Buyers agents have become more common in the past ten years and you find they mostly come from finance backgrounds or even real estate agents from the past. Buyers agents tend to specialise in specific geographic areas so they have the depth of knowledge and contacts necessary to do their best job.
A buyers agent is paid a percentage (up to 2%) of the eventual purchase price (with a retainer paid upfront and then subtracted from the final percentage) or a fixed fee up to $12,000 for a full service. The cost includes sourcing the property, carrying out inspections and handling negotiations with the seller.
Never underestimate “hidden costs” and understand them.
Have your potential purchase inspected thoroughly to work out if there are any structural issues such as termites, damp, asbestos or a leaking roof, can cost anywhere up to $1,000. A pest inspection will be another $150.
If you are buying an apartment, get a strata report that looks at the strata records to understand the history of the building and what has happened with repairs.
This is the biggest upfront cost after your deposit, visit our calculator to work out accurate stamp duty for your proposed purchase, Stamp duty calculator – Blue Key Finance
NB: Some States give first home buyers a full or partial concession.
Lenders mortgage insurance (LMI)
If you are borrowing more than 80% of the value of the property, your lender will charge you a one off cost in LMI. It protects the lender, not you, if you default on your loan. LMI can vary from a few thousand dollars up to $25,000+ depending on purchase price and size of your deposit.
Before you buy you need an expert licensed Conveyancer or Solicitor to look over the seller’s contract for any risks such as exclusions, restrictions or peculiarities. They will also check the title deed and arrange the settlement documents. The cost is around $1,000 – $1,500. If you want a trusted Conveyancer or Solicitor we’d be happy to recommend you one of our favourite professionals.
State Governments charge fees for transferring the title from seller to buyer. It is typically a few hundred dollars to $1,600, visit our calculator to accurately work this out for you – Stamp duty calculator – Blue Key Finance
States charge a fee for registering the mortgage, usually < $200, visit our calculator to accurately work this out for you – Stamp duty calculator – Blue Key Finance
Home, building and contents insurance
If you have a mortgage, building insurance is compulsory. There are many providers so be sure to shop around
This cost depends on how many belongings you have and how far you are going.
Depending on your loan, there could be extra fees. If you have a basic home loan, upfront fees or application costs may be low or waived, but other costs like settlement and additional valuation fee could be high.
Other fees can incur if you’re after a detailed property report, running your plans past an Accountant or Financial Planner, covering the costs of connecting gas, electricity and telecommunications to your new home
Lenders mortgage insurance (LMI)
It’s important to note here, LMI can work in the home buyer’s favour, and there can be ways to bypass the cost altogether.
LMI applies where you don’t have at least a 20% deposit. It is not a type of insurance consumers can shop around for, your lender will arrange cover and let you know the premium.
How much you pay is based on the risk you represent to the lender, something that hinges heavily on your deposit. We have found the one off cost for LMI on an ‘88% lvr’ as opposed to a 90% lvr can be significantly lower.
LMI is popular for first home buyers because it allows them to enter the property marker sooner without the need to save up for a large 20% deposit.
Not all lenders will accept a small 5% deposit, if you want a larger range of lenders to choose from, then having a minimum 10% deposit will help with this cause plus entitle you to better interest rates.
While there are only two mortgage insurers in Australia, Genworth & QBE LMI – the premium can vary as some Banks self-insure. At Blue Key Finance, we are happy to help source the best lender/loan product for you not just base don interest rate but also a lender that offers a competitive LMI premium.
Fortunately there are ways to bypass LMI altogether. One option is to use a guarantor to cover part of your deposit by pledging part of the equity in their own property to provide the Banks that important 20% deposit/equity.
Government support schemes are also available. Eligible first home buyers can use the “first home loan deposit scheme” to buy with a 5% deposit and pay zero LMI as the Federal Government will guarantee the other 15% of the loan. Single parents can take advantage of of the newly launched “family home guarantee”, using a 2% deposit to buy a home without the cost of LMI.
However, these schemes are only offering 30,000 places until the end of this financial year, not sufficient to cover the demand of over 150,000.
Last point we want to mention here is to use the LMI calculator on Genworth’s website LMI fee estimator | Genworth for an idea of what LMI may cost you based on purchase price and size of your deposit.
Apart from the mortgage repayments, there are other regular expenses involved in running a home.
Mortgage repayments will rise if your home loan is on a variable interest rate and interest rates continue to rise, as Banks need to ensure your mortgage is repaid in full in the agreed original loan term, usually within 30 years.
A rise of $270 per month in repayment can happen on a mortgage size of $500,000 if your variable interest rate were to rise say by 1%.
Bear in mind levies charged by the body corporate can be more expensive than council rates. These pay for the management and maintenance of properties – electricity, insurance, repairs, cleaning and strata management. Services like a lift, secure underground parking, a pool and gym can make the quarterly fee expensive.
Homeowners pay local council rates every quarter or annually, based on the value of your land. On top there are charges for water, both combined can be in the thousands of dollars each year.
If you have a mortgage, building or home insurance is mandatory. It insures you against the damage or loss of your home and structures such as garage that make up your property for an “insured event”.
Joint tenants versus tenants in common
You have two main choices for setting up ownership: as joint tenants and tenants in common.
A joint tenancy is a style of ownership where people own something conjointly and there is a right of survivorship. This means that if one of the owners die, then the other will automatically inherit everything. This style of ownership can also be between three people or more.
If you want to sell, then all joint tenants need to make the decision.
In second marriages (or third or fourth), ownership as tenants in common is the usual structure. This is typically because each party comes into the relationship with their own assets and children, and they want to ensure the children will be financially looked after at the time of their death. You may specify that you own different shares of the property. For example, one person might own 80% and the other 20%. This means if you die as a co-owner, you can leave your portion to the estate. This structure is commonly used by friends or siblings buying a property if they don’t necessarily want their joint owner to automatically inherit their share of the property upon their death.
You can change structures any time in the future.
Research is key to setting a realistic price. Start by downloading some real estate apps to keep an eye on a range of properties, price estimates and their sale and auction results. Two popular apps are realestate.com.au and domain.com.au, these apps allow you to set up alerts for new listings as they are released. You can keep an eye on upcoming auctions and create an inspection list.
When selling, look at similar properties in your suburb and the surrounding areas. Corelogic value properties based on the land area and street classification, they look at number of bedrooms and bathrooms and car spaces. They also value features such as air conditioning, a pool and a view. Proximity to public transport, schools, parks or beaches can push up prices.
You should meet with a few real estate agents to guide your decision on a desired sale price and we recommend you tell each agent that you are speaking to others.
Real estate agents are required by law to publish an indicative selling price, they don’t have to disclose the reserve price before auction. Sometimes the reserve is decided on the day of auction, based on the number of registered bidders.
Also, private sales, where agents negotiate with bidders, can go way over the sale price in a boom market. Increasingly buyers are told a final price then they are told there are more bids, pushing up the price beyond the sale. These can be less transparent than auctions as you don’t genuinely know if there are other buyers.
One way to work out what a property is worth is to simply focus on your own medium to long term research with comparable sales.
One of the challenges of upgrading to a new home is filling the financial gap between buying a new place and selling your old place.
Closed bridging loan
This is a short term loan that typically applies when you’ve sold your old home and have purchased a new one. There is a timing difference between receiving the cash on the current home and paying for the new place.
A simple solution is to negotiate an extended settlement period with the vendor. If they won’t come to the party, closed bridging loans are offered by a reasonable number of lenders. These loan s often last just a few weeks, and the borrower pays down the loan plus accrued interest and fees on settlement of their old home.
Open bridging loan
This applies when you have committed to buying a new property but your old home is still lingering on the market with no buyer in sight.
With this type of loan, the bank will often fund 100% of the value of your new home – and even the upfront purchase costs like stamp duty and legal fees – as long as this doesn’t breach its loan to value ratio (LVR) requirements.
For example, you have a $200,000 mortgage on your current home, which is listed for sale at $1,000,000. So, when the place sells, you’ll potentially pocket $800,000 in cash after clearing the mortgage. But before that happens, you see a place you love and sign on the dotted line to buy it for $1,200,000.
In this situation, the lender will look at your “peak debt” – that’s the purchase price of your new property plus the balance remaining on your home loan. In this example, peak debt is $1,400,000.
From the lender’s perspective, this $1,400,000 debt is backed by $2,200,000 worth of assets. This puts the LVR at 63%, which is below the 80% threshold at which you would typically pay lenders mortgage insurance (LMI).
The upshot is that buyers may be able to take out a bridging loan without stumping up a cash deposit. When your home sells, you payout the bridging loan plus accrued interest. The interest is usually calculated on the lenders higher standard variable rate.
The downside is the lenders set a time limit on open bridging loans, usually a maximum of 12 months. At that time, the lender has the power to step in and appoint a new agent to sell the property. Not every bank offers bridging loans and those that do usually only to their existing customers.
The real estate agent
A common mistake people make is to sell with the same agent they bought with. We recommend you meet with a few local real estate agents to discuss the details and go with the agent you feel most comfortable with.
You need to go with a licensed agent who knows how to price a property and has a big database and a long list of prospective buyers. They need to know how to market it and negotiate effectively. You want a real estate agent who knows the market inside out. You want to avoid an agent who undervalues your property for a quick sale or one who overstates the price to win your business but doesn’t deliver.
Agents should be advising you on how best to present your property: decluttering, styling, landscaping, painting and new carpet all help give it a fresh look.
When it comes to agent fees or commission, it varies. It can range from 1.7% to 2.7% of the sale price. Some agents negotiate a sliding scale of commissions or performance-linked commission over a certain amount.
Be clear that you expect the real estate agent to be at the viewings, not the second or third person on the team. You don’t want a short viewing period; you want an agent with three or four viewings so that they give your home a good stretch of time for prospective buyers.
When a bidding war brings out the best price
Emotion can get in the way often when a buyer falls in love with a beautiful kitchen or a backyard for the kids.
Sometimes there is buyer fatigue, where buyers have been searching for so long, paying for inspections and other costs, that they will pay a high price to secure a property.
The big advantage of an auction is that it is transparent and you can witness the bids. There are many examples of houses and apartments selling well above their reserve because buyers are worried about rising prices and fear they will miss out.
The advantages of an auction include:
- If there is strong demand, the competitive bidding can push the sale price well over the reserve.
- A set date gives potential buyers a deadline for organising their finances and getting ready to act. Even if the property is bought before auction, the contract still stands, so there is no cooling off period.
- If the home is passed in, the agent has buyers to negotiate with later.
- It’s a good way to sell the property that is hard to price in advance because of it’s likely popularity or unusual characteristics.
If you have determined buyers, it could be in your interest to sell before auction. You will have more time to weigh up their offers unlike in a short intense auction. You will also avoid auction fees and if it sells quickly after it goes to market you will pay less for advertising.