Property Purchase by Private Treaty
When a property is listed with a selling price, this is considered a Sale by Private Treaty, or a Private Sale. So when you buy, it is a property purchase by private treaty. The property is listed through a Real Estate Agent, with an asking price or an asking range. A buyer will present an offer for the property purchase to the real estate agent, who in turn presents the offer to the seller of the property. It is up to the property seller (vendor) to either accept, reject or counter offer. The purchaser and vendor may go back and forth a few times with counter-offers, until an agreement is struck.
When a property is listed for sale, the vendor and Real Estate agent would have a set price in mind. The listing price would generally be above the desired sale price, however if the selling market is strong, the listing price may just be a starting price, (IE: Offers from $$) with a higher price sought.
The property purchase – Making an offer
When making an offer on a property purchase by private treaty it’s difficult to know what price to start at. There are two ways you can do this. One is start with a low offer and once you receive a counter offer from the vendor, then work your way up. The other option is to start with as close as possible to your best offer. The risk with you take if you start with a low offer is that someone else may come in with a better offer and the vendor will look at that offer first. If there is a lot of interest in a property, it may be best to make your best offer first up.
Do your research
When doing your research on the property, try to find out as much as possible about the vendors also. Why are they selling? Are they in a rush to sell? Are they committed to a purchase elsewhere? If they have committed elsewhere or need to sell in a hurry, it may allow you to purchase for a lower price. A good Real Estate agent will not let too much slip. They are working for the vendor and are looking for the maximum sale price they possibly can.
If there is strong interest in the property or in a very strong market, then putting in a better price is always the better option. Just remember to do your homework and have a maximum price in mind and stick to it
Make sure your finances are in order
Before even looking at making a property purchase by private treaty, ensure you have your finance Pre-approved. This not only lets the vendor know you are serious, but you have already thought about your financing options.
With private treaty, you are able to make an offer “Subject to Finance”. This will give you a limited window of time where you can finalise your pre-approval and obtain confirmation you can receive Formal Approval.
There are 2 forms of private treaty contracts that can be made; Conditional or Unconditional. A conditional offer is still a binding contract to purchase, where certain conditions need to be met by either party. These might be subject to the purchaser obtaining formal approval of their finance; subject to pest and termite inspections; building inspections; or many other conditions. Once these conditions are met, the offer then becomes an Unconditional Offer. If these conditions can not be satisfied, the buyer would have the legal right to void the contract.
If your offer is unconditional, then there are no conditions to be met and is an outright offer to buy a property. To get to this stage you need to be completely sure you have your finances in order. Legislation and the process of buying a property by private treaty varies between states. However, once the vendor has accepted your offer, you are legally obliged to go through with the purchase or risk forfeiting your deposit as well as the vendor possible taking legal action for breach of contract.
Know Your Costs
Keep in mind there are several other potential fees when purchasing. There may be stamp duty considerations. Settlement agent costs and searches they need to do. Bank and mortgage costs. If you’re a First Home Buyer these costs may be lower, depending on where you buy and the purchase price. The other major cost you may have is LMI. Depending on your deposit, this could also cost a lot. You may be able to add it to your loan, or depending on your initial deposit, may need to pay for it up front.
Speak to your solicitor or settlement agent
Ensure you speak to your solicitor or conveyancer about the terms of the contract before you commit to the purchase. Do this whether it is property purchase by private treat or by auction. They may advise any pitfalls that there may be in the contract or property. The Real Estate agent should be able to provide a copy of the purchase contract prior to any offers being made.
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