There are several ways to purchase a property in NSW. These are:

Private Treaty

The most popular method in NSW is by far the Private Treaty. This is when the seller (known as a vendor) notifies their real estate agent that they want a particular set price and their agent then negotiates the price on their behalf with a potential buyer doing their best to get as close as possible to this price. During very active markets, the agreed price can sometimes exceed the original set price.

Buying at Auction

Put simply, an auction is a battle of bidders who try to out price each other by placing bids on the property they wish to buy. Auctions must be conducted by licensed auctioneers and have a particular set of rules which must be followed. The reserve price is the amount that must be met before the property is officially on the market. Which means the highest bid above the reserve is the winning bid! If the reserve price is not met, the auctioneer will declare the property is ‘passed in’ meaning it has not reached the minimum price to officially go on the market for sale and thus is withdrawn. Be aware – property purchased at auction DOES NOT have a cooling off period and the Contract of Sale must be signed on the day with a deposit (typically 10%) paid on the day. For this reason, it’s important to see your mortgage/finance broker in advance to ensure that you are eligible for the loan to purchase the property.

Buying by Tender

A tender is similar to an auction in that prospective buyers make offers on a property they wish to purchase. Unlike an auction though, prospective buyers make their offer by writing it down (with any special conditions if they choose) in envelopes which only the agent will see. This means that the buyers never know what offers their competitors are making. The vendor can choose one of the offers after the deadline (but not before) if they are happy with the offer and terms. The vendor can also choose not take any of the offers if they are not satisfied. The agent can then negotiate with the prospective buyers to potentially get a higher offer or more favourable conditions to suit the vendor.

Buying property off the plan

Buying off the plan is when you sign a contract to purchase a property only by having seen the plans. That is, the property has not yet been built. This type of purchase can be rewarding if buying the right type of property at the right time in the property cycle. But like most things, this type of purchase also has its pitfalls. Some of these are:

1. Time to completion blows out and instead of the original 12 months, it becomes 18 months or more. This can be a real problem if you planned to move in after a specified event like marriage or the end of a rental lease.
2. Lenders have tightened their criteria. This can be a problem as the amount you were pre-approved for when you signed the contract and paid 10%, will no longer be honoured by the lender due to their new lending criteria. This could mean that you are not eligible for a loan at all or that you may have to come up with your own funds to reduce your LVR (Loan to Value Ratio) and thus loan amount.
3. What was shown in the original plans is different to what was actually built. It is common for ‘adjustments’ to be made on newly constructed developments whether it be design changes or material changes. Usually the contracts will specify that the developer/builder reserves the right to make certain changes depending on various factors. This could be a nightmare if you expected a window/door in a particular place and it disappears when the property is built.
4. Bank valuations. Depending on many factors, it is not uncommon for a bank valuation to come back lower than the purchase price. Remember that contracts are signed before any construction takes place. Which means there is a significant time between paying your 10% and getting the loan for the balance of payment. This can be a scary predicament as you, the contracted party are obligated to come up with the shortfall of the valuation or risk losing your 10% deposit. The shortfall could be $10,000 or it could be $40,000 or more depending on how low the valuation was. If you cannot come up with the additional funds to make the shortfall you may end up losing $50,000 deposit on a $500,000 property!

Take extra special care when purchasing an off the plan property. Always seek legal advice so you understand your rights and obligations.