Buying a house is a stressful process in itself, but if you’re competing for a purchase in a seller’s market, which has been the case for some time, the pressure can be intense. If you’ve felt the impulse to make a snap decision, or made an offer without due diligence, we want you to imagine the stern look on your lawyer’s face when you hand over the paperwork.
While you may feel inclined, or even persuaded, to make a clean offer that has few or no conditions, once you sign the agreement you’re legally obliged to satisfy any conditions. It can be very costly if you don’t.
Buying property at auction
While you can compete directly against competitive buyers at auction, if you are the successful bidder and have made a bid above the reserve, this constitutes an unconditional offer. This means you are legally obligated to purchase the property on an unconditional basis.
Your property lawyer can’t do anything after the auction if there is a problem with the title. You need to make sure you speak with us before the auction so we can do a property check, research the title and assess the auction information. If we find any issues, you may want to lower your bid or pull out altogether.
Solicitor’s approval clause vs a bad decision
There’s a common misconception that you have a ‘get out of jail free card’ if you insert a solicitor’s approval clause into the sale and purchase agreement. Some people think this clause is as good as a due diligence clause, allowing you to simply tell us not to approve the sale if you change your mind.
Your property lawyer is only allowed to invoke this clause if there are genuine legal issues, usually if there are problems with the agreement itself or the property title. The clause won’t save you from making a bad decision.
A house of horrors
Alexander Rollins (a fictitious name) did the above and made an offer on a property with the only condition being a solicitor’s approval clause. There was no need for negotiation and the offer was accepted.
Once Alexander had the opportunity to review his hasty decision, he thought he had paid too much for the property and wasn’t so keen on the deal. Later, when the bank requested a valuation, Alexander found out the property was valued at $20,000 less than he had offered. He decided he didn’t want to go ahead with the purchase. When his lawyer looked at the agreement and the property title, everything was in order. There was no way out of the deal.
Here’s where things went sour for Alexander. Even though he had pre-approved finance, his bank would only lend him 80% of the valuation. Alexander had to use the money he had saved for renovations to settle the deal. As he had no conditions about the agreement being subject to finance, if he had been relying on the loan from the bank, the situation would have been serious.
Alexander’s lawyer first heard about the purchase when he received a signed copy of the agreement from the real estate agent. If Alexander had spoken to his lawyer, he would have never have ended up in this situation.
The moral of the story is simple: talk to your lawyer before you sign. We can make the process less stressful and protect you from making a decision that you might later regret.