Hello fellow readers. Welcome back for this months’ Real Estate column. Exciting isn’t it? Ok, so not everyone is a Business nerd such as me. Although, I have found many people have lots of interesting questions. It does seem that many people are secret or budding Real Estate nerds! Yeah! This month I hope to embrace this community of question askers by answering the three most frequently asked questions! Enjoy….
p.s. be aware that these answers are Victorian based, every state has their own lot of rules.
What is and how much is stamp duty?
Stamp duty is a general revenue tax which is imposed on transfers e.g. agreements to sell property, policies of insurance and motor vehicle licence transfers. Interestingly stamp duty is used for public services such as education, health, law and order, and public safety.
The purchaser pf the property is usually expected to pay the duty as a percentage of the agreed purchase price. The name ‘Stamp Duty’ comes from the purchaser’s requirement to ensure that the document has been correctly stamped.
The percentage of stamp duty required to pay increases as the purchase price increases. The structure is similar to increases in personal income tax scheme. So the richer you are the more you pay. I’ve tried to outline it in this little table.
Examples of cost structure:
If you pay $20,000 for your house. Stamp duty is approximately $280.00
If you pay $115,000 for your house. Stamp duty on the first $20,000 is $280.00. Stamp duty on the next $95,000 is $2,280.00. Total Duty to pay is $2,560.00
If you pay $870,000 for your house. Stamp duty on the first $20,000 is $280.00. Stamp duty on the next $95,000 is $2,280.00. Stamp duty on the last $755,000 is $45,300.00. Total Duty to pay is $47,860.00
If you pay $1,000,000 for your house. Stamp duty on the first $20,000 is $280.00. Stamp duty on the next $95,000 is $2,280.00. Stamp duty on the next $755,000 is $45,300.00. Stamp duty on the last $130,000 is $7,140.00. Total Duty to pay is $55,000.00
Why is stamp duty important to me?
You have to be aware of the extra costs associated with purchasing a property. Many Real Estate agents will only discuss the sale price and not mention the extra costs such as Stamp Duty and legal fees. It is quiet a large amount to pay in one lump sum. Some people therefore choose to also borrow the Stamp Duty from their banks, potentially borrowing a total of 105% of the purchase price.
If you’re really excited about all of this you can sign up for the ‘Stamp Duty Bulletin’ at www.bdw.com/subscriptions/ oh dear….
What is a Section 32 Vendors Statement?
A ‘Vendor Statement’ or ‘Section 32’ is a document containing lots of information about the property being sold, and is provided by the owner (Real Estate people call them ‘vendors’ once an owner has decided to sell).
The name ‘Section 32’ comes from the Sale of Land Act, in which the 32nd Section outlines what information must be given, and also sets out specific warnings that must be made clear to the purchaser, such as the cooling off periods and exceptions.
Purchasers should get a copy of the Section 32 and check it thoroughly with legal council. The most important things to look for are usually things NOT included. Why haven’t they been included? Is there something to hide?
It is important that the Section 32 is correct and complete, as a sale can be terminated or the vendor fined if it has not been properly prepared. It is strongly recommended that a vendor employs a legal representative such as a conveyance, solicitor or lawyer to prepare the document.
The Section 32 must be provided to an intending purchaser BEFORE the contract is signed. Real Estate agent will often have the purchaser sign a contract first, and include a special condition in the contract stating that the sale is subject to the vendor providing the purchaser with a copy of the Section 32. This can be a good way to quicken up the process of purchasing a property and getting your offer in first, but only do it when you truly understand what you are doing and the legal ramifications.
Common things to be included in a Section 32 are:
Statutory warnings to the purchaser.
Vendor’s details.
Title details.
Information regarding building permits issued in the past 7 years.
Particulars of owner-builder warranty insurance.
Particulars of any mortgages or “charges” over the.
Information regarding covenants, easements and any other restrictions on title.
Planning information, particularly where zoning restricts land use.
Information regarding outgoings payable by the owner of the property.
Disclosure of any notices or orders issued by the authorities, regarding such matters as fencing, road-widening, sewerage etc.
Information as to services connected to the property.
Why are vendor statements important to me?
Real Estate agents are there to sell properties. Although they are highly regulated to tell the truth it is important for you to do your own homework and double check the facts. Vendor statements allow you to do this in a legal setting ensuring you ‘get what you paid for’ with no nasty surprises down the track. These could include large body corporate fees or zoning which means you can’t run your business there as planned!
What is the difference between a private treaty sale and an auction?
There are two main ways to buy a house – by private sale or by auction. Owners (or Vendors) get to choose which method they will use to sell.
Private Treaty Sale
Buying by private sale means you buy the property at the advertised price or at a negotiated price with the vendor, usually through the vendor’s estate agent. Buying this way allows both parties to negotiate an acceptable price in private.
Features of a private sale include:
Often less dramatic than an auction
Time to consider offers
The ability for extended sale periods
Offers for the property are made 'blind', without knowing what other offers are
Savings on the expenses of an auction campaign
Offers are often made below the asking price with negotiations expected
Auction
Approximately 30 percent of residential sales occur by auction in Melbourne and are most popular in inner Melbourne. The auction method is pitched as the way to test the property market against buyer demand. Auctions are often emotional and fast-moving and require both parties to keep a cool head for a successful and fare result. If the highest bid is acceptable to the vendor (above the ‘reserved price’) a sale occurs on the fall of the hammer.
Features of an auction include:
Everyone is aware of other offers being made
All legal documents relating to the sale of the property are available for inspection before the auction
Contracts are signed and exchanged on the day of the auction
The purchaser is required pay the deposit as stated in the contract (usually 10% of the purchase price) at the conclusion of the auction
There is no ‘cooling off’ period at an auction
Properties often outsell their advertised price
It is possible to make an offer before the auction.
Why is the difference between a private sale and auction important to me?
You must be aware of the method of sale as it can make a huge difference to how you make an offer or if you want to make an offer at all. Auctions require you to be more prepared for the day of the auction with your finances in order to pay the deposit and your legal due diligence done on the property. Learn the ins and outs of both methods to ensure you know how to secure a bargain.
