Contract of sale
A contract of sale is prepared by the vendor’s solicitor or conveyancer. A contract of sale contains the terms of the purchase, the parties’ details, the purchase price, how it is payable, the day of sale (i.e. the settlement date), a description of the property and chattels, and the day that possession of the property is available. Before you sign a contract of sale, you should seek legal advice.
Some estate agents will accept offers via email or text message but most will ask buyers to do as follows:
- the buyer signs the contract of sale with their preferred price, settlement date and amendments to any of the conditions;
- the written offer is given to the vendor; and
- once the vendor has accepted the buyer’s offer and signed the contract, the vendor’s agent sends copies of the signed contract to the vendor, the buyer and their solicitor or conveyancer.
Note that when a buyer signs a contract of sale, they are effectively making an offer to the vendor. A buyer is bound by the offer once the vendor accepts it by countersigning the contract.
At an auction, a vendor’s acceptance should be immediate. If a property is sold by private treaty or agreement, the vendor may accept the written offer immediately or they may take a few days to accept the offer. It is recommended that the buyer set a timeframe within which their written offer is valid (this is usually three clear business days from the day the buyer signs the contract, unless a different period is specified in the contract).
A deposit can be paid in one sum, or as a preliminary deposit and balance. The deposit should be the smallest sum the buyer can negotiate. It is general practice for a deposit to be 10 per cent of the purchase price. A deposit is usually paid when the buyer signs the contract of sale.
The SL Act requires the vendor’s agent, solicitor or conveyancer to hold the deposit in a trust account. It is a criminal offence for the person holding the deposit to use it for their own purpose.
If the vendor wishes to receive the deposit before settlement, a statement under section 27 of the SL Act must be given to the buyer (see ‘Section 27 statement’’ in ‘Advice to buyers’ in ‘Buying and selling property‘).
If the vendor breaches the contract, the deposit must be returned to the buyer. In contrast, if the buyer breaches the contract, the vendor keeps the deposit.
If both the vendor and buyer agree, the deposit can be put into an interest-bearing account in their joint names. However, paying the deposit from the account requires the signature of both the vendor and the buyer. While this practice allows interest to be earned, the accessibility of the deposit is diminished. This is usually only done for very long settlements.
Another option that may be desirable for a buyer, where there is a longer settlement, is a deposit bond (see ‘Guarantees and deposit bonds’ in ‘Off-the-plan properties’ ‘Land titles‘).
Sometimes a contract states that the deposit must be paid directly to the vendor’s solicitor for investment in an interest-bearing account until the contract settles. Solicitors, not agents, can arrange these accounts.
If a property is purchased by more than one individual, each individual is required to note in the contract of sale their respective interest, or how the property title is to be shared (e.g. Mickey: 40 per cent; Minnie: 60 per cent).
Buyers need to choose one of four options:
- The property is held jointly – each individual has an equal share in the property (if one buyer dies, the surviving buyers automatically receive equal portions of the deceased’s share, regardless of any contrary provision in the deceased’s will);
- The property is held as tenants in common – each individual has an equal parcel of shares;
- The property is held as tenants in common – individuals have unequal parcels of shares (individual buyers can choose who receives their share in their will).
- The property is held by an entity (e.g. a company or trust) in which the co-owners each have an interest.
As soon as the vendor accepts the buyer’s written offer, some buyers choose to lodge a caveat on the vendor’s title. This protects the buyer by preventing the vendor from dealing with the title except to complete the contract. However, these caveats can be used in circumstances where the purchaser wants to be sure their interests under the contract are protected (e.g. when the deposit is released early).
Caveats must be lodged electronically via an electronic conveyancing platform, such as Property Exchange Australia (PEXA). Buyers need to engage a solicitor or conveyancer who is a PEXA subscriber to lodge a caveat on their behalf. This is an additional charge on top of the standard conveyancing fees. In practice, this is usually only done for longer settlements.
In general, the risk of damage to a property remains with the vendor until settlement. However, it is prudent for the buyer to take out building insurance from the day the contract is signed. This is in case the vendor is underinsured, and because the buyer’s bank will want to see proof that the building is adequately insured.
Buyers who are purchasing a property with common property should ensure that the common property and shared services are insured by the owners corporation. (See Chapter 6.5: Owners corporations.) Two-lot subdivisions are exempt from the requirement for common property insurance (note that ‘accessory’ or carpark lots are not considered to be separate lots).
Investigating the title
Buyers should always examine the certificates that are commonly found in a vendor’s statement:
- a zoning certificate from the Victorian Government Department of Planning or the local council;
- a VicRoads certificate about plans to build or widen roads;
- a rate certificate from the relevant water authority;
- a SRO certificate showing the taxable value, arrears of land tax, and land tax payable;
- a land information certificate from the local council showing rates, road charges and other municipal records;
- building approvals and notices from the local council (forms 2.10, 10 Building Regulations 2006 (Vic));
- an encumbrance certificate from the water authority showing unregistered encumbrances in its records (if applicable); and
- the building permits for homes built or renovated in the previous seven years.
If any of the above certificates are not included in the vendor’s statement, the buyer should conduct their own search for these certificates.
Certificates can be applied for online and fees are payable. Solicitors and conveyancers generally use professional search agencies for this task.