June 20, 2013

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Building new or buying established?

June 4, 2013 by Leave a Comment

Build a house or buy a house?

People who buy newly established properties usually say it’s cheaper or more convenient than buying a second-hand home because all the hard work is done. Although, many buyers of existing homes eventually renovate which can be costly if it’s an older property.

Those who prefer to build from scratch say it’s worth the extra cost and effort in order to have a home that meets their particular desires. Building a new home also provides the opportunity to include some of the latest trends or environmental features that may be absent from established stock.

In recent years there has been a surge by people in their 40’s and 50’s wanting to build the dream home they have long desired and this has been assisted by the availability of land in established parts of the city through the drive for urban infill.

Ultimately, it is the cost comparison between building and buying that will usually decide which option people choose.

In recent years Australian Bureau of Statistics data has shown that the cost of building a project home increased by upwards of 16 per cent, while in WA the occasional shortage of builders and tradesman can lengthen the amount of time needed to finish a home if a resurgent mining sector lures them away.

Now that the mining sector has wound down a bit, building costs seem to have levelled or come down a little and finding skilled workers to develop land and undertake new housing construction isn’t currently an issue.

As a result, there are some excellent house and land packages in outer urban areas to help buyers into the market with affordable options.

First homebuyers should be particularly careful not to over extend themselves financially. Buying an affordable, existing home can often be a better option for many first homebuyers, but either way it’s important that people seek professional financial advice before deciding on the big commitment of home ownership.

Unusually, first homebuyers in Western Australia, unlike many other states, are fortunate to have a good supply of available land on which to build. There are currently around 1,400 blocks of residential land for sale in the metropolitan area.

Our state retains its strong housing culture propelled by the overwhelming desire by most people to live on a green title lot with a stand-alone house. For example, whereas 50 per cent of all new dwellings in Sydney are group dwellings such as units, apartments, villas and townhouses, in Perth only around 20 per cent of new dwellings are in this category: houses dominate here.

Perth remains the most urbanised capital city in Australia because we have the least number of grouped dwellings as a percentage of overall stock than any other Australian city.

This article was originally published on reiwa.com.

Image by Rebecca Chai via Flickr.

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Selling before buying has risks and rewards

May 2, 2013 by

To sell, or buy first?

The surest way to upgrade to a new home is to sell your existing one first.

This gives you more control over your finances and places you in a stronger bargaining position when making an offer.

In the current market with strong turnover and lots of buyer interest, most sellers are looking for the least complicated sale.

Cash offers are more likely to win them over than a ‘subject to sale’ offer, even where the cash offer might not be as lucrative. So a buyer in a position to make a cash offer will have some advantage in the present housing market.

Be aware however, that there are some risks associated with this strategy and buyers should be cautious.

The real estate market may peak before you sell your current home and you may take longer to sell, which would require you taking out a bridging loan to cover the entire purchase price of your new home. This financing can be expensive.

The anticipated sale price for your existing home may not be achievable meaning that your end loan is higher than anticipated.

If you do decide to make an offer subject to the satisfactory sale of your existing home, regardless of the amount you offer the seller they may decide not to accept it on that condition.

The selling agent might advise their client that the buyer could not reasonably expect to achieve a satisfactory sale of their existing property within reasonable time.

So, if considering a ‘subject to sale’ offer it is advisable to prepare your finances as if making an offer subject only to loan approval.

This means you have an alternative strategy in place if the seller invokes the ‘48 hour clause’ on your offer.

A seller will usually impose a 48-hour clause to a ‘subject to sale’ offer, which will mean that if another buyer makes an offer for the home you must decide to make your original offer unconditional or withdraw it.

Typically, you will be required to decide this within 48 hours of receiving notice of another offer.

If you have prepared your finances in advance of this event you are saved from having to scramble for alternative finances within the two day timeframe.

If you decide to sell before you buy, begin by setting a realistic sale price for your home based on an accurate market appraisal by local REIWA agents. You should then discuss the best marketing campaign with the agent you choose to list with.

You might also consider obtaining pre-approval for a loan to acquire your next home based on the minimum amount of cash you could expect from the sale. This will ensure a smoother sale process.

This article was originally published on reiwa.com.

Image by Chris Henden via Flickr.

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Is it better to buy than rent?

April 22, 2013 by

Buy or rent? By paying around $100 more each week on a mortgage as opposed to paying rent, many tenants could transition to home ownership.

REIWA has reported recently that housing affordability has improved over the last year and that median rents have climbed by 12 per cent.

So, for many people renting a question they are asking themselves is, “Would we be better off to buy?”

Current data show the median purchase price for first home buyers is around $420,000 while metropolitan rents are around $470 per week.

Not everyone is in a position to borrow and meet loan repayments, but for those singles and couples who can afford around $580 a week at current variable interest rates, a mortgage of $373,000 will buy a very suitable unit, villa or house with its own land.

(In this example I am assuming a deposit of $20,000 and eligibility for the $7,000 First Home Owners Grant, so the purchase price would be $400,000. However, there are many cheaper properties throughout WA including the metropolitan area. Some house and land packages are accessible at $300,000 or less and fixed rates can be more affordable than variable rates).

In other words, by paying around $100 more each week on a mortgage as opposed to paying rent, many tenants could transition to home ownership if that suited them and banks approved the loan.

Naturally, the bigger the deposit the smaller the loan and it’s important to keep in mind that renters don’t pay council rates, annual utility charges, building insurance and maintenance which home owners do. Buyers need to factor in about $50 per week to cover this.

The real cost of renting is not the fortnightly payments, but the loss in savings compared to accumulating equity in a home.

There are also good financial reasons to support ownership, but two key factors illustrate its benefit.

First, home ownership can be a stepping stone to increased wealth and long term financial security. Property is highly regarded by financial institutions as security for borrowing to fund a property investment, a business venture or a holiday.

It’s more difficult to borrow against other assets.

Second, home ownership opens up lifestyle opportunities. With your own place you can design and mature the garden, paint and decorate as you wish, have pets (with some strata exceptions), and generally create a home with the liberty and security that can bring.

Households which experience financial difficulty in retirement years are more likely to be living in rental properties, so investing in a home can be a better way to secure your retirement circumstances.

The early decisions you make around real estate can affect your long term outlook, but it’s strongly advisable that you discuss your plans with competent financial advisers, banks and lenders before making a decision and then approaching an agent.

This article was originally published on reiwa.com.

Image by Jack Amick via Flickr.

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Can the seller remove fixtures from your new home?

April 8, 2013 by

Fixtures, such as plants and mirrors, should generally stay with the property unless otherwise agreed.

What happens when on the day you move in your new home, the happy experience sours when you discover that the rose bush from the front yard has been removed, the mirror in the bathroom is gone and the dishwasher has been taken from the kitchen?

These things were there when you inspected the property and you assumed they would be staying with the house as part of your purchase. So, where do you stand legally in this situation?

Thankfully, the law is on your side but it comes down to proper process.

It’s about making sure the responsibilities of the seller have been met and that all the paperwork has been done thoroughly at the time of signing the contract to purchase.

The seller has an obligation to advise the real estate agent if anything is excluded from the sale. This should be reflected in the contract.

Usually, anything deemed to be a fixture will stay. This generally includes things that are nailed, screwed or otherwise fixed such as mirrors, floor coverings, curtains, towel racks, television aerials, light fittings and ceiling fans. But it also includes things like plants, paving slabs and garden sheds.

REIWA recommends that sellers fill out a disclosure statement when they offer a place for sale and the Institute provides these forms to agents. They are not compulsory under WA law, but they do give the agent a written record of exactly what is being sold and what, if anything, is being removed by the previous owner.

Owners have the right to exclude some things from a sale if they choose, but it’s important that this is made clear from the beginning of the process.

In the standard REIWA contract for the Sale of Land, it is a condition that the seller warrants “the property will be in the same state and condition it was in immediately before the contract date.”

If a seller wants to keep the dishwasher or a sentimental rose bush for example, that’s permissible so long as it is properly declared to any potential purchasers.

Buyers should always ask if anything is being excluded in a sale and provided the selling agent has been correctly advised by the owner there will be no misunderstanding and everyone should be happy.

Often if things are removed after a sale it’s due to ignorance of the law by the outgoing owner and can usually be quickly remedied by the agent.

However, if you find this isn’t the case, that both you and the agent were not properly advised and the seller is being difficult, then you can take the matter to the Local Court to seek compensation for missing items.

This article was originally published on reiwa.com.

Image by John Morgan via Flickr.

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Do I have to pay stamp duty?

October 23, 2012 by

Stamp duty is a tax that is almost unavoidable.

When transferring property, stamp duty is or isn’t payable, depending on the transaction type and the family relationships of the people involved.

Conveyancing can be quite a complex area so it’s important to keep up by checking the fact sheets at the Office of State Revenue (OSR), website.

This complexity also illustrates the benefits for people buying, selling and transferring property in using the professional services of a qualified settlement agent.

To be clear about when stamp duty is and isn’t payable, let’s look at the payment and exemption rules as they exist currently.

Most people are aware that eligible first home buyers pay no duty providing the sale price is under $500,000, but what about other types of transactions? What happens when ownership changes between family members even if no money changes hands?

In general, every change in ownership, with a handful of exceptions, and regardless of the consideration, will incur duty.

Not only do transfers to related parties incur duty they may also incur Capital Gains Tax if the property being transferred is an investment property, even if no consideration is paid.

This means that parents who add children to an existing title on the family home will incur duty.

The most common example of where stamp duty is not payable is with a family home and couples.

For example, a home may currently be owned in a husband’s name and he wishes to add his new wife as a joint tenant.

This ruling also applies to de facto couples, including same-sex couples. Stamp duty does not apply here.

If a property is owned by a Family Trust and it wishes to transfer the property to a beneficiary of the Trust, providing certain requirements are met and all the OSR duty information requirements are satisfied, that may result in a nominal duty of just $20.00.

Some transfers between couples pursuant to Family Court Orders would also be exempt. The OSR fact sheet details this.

Transfers to remove persons from a title e.g: where that person has died or as a result of a marital separation, do not necessarily incur additional duty.

If people are in the contract phase of buying property and they want to add or delete names on the title, providing the nominee is related to the original buyer this does not incur stamp duty. However, doing this after the property has settled will attract duty, so it’s important to get the timing right.

As you can see, there is almost no avoiding this payment, so it’s important to factor these costs into any property transactions you may be undertaking.

For more details go to: www.osr.wa.gov.au

This article was originally published on reiwa.com.

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Buying in a tight market

September 24, 2012 by

Homebuyers are showing interest.

After several years of a quieter ‘buyer’s market’, 2012 has seen decreasing levels of stock and increased buyer activity, making buying more competitive.

Many prospective buyers are now surprised to find large numbers of people at an open home viewing and even more surprised to then find out that the seller has received an offer or multiple offers.

Lots of well priced properties are moving quite quickly, particularly if they are under the Perth median price of $475,000. First home buyers are very active in the market and this is seeing a lot of turnover with houses priced around $350,000 to $450,000.

So how do you get a good result even in a busy market?

First, make sure you’re clear on your criteria and what’s most important. Is the location your prime concern? Or is the current condition of the property very important? What about price? Number of rooms? The clearer you are on your buying criteria, the easier it will be to make a quicker, more confident decision when the time comes.

It will also stop you from getting off track or tempted by properties that are not going to suit you long term.

Second, make sure you have all the facts you need on the property as early as possible, which usually means doing some research even before you visit the property for the first viewing. When the time pressure is on, it’s easy to forget to check important information such as title details, strata fees or the development potential of a property.

You need to be able to decide reasonably quickly, so doing some research prior to the home open will help you act more decisively if the property is right for you.

Being open minded to new suburbs can also help. When there are a limited number of houses for sale, researching additional suburbs can give you more choice and you might be surprised at what you find.

This is particularly relevant for property investors. If you are not going to be living in the property, a wider selection of suburbs could meet your other investment criteria.

If you don’t have the time or inclination to do this extra research yourself, a REIWA Buyers’ Agent can do this for you. A Buyers’ Agent, hired by you, can help you find and research properties and will also help you with the negotiation process.

One final tip for buyers: check with your lender or finance broker before you put in your offer. If you can show the seller that your finance position is secure then the seller and you can negotiate with more confidence from the start. This also gives you the edge over buyers who may not be as organised.

This article was originally published on reiwa.com.

Image by Polygon Homes via Flickr.

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How much can you afford to borrow?

July 23, 2012 by

Loans; Image by Jeff Ferzoco

Many homebuyers don’t understand basic lending details, including how much they can borrow, until they actually apply for a loan. This is not ideal because an informed home buyer is in a much better position to make an offer.

Until about ten years ago the general ‘rule of thumb’ for buying a home was that you could borrow about three times your gross household income.

So, if a couple were making $130,000 between them each year, a lender might loan up to $390,000. However, this measure doesn’t apply terribly well today with house prices having grown so much.

If you are applying for a joint home loan with another person including your spouse or partner you must take into consideration their existing earnings and debts. Remember; both of you are legally liable for repaying the loan.

The key to a smooth start with a home loan really rests with the deposit. If you don’t have a ready deposit, it’s wise to start a regular savings program in preparation of home ownership.

Most lenders require recent evidence of three months of genuine savings before approving a loan. If the deposit is a gift then the lender will normally require it to be in the borrowers bank account for three months.

Talk to your financial institution about this. Most prefer a deposit of around 10 per cent the purchase price, but this has become unrealistic. Deposits of 5 per cent are now more common.

Banks are keen to lend, but following the GFC they are also more thorough about checking your capacity to service the loan and giving consideration to any other debts you may have. Normally, any existing debt is included in the total amount you can borrow.

When calculating this, the maximum limit on your credit card will be deemed as debt even if you never reach that credit limit.

Ask your lender to outline their policy in this regard and to detail all the fees that apply to the loan, including mortgage costs, mortgage insurance, stamp duty or anything else. These costs are added to your home loan.

Rather than looking at how much the bank will allow you to borrow, it makes more sense to concentrate on how much you can comfortably afford. Ideally you should aim for your weekly mortgage costs to be no higher than about 30 per cent of your household income. Don’t be a slave to your mortgage, allow for some disposable income so you can enjoy the other things in life.

Some lenders will not issue loans for more than 80 per cent of the purchase price, so buying a more modest dwelling might suit many buyers better as a lifestyle decision, both in terms of gaining access to a loan and for comfort of repayments.

This article was originally published on reiwa.com.

Image by Jeff Ferzoco via Flickr.

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Understanding units and apartments

July 17, 2012 by

Townhouses

Demographic changes in Australia are pointing to a reshaping of family structures and familial relationships.

Married couples with 2.3 children in a three bedroom home on a quarter acre block is no longer a realistic, generic portrayal of contemporary Australia.

As a nation we are seeing an increase in couples with few or no children, as well as retirees, and single people living alone or with a child.

This is complemented by a drift of the population to the cities and coastal towns and the desire for smaller, more affordable housing.

These changes, among others, will impact greatly on community and urban life and we are seeing strong signs of this already with the demand for strata tilled dwellings such apartments and townhouses.

REIWA agents find that the growth in demand for units and apartments, in particular, is often driven by people buying for the first time, many of whom are not necessarily familiar with the special features of these dwellings.

When referring to an apartment for example, it is usual to refer to the floor space. A size of 85 square metres is common in Perth, which generally includes two bedrooms, one bathroom and a separate living area.

A three-bedroom apartment would normally cover around 95 square metres and a one bedroom apartment would require around 55 square metres. A balcony will usually be described separately.

Units and apartments in WA are strata developments, meaning each dwelling has a separate strata title that defines the property belonging to the owner and the property common to all owners of the complex.

This allows for easy resale of each apartment and for proper maintenance of the common areas which are the responsibility of the strata company. Wherever there is shared property there is the responsibility for owners to come together and resolve group matters, such as issues with walls, external fencing, garden areas, driveways and so forth.

The strata company comprises each apartment owner and will usually employ a strata manager to administer its affairs. The strata company will charge a levy to each owner to cover the costs of maintaining common property and its own administration.

Prior to buying an apartment you should become familiar with the operations of the strata company. The minutes of recent meetings should reveal if the strata company is being administered effectively, if there are sufficient funds to cover on-going costs and if there is the likelihood of special levies to cover future expenses, such as external painting or upgrading the driveway.

A careful inspection of the strata plan is recommended to show the clear boundaries of what’s yours and what’s shared.

Buyers should also note the separate insurance obligations for the common property and an owner’s private property within a complex.

It helps to ensure that the two policies are effective and compatible.

This article was originally posted on reiwa.com.

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Storm damage issues for buyers and tenants

July 2, 2012 by

Fallen fence; Image by Louisa Billeter

The southwest coast of our big state has certainly taken a battering in recent weeks, with a once-in-a-decade storm sweeping across most of metropolitan Perth and Mandurah and causing significant damage to property and fencing.

In many instances, this can raise issues for people who are renting their home, or with buyers who are in the middle of the contract process when damage occurs.

So where does the law stand on these matters? What are your rights and responsibilities depending on whether you are a seller, buyer, tenant or landlord?

In the rental housing system, if a property is storm damaged then the owner is expected to see to repairs as quickly as reasonably possible.

Where it’s more serious, for example where a home is destroyed, rendered uninhabitable or ceases to be lawfully usable as a residence, then Section 69 of the Residential Tenancies Act becomes relevant.

In this situation, the rent will abate and the owner or tenant may give notice of termination of the lease agreement. The land owner may give notice of not less than seven days and the tenant may give notice of not less than two days.

If a property is under contact for sale, then Clause 8 of the Joint Form of General Conditions relating to ‘Risk’ is relevant, when improvements to the land are destroyed or partially damaged prior to settlement.

If a property for sale is in a recently storm-affected area, then it would be usual for the listing agency to contact the seller to see if the property had suffered any damage.

If the residence is made substantially uninhabitable or any other building or improvement is made substantially unusable, for the current use as at the contract date, then the seller under clause 8.3 needs to immediately give a notice to the buyer.

In this situation the agent should refer the seller to a legal practitioner for an interpretation of their rights and obligations.

If a property has suffered only minor damage, then the seller should be reminded of the representation made under clause 9.1(e) of the Joint Form of General Conditions, namely that the property at settlement will be in the same state and condition that it was in immediately prior to the contract date.

Where a dividing fence has been damaged or blown down during the contract period, then the owner, in co-operation the neighbour, is required to repair or replace the fence to a satisfactory standard within reasonable time. There is no impost on the buyer.

To learn more about the rights and responsibilities attached to dividing fences, please contact your local council or the consumer affairs section of the Department of Commerce.

This article was originally published on reiwa.com.

Image by Louisa Billeter via Flickr.

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Do you need a building inspection when buying?

June 21, 2012 by

A photo of a building inspector

Pre-purchase property reports are reasonably common with homebuyers and the number of people and organisations which offer building inspection services have grown significantly.

Even in a quickly moving market it’s wise to take a moment to consider a building inspection as an essential part of any contract for the purchase of a property.

A good building inspection will provide the homebuyer with information that could influence their ultimate decision on a property. Often this includes whether the dwelling is structurally sound and whether the buyer can expect major expenditures in the future, such as roof repairs.

A building inspection can and should be tailored to suit the age of the property.

When buying a new home for example, it makes sense to have a thorough inspection of the property’s fixtures and fittings including the quality of the cabinet making and tiling in addition to the structural report itself.

Naturally, with an older home you should expect normal wear and tear but your primary concern should be with any structural faults that could lead to expensive repairs such as damage to the foundations.

A reputable building inspector will discuss these issues with you to create an inspection that suits your needs.

Ideally, a building inspection is completed before you make an offer to purchase. This would allow a buyer to negotiate with the seller, but this process can cause delays and may result in the property going to another buyer. It’s not always practical.

It is more common for a homebuyer to include a building inspection as a condition to an offer to purchase a property.

This condition should be carefully written in order to avoid confusion or misunderstanding.

A pre-purchase building inspection condition should state who pays for the report (usually the buyer), and its required completion date.

The criteria for the report should be stated in the condition, such as a reference to the accepted Australian standards for property inspections. Ideally the inspector should be a registered builder or an architect.

The condition should also include the actions necessary if the inspection finds that the dwelling does not conform to the declared standards required by the buyer.

In the event of a negative report the pre-purchase inspection condition should offer the seller the option of fixing the problems within a set timeframe.

If the seller refuses to comply, the buyer should have the option of terminating the contract to purchase the property.

The condition should also state that if a buyer does not have the inspection carried out or does not follow up a negative report within a specified time, then the contract to purchase the property will proceed normally.

This article was originally posted on reiwa.com.

Image by USACE via Flickr.

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