Buyer Beware: What to Look Out for In a Contract of Sale
Buying a property can be a daunting experience. It involves a lot of paperwork and experience to understand what it all means. If you are not an expert, you may miss indications of fraud, overly harsh clauses, and hidden fees.
Whilst it is best to engage an expert to review these documents, if you feel comfortable reviewing them yourself, you should at least look out for these red flags!
Red Flags
- Authority to Sell
Make sure that the vendor’s name identified on the Contract of Sale, Vendor’s Statement and title are all consistent. Often, there are simple spelling mistakes. However, if the name is completely different in the Contract of Sale or Vendor’s Statement and title, this indicates that you need to dig deeper. For example, the name may differ where the property is being sold:
- by a trustee in bankruptcy;
- by a liquidator;
- by a power of attorney; or
- by a deceased estate.
Where one of the above issues arise, you should request a copy of the document which gives that person the power to sell the property. Without obtaining a copy of this document, you risk the property being transferred illegally or fraudulently. This could trigger the real owner to commence legal proceedings to try to reverse the transaction.
- Increase in Default Interest
Typically, default interest clauses will require you to pay interest between 10-14% on any overdue payments. Watch out for interest clauses that are higher and be sure to negotiate them.
- Look out for Theft
If you are purchasing an apartment or townhouse, it will likely have a body corporate. In the Vendor’s Statement, you should find a certificate from the body corporate and notes or a resolution from their last meeting. Read these notes carefully! They often set out what is going to be improved with the property and where the body corporate fees are being allocated. We often find that these disclose an upgrade in security due to repeated theft! We also find funds being used to repair significant building defects. Consider these problems carefully and whether you want to purchase the property with the risk that these problems will be ongoing.
- Additional Fees
There is a recent trend in Contracts of Sale to attribute extra fees to the purchaser. A few hundred dollars in legal fees for moving the settlement time or date at short notice is common and generally acceptable. However, look out for fees that exceed $300. Often these fees can be reduced or removed altogether.
If you find any of these red flags, try to negotiate them with the vendor and consider if you are willing to proceed with the purchase. For smaller issues (such as additional fees) these are often worth accepting the risk in order to purchase your dream property. However, more substantial risks such as the authority to sell the property, should be considered with extreme caution.
Should you require assistance with your property purchase or sale, please contact one of our experienced property lawyers at Taurus Legal Mangement on (03) 9481 2000 or info@tauruslawyers.com.au.