The Four Main Methods of Buying Real Estate

Understanding the 4 Main Methods of Buying Real Estate

Purchasing your first home can be a bit overwhelming, but with the guidance of a real estate agent, you’ll navigate the process smoothly. In Australia, there are four main methods of buying real estate: auction, private treaty, tender, and expressions of interest. Each state has different regulations and laws, so be sure to read about buying in your specific state and territory on our site.

Private Treaty

Also known as a ‘private sale,’ this method involves the seller setting a price from the start of their campaign. This allows them to receive and consider offers from potential buyers while the property is listed for sale. The seller can choose to extend their campaign as needed.

As a prospective buyer, you can submit an offer through the real estate agent to the owner and potentially negotiate the price. Once your offer is accepted, a cooling-off period follows, during which conditions such as obtaining finance or a satisfactory home inspection must be met for the sale to proceed.

Auction

Auctions are a popular buying method in Australia, offering the chance to purchase a property quickly, often at a competitive price. Before auction day, you can make a pre-auction offer through the real estate agent. To be successful, your offer needs to be attractive enough to catch the owner’s attention.

On auction day, you must register your bid to participate. Typically, the owner sets a minimum reserve price. If bids don’t meet or exceed this price, the property may be passed in or withdrawn. If this happens, you might have the opportunity to negotiate a sale with the owner.

Some sellers allow part of the deposit to be paid at the auction’s conclusion, with the remainder due on a specific date. This should be outlined in the contract. Properties sold by auction are not subject to conditions, meaning you need to complete inspections before auction day and have your deposit ready at the time of sale. Unlike private treaties, auctions have no cooling-off period, so be certain this is the property you want to buy.

Tender and Expressions of Interest (EOI)

These methods are similar to private treaty but are usually associated with premium properties. They are more formal, requiring written offers submitted through the agent to the owner.

Expression of Interest (EOI):

• Submit an ‘expression of interest’ document by a specified date.
• The property price is not always advertised.

Tender:

• Buyers submit a formal proposal in response to the seller’s tender price.
• Buyers compete by submitting offers without knowing how much others are offering, similar to a silent auction.
• Properties are typically sold to the highest bidder.

Understanding these methods will help you make an informed decision when buying real estate. For more details and to discuss the best approach for your needs, reach out to Vin Sran Realty today

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Cost of Buying Real Estate

Understanding the Different Costs Involved When Buying a New Home

Buying a new home involves several costs that add up quickly. Financial preparation is essential to ensure a smooth purchasing process.

Deposit

Deposits typically start at 5% of the home’s overall cost, depending on your loan type. To determine your deposit amount, consider:

• The average home price in your desired area.
• The type of loan you plan to obtain.
• The amount you intend to borrow.

If you’re a current homeowner, you may be able to use the equity in your existing loan to cover the deposit. Otherwise, you’ll need to save the deposit yourself.

Stamp Duty

Stamp duty is a state government charge on residential property sales. It varies by state and territory, so research the stamp duty costs for your area. The cost is usually based on the home’s purchase price and can differ depending on factors like:

• Whether you’re buying vacant land or a new house.
• If the home will be your primary residence.

To estimate stamp duty, use an online calculator, as rates can be complex.

Lenders Mortgage Insurance (LMI)

If you borrow more than 80% of the property’s purchase price, you’ll likely need to pay Lenders Mortgage Insurance. LMI protects the lender if you default on the loan. The cost varies based on the loan amount and type, but expect approximately $10,000. Plan your budget and savings to avoid this extra cost.

Building Insurance

Building insurance is required by lenders and protects your investment. Consider additional policies like mortgage protection insurance, which covers mortgage payments if you fall seriously ill, and income protection insurance, which helps with bills in case of accident, trauma, or illness.

Legal Assistance

The home-buying process involves legal work, so hiring conveyancers or solicitors is essential. They assist with property negotiations and paperwork. Legal fees vary, with some charging a flat fee and others a sliding fee based on the property’s sale price. Discuss fees and charges before engaging their services.

Building, Pest, and Strata Inspections

Building and pest inspections are often required by lenders and are worth the investment. For units or apartments, a strata inspection is recommended to assess the complex’s financial health. Inspections can cost around $400 for building or pest inspections and $200 for a strata report.

Council Rates and Strata Fees

Upon purchasing a property, you inherit council and strata fees. Both house and unit owners pay council rates, but only unit owners incur strata fees, covering maintenance and building insurance. Strata fees vary based on the building’s age, facilities, and location.

Extra Funds

Set aside extra funds for unexpected expenses like moving fees, utility connections, and mail redirection. These additional costs can make the settlement process stressful if not accounted for.

Government Grants and Incentives

Government grants and incentives, like the First Home Owners Grant, can reduce costs. Research available programs to make homeownership more affordable.

Maintenance

New homes may require minor repairs and maintenance. Budget for these, as well as for landscaping costs. Gardening equipment can be expensive, so plan accordingly.

Title Insurance

Title insurance protects against legal issues related to the property’s title, such as previous ownership disputes or unpaid taxes. Although not mandatory, it provides peace of mind during the property transfer process.

Land Tax

Land tax is an annual state-based tax on the unimproved value of land, with rates and thresholds varying by state and territory. For example, from July 2024, the Victorian Government will replace stamp duty on commercial and industrial properties with an annual property tax.

Other Expenses

Additional costs include:

• Refinancing fees.
• Pre-inspection costs.
• Legal services.
• Home valuation.

For unit or apartment buyers, strata fees cover common areas like elevators and hallways. These ongoing costs should be factored into your budget.

Disclaimer

This information is for guidance and informational purposes only and does not replace independent business, legal, and financial advice. While accurate at the time of publication, changes in circumstances may impact the information’s accuracy. Vin Sran Realty will not be liable for any reliance on this information, including its accuracy, currency, or completeness.

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