Important things to be aware of when purchasing a property

Photo by todd kent on Unsplash

1. What is the difference between pre approval and formal approval from a bank?

You can usually access an online calculator on your bank’s website. It will ask you for your details, assets, income, and liabilities. A few minutes later you will be notified that your bank has given you ‘pre approval’ to buy a property worth a certain amount of money. 

When you find the property, you want to buy and your offer has been accepted, your solicitor needs the ‘pre approval’ to progress to ‘formal (unconditional) approval’. 

To obtain formal approval your bank, amongst other things, will require a copy of the contract to arrange a valuation of the property. The bank needs to make sure that what they are lending you is in line with the property value. For example, the bank might have given you pre approval for a house worth $500,000 based on your income and liabilities, but then the valuation of the house might only be $300,000. The bank might only give you formal approval for $300,000 which might force you to find another house. At this stage you aren’t locked into the purchase so you can just keep looking!

Blackwell Short strongly recommends that you do not proceed to exchange without the formal (unconditional) approval. If you choose to proceed without this approval, and then the purchase falls through and you need to terminate, you may lose your deposit and be sued for the shortfall. 

2. Auctions

When you attend an auction on a bright sunny Saturday morning (or an online auction if you’re in the middle of Covid lockdown), you need to have completed your due diligence beforehand, such as obtaining formal finance approval from the bank, arranging a pest and building report, having the contract reviewed by your solicitor, and any other relevant searches or inspection of council records. This is because there is no cooling off period when you buy at auction. 

Once the ‘hammer falls’ at an auction, you are locked in. No refund. The auction date becomes your exchange date and you must immediately sign the contract and pay your deposit. The countdown to settlement begins!

“Liability limited by a Scheme approved under the Professional Standards Legislation. This article does not constitute legal advice and provides general information only.”