It is an oft stated truism that the biggest, and longest lasting, financial transaction that most people will ever undertake is the purchase of real estate. Yet most times the purchaser enters into that transaction before obtaining any expert advice. The seller, on the other hand, invariably has advice – from his or her real estate agent. The relationship between real estate agent and purchaser is very different to the relationship between real estate agent and buyer. The real estate agent is only acting in the interests of the seller. The agent’s duty is to the seller, not the buyer. The agent attempts, and must attempt, to obtain the highest price reasonably obtainable in the circumstances. Put another way, the agent must persuade the buyer to pay as much as possible, and on terms most favourable to the seller. So what should the buyer do?
The following guidance is a good place to start:
- Retain an independent advisor before you sign a contract of sale. The advisor should be a registered conveyancer, a lawyer, or for an appraisal of the market, a real estate agent. Ensure that your advisor does not act for or in the interests of any other party to the transaction. Make your own decision as to who to retain. Do not act on the basis of a recommendation, even a soft recommendation, from the agent. The agent is not acting for you.
- Read and understand the terms of any proposed contract of sale. Obtain independent advice as to what those terms mean, and the obligations they place upon you. This advice is best sourced from a lawyer.
- Negotiate the terms of any proposed contract of sale so that they do not operate against your interests. Be sure to have any terms read over by your independent conveyancer or lawyer. It is important to pay particular attention to any special terms or conditions to ensure you understand them. Contractual terms can be just as important as price.
- Read the Form 1 disclosure statement carefully. If you do not understand any part of it, obtain independent advice as to what that part means.
- Try to obtain the Form 1 disclosure statement from the agent well in advance of signing the contract of sale. This gives you more time to read and absorb the Form 1, and to get independent advice.
- If a building inspection is a special condition of the contract appoint a building inspector who is an independent expert to provide you with a written report. The report may reveal faults or defects which can inform your decision of whether to purchase the land, or the price you wish to pay. For instance, you might elect to terminate the contract, waive the benefit of the clause and/or negotiate with the vendor to lower the price to take account of the likely cost of rectifying the defect. Be sure to obtain the report within the timeframe in which the inspection is to be completed otherwise your opportunity to terminate the contract without penalty may not be available to you.
- It is becoming increasingly difficult to obtain finance to purchase land. It is therefore important that you either have the cash available to make the purchase, or that you have carefully drafted ‘subject to finance’ clauses in the contract. Do not assume that a standard from ‘subject to finance’ clause is suitable for you. Obtain independent advice.
- If you are unsure about the boundaries of the land you may want to conduct a survey of the land, or to include suitable warranties within the contract of sale. The survey will disclose whether any structure (such as fences) on the property encroaches on adjoining land or whether or not any structure on adjoining land encroaches on the property in question.
The take-away from this article is this: A land purchase is a big investment. You need independent advice before signing a contract. The seller’s real estate agent cannot give you independent advice. The onus is firmly on you to obtain your own independent advice.