EP75. MAKING AN OFFER

Welcome to Sydney Property Insider, giving you news and insights on the Sydney Property market. Your hosts are Michelle May, a professional buyers agent and owner of her independent buyers agency and Marcus Roberts, a member of Property Investment Professionals of Australia and owner of leading mortgage broker firm Brighter Finance. Good morning and welcome to another exciting episode Sydney Property Insider podcast, your periodical podcast series the talks about all things property related in the city of Sydney in 2021. We are here with Michelle as always, Michelle, how are you going this fine day? Good, good. I had to laugh because the periodical was certainly the operative word for 2020, but you and I have promised ourselves to make it more, what shall we say, two weeks ago. It's funny, but as long as people are still listening, which is the main thing, right? That's right. We certainly seem to continue to increase their listening numbers, which is certainly what we want to and we want to make sure that we're providing good advice and advice that's actionable and that people enjoy listening to. So Michelle, today we are focusing on you. We are talking about making an offer today, so you make lots of offers on properties on a week by week basis, month by month basis. I used to make a lot of offers back in my high school days, myself, but those were often rejected. Sadly, it only takes one, so that's how you end up married with kids. I think there's a point to be learned for a lot of people out there. In this case, let's talk about making a property offer. Good. Excellent. That's why we're the professionals here, so Michelle, we've spoken before about tell us the two main ways to purchase a property. So in New South Wales, there are typically two main ways people purchase properties and that's through a private treaty or an auction campaign. So a couple of differences there. Let's start with the auction, an auction campaign is usually set period of time with the date of the auction set at the beginning. At the first open, you'll know exactly what time you're expected to go to the auction as a buyer and when they're expecting to sell that property. Usually four weeks, usually with a minimum of two open homes a week. And then when you're buying an auction, there are certain conditions that are different with a private treaty. So a private treaty is essentially for sale. The property will be sold when an acceptable offer is made and accepted by the vendor. So that time period can be a day, a number of days, a couple of weeks, it could be a year. So there is no time limit as such. Those are really the two differences. And then it comes to the actual how you're buying it. So the main difference is the cooling off period. In New South Wales, a cooling off period in a private treaty is normally five days. That can only be waived by the buyer. So the buyer can risk in that and say, I don't need a cooling off period. I want to buy the property unconditionally as soon as I sign the contract. Just a separate second that when we're talking about cooling off periods, this is when you're buying a private treaty, not an auction. Correct. Sorry. So when you're buying a property in a private treaty, as a buyer, you have the right to a cooling off period. So a cooling off period is there for exactly that to make you think about what you're doing and to do your due diligence in that period of time. So whether that is getting your finance organized or your contract reviewed or you're building a pass or your strata review done, that can all be done in that period of time. When you buy an auction, however, there is no cooling off period. So you are buying it unconditionally on the day and you are expected to pay 10% deposit unless agreed to differently between the solicitors. It can be usually negotiated down to 5%, but you're expected to show up on the day with your 10% deposit in one way or another. If you change your mind, you actually forfeit that deposit. Now when it comes to private treaty in a cooling off period, you will also have to pay deposit, but it's only 0.25% of the purchase price. And if you change your mind in that period of time, you only forfeit that 0.25%. So there's a big difference there. When you found the property that you want to buy, make sure that you know that this is obviously part of the process of one way or another, whether you get the cooling off period or you don't. Now let's talk about getting ready for an offer because I find that most people don't really think about it as a strategy that they need to consider. But in fact, that is one of the most important things that as a buyers agent, I bring to the table for my clients because it's not just about throwing money at the agent and the deal will get done. There's actually a lot of stuff that you need to do prior to discussing money with the agent. In fact, usually one of the last things I do with the selling agent, I don't really talk about how much I'm prepared to pay or what I'm going to be putting on the contract until I've done all these other things first. So you know, Marcus, I was going to go on about doing your research. So that's where we're starting again today. Let's get your contract looked at by your solicitor. Let's commission a building and pest. Let's review the strata report if you're buying an apartment. Do your pricing research. So like we've talked about before, go on the sold sections of Domain and Real Estate and see what comparable sales there are that you can find. Look at development applications in the area. Look at infrastructure projects, things like that. Those are things that you can do yourself. So once you've inspected the property, ideally a number of times, this is what you're doing in the background. The next step is reaching out to that agent, so you would have already asked him for the contract, which signifies to him that you are interested. But then you really need to extract as much information from the agent as possible. So that would start with irrespective of how the property is offered on the market. So whether it's private treaty or auction, it doesn't really matter. These questions are still relevant. You start with what is the vendor situation? Why are they selling? You know, a lot can be found out from what will happen next if you know what the vendor situation is. So is it a divorce or is it a deceased estate? Because in my experiences with those two scenarios, most likely the property will run to auction. So if you have the intention of throwing an offer at the agent, it's probably not going to get accepted anyway because of the vendor situation. If they have, however, bought elsewhere and they locked into that purchase already and the auction is for sale in an auction campaign, they may be more open to looking at the first prior because they want that surety. You know, buyers are the same as vendors, vendors are the same as buyers. They're still humans and they're acting on what their personal situation is. So it's very important to understand the vendor situation. When we're talking about the agent, we need to understand his or her motivations as well because just because they've got a house or an apartment for sale through auction doesn't mean that they will always run it to auction. I know agents that have, you know, 90% of their properties will sell prior to auction. So it's important to understand the agent's motivations as well. And that starts with understanding their price expectations. So it's worth asking the question, I know your guide is this, but what are the comparable sales? What are you gauging it against? And why? Don't be afraid to have the conversation with them to say, okay, well, I know you're guiding 700. This comparable sales 750, how is that better or worse than the house that I'm looking to buy or the apartment that I'm looking to buy? You know, what are you really looking for? What is your ideal picture? I mean, you can have fun conversations and have a bit of fun around it as well, you know, what would be your dream price, what would be your event was during price. And of course, they're going to come up with something ridiculous most of the time, but it is good to, the more you let them talk, the more information you're gleaning from them, right? For sure. Absolutely. Another thing I always ask of the agent is, how are you going to be running this campaign? So whether it's private, treat your auction, most agents will not sell on that first day, unless it's a clear outstander knockout offer, they usually want to gauge the market, right? Because the Sydney market in particular moves very quickly, and not every property is the same as another in terms of its quality and appeal to the market. So a lot of agents, even in a private treaty situation where really it's first and best rest, they will want a number of opens to gauge the buyer's interest, right? So as a buyer, when you're coming through that property, it's important to ask the agents, no, what's your plan? Are you going to be looking at doing two weeks of opens and then seeing, you know, where the interest is at, how many buyers you've got out there, how many serious buyers are out there in terms of, you know, they've had contract review changes done, they've purchased the building and passed. And then are you going to reevaluate, or are you telling me that you're definitely running it to auction, you know? So again, talking with the agent and asking on those questions is really important because then that'll help you form a picture of a, after you've done your research, I think it's worth this and I still like it and I can afford it at that level. But b, this is what the vendor and the agents are expecting and this is how they're planning on doing it and achieving it. Just your sort of your first round of getting ready to make an offer. So then if you, you know, you've now done your research, you've spoken to the agent, you understand the vendor's situation, you've got an idea of price expectations, maybe comparable sales around how the agent had priced this property up. If it's still in that the realm of possibility to make an offer, you know, what are some of the questions that you would ask prior to making that, you know, last questions prior to make an offer? Yeah, so then it's, it's really important to understand the actual machinations of how can I best put forward an offer that the agent and vendors are going to, going to accept. So for example, from my perspective as a virus agent, I will not put forward an offer unless I'm 90% sure it's going to be accepted. And so that includes nothing out the actual practicalities of the offer because, you know, there's a lot of different ways you can do it. So first of all, let's ask the agent, how do you expect me to pay the deposit because thankfully real estate has finally moved in the 21st century and they have actually, you know, automated online options to pay, but not every agent works that way. So while there are different options and I'll run you through them in a minute, you need to understand and know whether this agent or this agency will actually accept them. So for example, the different ways to make a deposit, the old fashioned way and so very effective way in many ways is a check, but a lot of people don't actually own a checkbook anymore, you know, there's accounts that don't even have a checkbook link to it. So if you want to pay by check, make sure you have that sorted in advance so you can go into the branch of your bank and they can give you over the counter blank checks or they can give you what they call a bank as draft where the amount is nominated. But yeah, let's see if you can get a check first. The reason why I still like to do checks, Marcus is for when a vendor is local and the agent's going to bring, bring the offer to them in person, a 10% or 5% deposit check attached to a contract is a very, very powerful thing as you can imagine. It's very hard to say no to seeing that check in front of your eyes going, okay, this person is really serious, as opposed to doing it online. As opposed to signing something, I'm saying, yeah, but not the checks in the mail, but I'll make payment in the days ahead. Yeah. The question I do want to ask you because this has come up for clients that I've had a number of times I'm interested in hearing how you discuss this with clients is oftentimes campaigns might be ranked or auctioned and the real estate agent might not have deft or some of the online options that I'm sure you'll speak about next and they'll say we require a check and client comes to you and says, but we don't have a check where you can get a bank check. But how do I know what the amount is going to be, what 10% of the amount is going to be for auction before the auction has taken place? Yeah. That's a very good point. And I do also get asked that question not. So I would say that again, you need to have that conversation with the agent. So if you do get a banker's draft and you have that nominated amount, you just go and say listen, would it be acceptable to you because every real estate agent must have a trust account, okay? So that's an account where all those deposits get paid into. So that check that you're presenting is going into their trust account once they've handed it into their bank. So the option that I would suggest would be to get a bank as draft for say the bottom end of the range. So say that the property's got it at 7 to 770. You say, okay, I'm going to get a banker's draft for 10% of that 700. So 70K or 5%, you know, 35000. And then have the agreement with the agent in place to say, if I am the successful purchaser on the day, are you okay with me transferring the remainder of whatever the purchase price ends up being directly into your trust account, right? So then you can do an online transfer for the difference. And normally that's the way it happens because that's only a small amount of difference usually. And then what you do is you just send them a screenshot, you know, either a photo of a screenshot of your phone or on your, your, your online. You can, you know, how you can send a receipt at them, you know, or you can share the transfer. And usually that's, that's fine as long as you show them that and you do that on the day. So that sort of helps you out if you have to nominate a amount. It's not my preferred option of bank as draft because it does give away how much you prepare to pay. So that's why I always like to go a little bit under. And also there's a cost involved with getting a bank as draft usually. So I think $25. So if you don't end up buying, it's, you know, 25 bucks, you've wasted, essentially. But yes, so that, that would be a way to pay for it. But again, going back to waste and make that deposit then, if you are making an offer prior to auction or in a private treaty situation, we mentioned that trust account. So you could say, are you okay with me depositing it straight into your trust account? $25 or 10% and then what happens is they, they, they just give you their, you know, there be as being account details and, and you can transfer it online. The other option that you touched on as well is auction/deft pay. So that's through Macquarie bank. Now Macquarie bank has got this auction/deft pay, which has the same withdrawal authority as the ATO. So once you put your details into the system and it's almost like an F boss machine on auction day, they will withdraw the money from your account and there's no limit. Because usually banks have a daily transfer limit with auction/deft, there is no limit. So on auction day, when an agent has that facility available, they can just withdraw that amount right there and then after you've signed the contract. And in private treaty situations, they can also do this. They just send you a link, you log in online, you put in your details and there you go. It's done and it goes straight into the agent's trust account. So you don't have to do anything about your daily transfer limit. When you do a direct deposit into a trust account, you do have to look at your daily transfer limit. So that's something you need to make sure you've got that lifted and talked to your bank about, you know, how much for and how long for because you may not be successful on the first time but if you've got it set up, then you're ready to go for the next time. So it's important to know how the agent expects the deposits to be paid, you know, then you can work around that so you're prepared. The next step would be about the actual contract. So ask the agent, if I were to come in with an offer, how do you want me to present it to you? Would you like an offer on contract in person so you print out the actual contract? Or do you want an offer in an email first, you know, I, my name, Michelle May, I would like to present an offer on, you know, 30 Edgeway Road, Newtown, my offer is this contingent on blah, blah, blah, no contract changes have been done. So you've got to make sure you've got your contract changes all done, of course. Or nowadays, the option is also to do DocuSign. So it's one of three in person email or DocuSign. So DocuSign is now, I'm not sure if everyone's familiar with this, it's online, you feed the contract into the system and then you just fill out the block, the boxes and you sign as actually an approved method of exchanging contracts now. But again, not every agent is okay with it and not every agent uses it yet. So we want to make sure that, you know, you're making it as easy as possible for them to accept your offer. And then once you do make an offer, so we've spoken about your, your options in terms of how to pay and then how to, how to sign really. Once you do make the offer, what do you ask the agent to do? Well, even, even actually before I make the offer, I'm still not there yet, Marcus. I'm still trying to suss out the information. I want to know in advance from the agent, what are you going to do with my offer? You know, how long am I going to have to wait? Because remember that you want the time between offer and exchange to be as short as possible. You want that to be almost simultaneously. So as a buyer, I'm going to ask you as an agent, what are you going to be doing? Will you disclose my offer to the other buyers, for example? They have to obviously go to the vendor and say, we've got an offer, it's this much. But what about the other buyers? Because that's the biggest, they're a bigger threat to you getting the purchase across the line or not, because not all agents will actually disclose the amount. They'll say, an offer has come in, you get one chance, you're best and final offer or they may say, well, no, I will actually disclose it. Some agents just tell everyone, I've got an offer of 720 on this property. If you want to make an offer, you've got till 5pm to make it better. And then it's basically whoever's got the longest breath, or they may say, well, I've got so many buyers, I'm going to do, you know, sealed bids, you come into my office with an envelope with your best and final in it and I'll open them at 5pm. So you really need to understand what is going to happen next, because the sealed bid scenario, my opinion is the worst one, because you're flying completely blind and you could win it by 10 bucks. You could also lose it by 10 bucks, you know, and sometimes I will say, if I start the offer process, will I still get the last ride of refusal, you know, so that means that they'll go to all the other buyers, they'll get their offers in, and if I'm not the highest buyer anymore, they'll come back and give me the last chance. See, that's what I want, but I won't know that will happen unless I ask for it. Yeah. And I think a lot of buyers forget to ask that, because you want to make sure that you put yourself in the best, you know, pole position. The other thing, the final question I would ask the agent is, do you have a signed vendor front page already? So in many cases, vendors will have already signed a front page of the contract, to keep they're not local, or if there's more than one person involved, they may have given an authority to act to the agent, so there is already a signed front page in the office. And so that would mean that, you know, if your offer is accepted, there is no delay, and it can be exchanged very quickly. But if they don't have a vendor signed front page, and for example, you're in, you know, Maruba, and the vendor is in barrel, for example, that means, and that it has happened recently with me, that the agent has to drive to barrel, because the solicitor has stipulated he wants an original signature. And so there is that time limit, you know, there are times delay, sorry. So understanding where the vendor is, and how quickly they can sign the front page of the contract is also important, you know, again, because you don't want to leave yourself exposed to the other buyers, making offers. One of the things you touched on was that you want the time between offer and exchange to be as short as possible, and one of the terms that comes up from time to time is gezumping. Can you expand on what exactly gezumping is? So gezumping is basically when the vendor on the buyer have agreed to a price, but they haven't exchanged yet, and another buyer comes in, and usually with a higher price, and the vendor sells it to them, and exchanges with them. So you're left with nothing. That's why we do so much prep work, you know, before making an offer, because we want that time to be as short as possible, ideally simultaneously. So there is no chance of gezumping, because until you have actually signed on the dotted line, and the vendor has signed on the dotted line, and they have exchanged, anybody can still come in and snap it up from underneath you. Which you would want, had you done all of that, all of that research, and you've done all of those questions, you'd send, yes, that would not be fun at the in the 11th hour. No, and you know, you mentioned gezumping. There's also other terms, such as a holding deposit or an expression of interest. So this is where, and this actually happened to a good friend of mine recently, she paid a holding deposit, thinking that she had secured the property, whilst they got their finances sorted, and things like that. They thought they were safe, they thought it was the same as having exchanged, but it's not. A holding deposit is not worth the paper it's written on, nor is an expression of interest. In this case, the selling agent had taken 10 different holding deposits from 10 different buyers, and nine of them missed out, and he sold to the one person who paid the most. So it's absolute nonsense, so don't get lured in by that. That seems like a lot of admin to have to return nine separate deposits as well. Do you know what? I don't understand why they do it. I really don't get it, because it just, it puts them in a really bad situations with all those buyers. They don't gain anything from it, you know, they still have to return all those holding deposits back to those unlucky buyers, and it just causes enormous amount of frustration for those buyers who thought that they'd secured a property, but, you know, are now back to the drawing board. So don't get swayed by those terms, holding deposit expression of interest, you know, it means nothing unless you have exchanged on the property. So that's the lesson for people out there, that, yeah, it's really not worth your time. Good to know. And then wrapping up here in the interest of time is, maybe, listen, there's no retrying to keep all our episodes just around the 30 minute, but after you don't get me started on property, I'll just keep grabbing markets. Absolutely, but you're taking up ideas for future episodes, you need to stop you before you get started. And so, you know, very quickly though, you've successfully made the offer, you've had offer accepted, you paid your deposit, you've got the exchange contracts. Here exchange, you know, what are the really quick bullet points and things there needed prior to settlement? Yeah. So very quickly, as soon as you exchange, get a copy of the front pages. If you're there in person, just take a photo, you know, or do a cam scan on your phone, it's a free app, and send them straight to your broker and solicitors, because they will be the ones who will lead you through that process to your settlement. The sooner they have the copy of those front pages, the better. They will still, you know, the solicitor will obviously be sent the original vendor sign from the selling agent, but just to give them a heads up, they really appreciate it, because they can then get the ball rolling from their end. And if you're a broker or a bank who, if you're going with with a, you know, say you have a prayer program place, and you've successfully exchanged getting that exchange contract into the broker or the bank's hands as quickly as possible, is really helpful because it allows them to order the valuation straight away. If one is necessary, meaning that the sooner we get the valuation order, the sooner we get the valuation back, the sooner we can change that prayer approval into a formal approval. Yeah. An unconditional approval, which means the sooner you get your loan offer and loan documentation out, the sooner it gets back and you're ready for settlement. You're not waiting two weeks or three weeks of a six week period to then basically start smoking, you know, one week out, having a whole range of things to do. Yeah. And I would also say get a copy of that receipt, that deposit receipt, so that you can forward that to your broker as well. Anything to make their job easier to get you through that banking process will help. And then, you know, you start looking at get buildings insurance, get ready for your pre-settlement inspection, get your list ready of what you need to look at for your list of inclusions to make sure that everything's left as it should be, all that kind of stuff. So plenty to do after you've purchased your dream home before you are ready to move in. But like you said, maybe we can do a dedicated episode on that. I think so. I think we've really covered in depth the prior to exchange portion. I think doing an after exchange would be really helpful for our listeners as well. So Michelle, thank you very much for that very in-depth sort of synopsis of all the things that some of the things that you speak about to your clients and some of the things that our listeners or purchase should be looking at prior to making an offer, questions to ask real estate agents, you know, ways to make deposit, how the contracts are signed, what to do once you've made that offer and so forth. If you have any questions for Michelle and myself, or if you have any ideas for episodes on the show or any questions you simply want to ask, you can always reach us at [email protected]. It's [email protected] or you can find us through social media, Instagram, Facebook for example, and you can find us where you found this podcast series, although we are on a number of different options for your listening pleasure. Thank you, Michelle, again, and have a great week everyone. Thanks for your listening. Please note that any views or opinions presented in this podcast are solely those of the speakers and do not necessarily represent those of any business. These views and opinions are generally nature and do not take into account your personal objectives, financial situation and needs. Please consider whether it applies in your circumstance and see professional advice where appropriate.