Welcome to Property 101 and today we’ll discuss a number of circumstances when it may be necessary to terminate a contract for a property.
When to terminate a property contract?
This blog discusses 4 situations in which it may be necessary to withdraw from a property you have under contract. Some of these scenarios include: When the bank valuation comes in lower than the contract price; your finance is not approved; due diligence searches reveals issues; and the building and pest inspection uncovers major problems. We’ll explore these situations and provide insights on when it may be best to withdraw from a contract to avoid potential financial risks and stress.
1. Bank valuation comes in lower than the contract price
While it’s relatively uncommon, it can happen that the bank valuation for a property comes in lower than the contract price. Although this can be avoided by using an experienced Brisbane Buyer’s agent. This can be a major cause for concern, as it may affect the amount of finance that the bank is willing to lend you. Depending on the bank’s disclosure policy, they may or may not advise you of this fact, though I would hope they would! If you do receive a lower valuation, it’s important to seek more information to understand why the valuation came in below the contract price. One way to do this is to ask the bank for a copy of the report and find out what type of valuation was undertaken. If the difference between the contract price and the valuation is substantial, it may be worth considering withdrawing from the contract altogether. This can be a difficult decision to make, but it’s important to consider the long term implications of buying a property that’s overvalued. Ultimately, it may not be worth the financial risk of taking on a mortgage that’s too large for the property’s true value.
It’s important to note that if you are considering withdrawing from the contract due to a low valuation, you may be able to negotiate a lower purchase price with the seller. Alternatively, you may need to terminate a contract for a property entirely and look for a more suitable property. It’s always wise to speak to your financier and seek professional advice before making any major decisions.
2. Finance is not approved
In the event that your finance is not approved, you may find yourself in a difficult situation. One option is to terminate a contract for a property using the finance clause. Alternatively, you may want to seek another lender who is willing to offer you finance for the purchase. If you choose this route, it’s important to bear in mind that you may need an extension to the finance clause time period. Additionally, you’ll want to ensure that the terms and conditions of the new finance offer are acceptable to you and in line with current market rates.
It’s worth noting that securing finance can be a challenging process, particularly in the current lending environment. If you’re purchasing a property at auction, you won’t have a finance clause available to you and the contract will be deemed unconditional at the fall of the hammer. To avoid buyer’s remorse and unnecessary stress, it’s crucial to have your finance pre-approval in place and all necessary inspections completed before bidding.
For those buying via private treaty, having a finance clause and other necessary special conditions provides you with the option of pulling out of the sale if necessary. This is especially important if you’re unable to secure funding. By having the power to walk away without financial loss, you can avoid putting yourself in a precarious position.
3. Due diligence searches reveals issues
Undertaking due diligence searches is a critical part of the property buying process. Depending on the special terms included in the contract, you may have the right to terminate the contract for a property if issues are discovered during this phase. For instance, if building approval has not been obtained or a body corporate search reveals adverse findings such as special levies, you may be able to withdraw from the contract. Additionally, if the property is flood affected, you may be entitled to withdraw if the appropriate clause is included in the contract. Another due diligence searches is the title search, which provides information on who owns the land, any easements that exist and whether there are mortgages against the property etc. For example, you might discover an easement that dictates that you can’t put in a swimming pool in the future. As a buyer, it’s crucial to conduct thorough due diligence searches to avoid any surprises or setbacks in the purchasing process.
4. Building and pest inspection reveals issues
Discovering issues with a property during a building and pest inspection is not uncommon and it’s important to pay attention to the details of the inspection report. Our Buyer’s Agents always attend the Building and Pest inspection and find it considerably more valuable and insightful than only reading the report. If the inspection reveals any major issues such as termite infestation, structural damage, asbestos, subsidence, roof issues, electrical or plumbing issues or water leaks from failed wet-seals in bathrooms (this is a common one), it’s crucial to consider them seriously. These issues could end up being very expensive to repair or remove and could have a significant impact on your finances. If the issues are severe, you may be able to negotiate a lower sale price with the seller. However, in some cases, it may be best to terminate a contract for a property altogether. Keep in mind that certain issues such as bedrooms not meeting legal height requirements may not be negotiable, and it’s always best to obtain a copy of the council approval documentation to avoid any surprises e.g Form 21 in Brisbane City Council areas.
Considering terminating a contract? Seek advice from your solicitor ASAP
When faced with the situation that may require you to terminate the contract for a property, it’s important to seek advice from your conveyancing solicitor. They can advise you of your options and the specific clauses and conditions in your contract that will allow you to consider withdrawing from the contract and the strict time frames associated with the cooling off period and other clauses. A reminder to always include clauses and conditions in your contract to provide you with the option to withdraw if necessary. Undertaking comprehensive due diligence searches and building and pest inspections as part of your contract conditions, can help you identify any issues before it’s too late to withdraw from the purchase. It’s advisable to cover all your bases by including conditions in the contract to protect yourself in case any unexpected issues arise during the journey to settlement.
If you are considering purchasing a home or investment property in Brisbane or South East Queensland and would like the assistance of an experienced Brisbane Buyer’s Agent that can help you find the perfect property, that meets all your requirements for the right price, please don’t hesitate to contact us.
We look forward to hearing from you.
Sam Price, Buyer’s Agent and Director – Templeton Property.