Wording on sale & purchase agreements
With the real estate market being so manic we are seeing a lot of clients wanting to make unconditional offers to secure their new purchase. In order to accommodate this we are recommending clients apply for pre-approved finance ie loan approval from a lender up to a certain level that is only subject to them finding a new property. It is important to note, however, there is still room for the lender to withdraw approval if they are not happy with that sale & purchase agreement.
The Lender may have offered loan approval based on a “standard residential property” ie a house. If the property is not a standard residential property eg a commercial property, an apartment, a farm etc then the lender may lower the amount that they are prepared to lend on this property or refuse to lend on this property. Or they may ask for further conditions such as a registered valuation before they will offer unconditional loan approval. If there are further conditions it can cast a doubt if the lender would guarantee to lend on the property in question - a rather tricky situation if the client has made an unconditional offer.
The Lender may have objection to the condition of the property. The wording of the documentation may bring to the attention of the lender that there are issues with the property eg “the Purchaser accepts the state of the property “as is and where is” could indicate that the condition is less than desirable. Of there may be reference to some work not having a Code of compliance issued causing the lender to possibly turn around and ask for a valuation or building report thus putting an unconditional offer at risk.
There are 2 ways in which to address these issues. The first is to send an unsigned unconditional sale & purchase agreement to the lender to confirm they are happy with the property and require no further conditions to be satisfied.
The second way would be to include a short finance date in the agreement eg 2 working days to allow the bank to sign off on the agreement wording and the particular property to be purchased. While there may be another offer that is in play such a short time frame for that finance condition to be satisfied indicates the purchaser is in a good position to make such an offer.
Our recommendation is to obtain pre-approved finance and satisfy as many conditions as possible while there isn’t the time pressure to get a quick answer. When you sign up on a property there are a lot of things that have to happen quickly so having ticked the ones you can before you even get to making an offer can not only make your offer stronger but it can reduce stress on both you and your lender (bank).
