It’s the contract signing dream we all hope for, fill out the forms, sign on the dotted line, send the contract off to the solicitors and then patiently wait to be handed the keys to your newest asset. Sadly many of us aren’t prepared, financially or otherwise, for the possibility of a delayed a settlement. Silkwood Homes Contract Manager, Hannah, shares her insight on the most common settlement setbacks.
Financing – Often a client can go unconditional as per the terms of their contract, only to have the developer extend registration of the block they hope to build on. “The client’s finance could literally ‘run out’, meaning they will need to re-apply,” says Hannah. “Having to reapply for finance could cause many issues for the client including the bank changing their policies which can affect a client’s borrowing capacity or a new valuation coming in under what it was previously.”
Bank Valuations – In some cases, bank valuations can come in below the purchase price. This can be a common occurrence as GST is not taken into consideration and for new builds, there may not be comparable sales available at the time. Lower valuations may result in extensions to the finance clause of the contract, and in turn, could result in the developer terminating the land contract. “Our Sales Partners and BDM’s suggest clients have a 5-8% ‘buffer’ in case of a valuation shortfall,” says Hannah. The safest bet against shortfalls is to not borrow at your maximum capacity, leaving some wriggle room to accommodate a possible shortfall and to avoid disappointment.
Pre-Approval Conditions – More common among first-time buyers or investors who aren’t familiar with the finance process or clauses, some pre-approval conditions are sometimes unable to be met by the buyers. The most common conditions within Pre-Approval are:
- Subject to valuation
- Subject to a client paying off a certain debt (personal finance)
- Subject to Registration (land)
- Satisfactory valuation of your security property
- Verification of supporting documentation
Hannah recommends “Seeking sound financial advice from your chosen lender or broker. Make sure they highlight all possible risks of meeting pre-approval conditions and allow you enough time to address and minimise these risks prior to applying for your finance.”
While conveyancing law varies in different states, most settlement provisions state that the Vendor can charge interest for every day of delay on the buyer who misses settlement. Experts recommend contacting a lawyer to review the contract, the cost of missing settlement can be high so make sure that you have done due diligence before you sign a sales contract.