October 06 ~ Filling in S&P agreements
ByYes another month has gone by!
Newsletter time!! Now that I’ve covered goals, strategies and rules I thought we would move onto some nuts and bolts stuff. This month:
Sale and Purchase Agreements
There are a number of ways to enhance your chances of getting an agreement signed and also to create genuine benefits to you in the way that you fill out your sale and purchase agreements.
If for any reason you can’t view the graphics in this newsletter you can view it online HERE.
So to begin at the beginning…
Purchaser’s name: Often we have trading trusts or even buy and hold entities that have names that indicate to vendors that we either have money or are professional investors. This is often not helpful, especially with an emotional vendor. Seeing your potential buyer listed as “My stinking rich trust” often doesn’t give a vendor too many warm fuzzies. So if you are dealing with an unknown vendor or a new agent it is a good policy to use your own name and put “and or nominee” at the end. It doesn’t prevent you from buying the property in the name of any entity. You can decide the entity on unconditional date, once negotiations are complete.
Legal Description etc: Nothing to highlight here really. You should know the address and whether the property is freehold/leasehold etc. BEFORE you make an offer anyway. The legal description you may be able to obtain via the internet but the vendors agent or your solciitor can always get them for you.
Purchase Price: Well you put in whatever figure you like but remember your initial offer must be lower than your best price or you have no negotiation room. Typically you want your first offer to be a minimum of 10% below what you really want to pay. The other thing to remember is to cross out PLUS GST on the right hand side just to be clear, in case the vendor is registered for GST.
Balance of Purchase Price: Normally you would write in “In one lump sum on settlement”. There are many times when you would put something different but that is outside the scope of this document.
Deposit: Always remember with deposits that they are OPTIONAL, and you want them to be as small as possible. I normally make my deposits $5000 unless I am dealing with a known agent in which case I ask him what his fees are and make the deposit that amount. Remember the deposit is dead money out of your account. If you can buy a property for $500 do it.
IMPORTANT NOTE: Agents will often change deposit amounts and say that the vendor wanted a larger deposit. 90% of the time this is an outright lie. They, the agent, have changed the amount to make it cover their fees. I always say to the agent that I don’t believe the vendor changed it, rather they did. I change it back and make it clear that if it gets changed again I will not deal with them again. I have NEVER had one come back twice.
The other critical point with deposits is to write next to the amount “payable on unconditional date”.
Never ever ever hand over money on an agreement that is conditional.
Possession: Now this may take a little “getting your head around it” time but don’t put a date for possession. I use 2 phrases and they work!! Usually I will put “By mutual consent” or otherwise I put “To suit Vendor”. This gives the vendor the opportunity to query it and allows you to find out when they want to settle. Often, if they know they can, vendors will offer quite long settlement to give themselves time to move. I have bought properties with settlements of 2 years. I bought a property last month that settles next July. The longer the settlement the better as far as you are concerned because that gives you more time to organise money, find a tenant, arrange repairs, or onsell it. Plus of course if the area is appreciating you are getting capital growth before settling!!
Also remember to change the penalty interest rate to a fraction above your revolving credit interest rate. If you are buying a lot of property you may occasionally settle late so no point penalising yourself. I ALWAYS do this and NEVER have an issue from vendors. It has saved me a lot of money on some deals.
Conditions: Cross them all out!! You want your offer to look as “unconditional” as possible so cross out all the conditions on the front. You can insert one clause in the back of the agreement that covers all these conditions.
Tenancies: Now listen up here. Vendors lie. Never assume that existing tenants are good. Any vendor will say they are fantastic because they want to sell their property. So ALWAYS put “vacant possession” next to tenancies. Now if you want the tenants to stay you can get your property manager to interview them and if your manager thinks they’re OK then you can sign them up onto new tenancy agreements. Trust me, if you don’t do this you can inherit all kinds of dramas.
Now sometimes vendors are in love with their tenants and won’t sell with vacant possession. In this case you need to explain to the agent/vendor that you would like to put the tenants onto your own tenancy agreements and get them to give you permission to talk to the tenants before you go unconditional. You do not want to inherit bad tenants.
Chattels: Only one thing to watch out with chattels really and that is to make sure that anything you particularly want is listed there. The other thing to be aware of, (I know because it happened once to me), is to either specify the chattels or take pictures of them. What do I mean? Well I bought a property and one of the chattels was a dishwasher. The dishwasher in the kitchen was a new F&P dishdrawer. Come settlement day the dishwasher had turned into a 20 year old boat anchor. So if there are good quality chattels in a property you are trying to buy specify them under chattels
Clauses Page: It is impossible here to discuss all the possible clauses that you can use in a sale and purchase agreement. However there are a couple of clauses you can use in virtually every agreement that will keep you safe and give you an exit from a deal if you want/need one.
Due diligence is an all encompassing clause that basically says that you can walk away from this agreement for any reason whatsoever. Download it from my clauses page HERE
This clause is over used and disliked often by agents so a new spin on it is “Purchasers condition” Exactly the same clause but with a different hairdo. Download it from my clauses page HERE.
However my favourite clause is my solicitors clause. Download it from my clauses page HERE
NOTE: You must check with your solicitor that he or she is OK for you to use this clause. If not then use purchasers condition.
The other thing about clauses is to be specific if you can. If I am waiting for a valuation and that is the only thing I am waiting for then I would use my valuation clause. Yes you can download it from my clauses page HERE
The fewer conditions the better will give you the best chance of getting a vendor to sign.
So your finished article should look something like…….
You can download a Word version of the S&P HERE and preformat it with all your standard things. Use a font that looks like handwriting and always fill in at least part of the agreement by hand so it doesn’t look “churned out”. For those of you doing lots of offers like I used to then just preformat everything and use mail merge if you have to. But as your volume decreases [First Name], the less professional you look the better.
Behind Closed Doors
Finally this month I want to thank the 187 of you who honoured us with your presence on Saturday. We had an incredible time and trust that you did also. Special thanks to Rob, Jo, Farida and Ben who ran the whole day for us. We could not have done it without you.
And especially thanks to my exquisite wife. She had never spoken in public before and was just incredible.
We will keep you posted as soon as we can book a venue of the date for a follow up. Please email us if you would like to come or have any feedback as an attendee on Saturday.
Finally just a reminder to have a wander round our website. There’s lots of good stuff to read, newsletter archives to download etc.
Stay safe till November!!
