Don’t believe a word you hear – property is the written word

Article 7 of 8 in the series:

Don’t believe a word you hear – property is the written word

Don’t believe a word you hear – property is the written word

YDL Property Investment’s Eight Golden Rules of Property Investment

Negotiating to buy property is very different from negotiating many other arrangements.  The law decrees that any agreement to sell property is invalid unless it is in writing and signed by all parties involved, whereas an oral agreement to sell a car or rent a flat is binding.  So negotiations usually revolve around a written ‘offer to purchase’ or ‘deed of sale’.

 

An important secondary effect is that people in the property industry tend to be more causal about what they say than people in other professions.  They are used to an environment in which you cannot be held liable for anything you agreed to, but did not put in writing. As a result, inexperienced buyers may be caught out by what they think are binding promises.

The lesson is simple: Believe only what is in writing. Insist that any undertakings by the agent or seller are part of a written agreement.

Formal negotiations begin when a buyer, usually using the agent’s standard sale agreement, signs an offer to buy the property at a certain price and subject to certain conditions. These could include financing the purchase, often with the seller undertaking some necessary repairs; or warranties from the seller that a particular aspect of the property functions properly.

The agent submits this – and any other offers s/he may have signed up – to the seller, who either rejects it, or signs with certain changes.

It would be foolhardy not to read every clause in an agreement and understand it before you sign.  If any item is not clear to you, take it to your lawyer.

Negotiating with the bank

Negotiating your financing can be almost as important as negotiating the property purchase itself.  Many first-time buyers feel a bank is doing them a great honour by lending such a large amount of money, especially since the introduction of the National Credit Act. They are so grateful that they normally accept the terms set by the lender. The truth is that the bank is just as grateful as you are, if you are a creditworthy applicant who can afford the loan. In many respects, this is a negotiation between two equal parties in one marketplace.

It must be said that only a few of the many issues can be negotiated. For instance, no bank will agree to change anything but the most trivial wording in the mortgage agreement (if that). This wording has been developed over years from hard experience with defaulters.

However, you can negotiate the interest rate, some of the bond charges and the loan to value ratio.  Remember that home loans are among the bank’s biggest operating areas and probably their most competitive. Make use of that.

You must also weigh up whether to use a mortgage originator or deal directly with the bank. The services of an originator are free, as they get paid by the banks to bring in new loans. There is probably not much advantage in dealing directly with the banks, unless you have a special relationship with your own bank/relationship manager. A mortgage originator can save you time, get quicker results and in some instances has achieved lower interest rates from your own bank than you thought you could get.

In closing, remember not to believe a word you hear, but to carefully read every word in the offer or purchase agreement and the loan agreement from your chosen bank. It is preferable to make use of a good property lawyer, to ensure that your interests are taken care of.

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