Introducing Episode 3
Episode 3 is the first of a 2-part series on '5 Mistakes First Home Buyers' make on when buying property in Victoria.
In Episode 3, experienced Melbourne conveyancing lawyer, Melissa, talks about the first 2 mistakes:
- Not saving enough money
- Relying to heavily on the real estate agent's advice,
and what you need to do as a general guide to prevent those mistakes from happening when you buy a property.
That way, you can feel confident and comfortable stepping into the Melbourne property market.
As a first home buyer in Victoria, you’re in a world of uncertainty and you want to be pointed in the right direction to make your life easier.
Episode 3 aims to do just that.
To get you out of a place of uncertainty and into a place where you feel in control and understand what you should be doing when you're buying property in Melbourne or Victoria.
Mistake #1: Not saving enough money
As a first home buyer, it's hard to know what you need to be saving for and how much you can afford.
Unless someone tells you what you need to save for, such as a Melbourne conveyancer or Victorian conveyancing solicitor, how else are you going to know if you can afford to step into the Melbourne property market?
Save for these 7 purchase costs
When it comes to buying property, you need to have money saved for the following 7 costs:
The deposit is usually 10% of the purchase price, or you can try and negotiate down to 5% deposit.
However, if you want to reduce the amount you need to pay at settlement, it is best to budget and pay for a 10% deposit when you buy a property in Melbourne or Victoria.
At some point you might asking yourself, how much are conveyancing fees in Melbourne?
Conveyancing fees will vary from conveyancer in Melbourne to another.
As a general guide, you may consider budgeting for around $1,500.00 to $2,000.00 towards conveyancing fees before you buy a property.
In most cases, stamp duty is the biggest cost you may have to pay at settlement when you're buying a property in Melbourne or Victoria.
The amount of stamp duty you pay depends on the value of the property, your Australian residency status, whether you are a first home buyer in Australia and whether you will use the property as a home or investment.
The authority that charges and collected stamp duty in Victoria is the State Revenue Office.
In most cases, stamp duty is collected by the State Revenue Office at settlement.
Before you buy property, we recommend that you use the State Revenue Office online public calculator to work out an estimate of how much stamp duty, if any, you need to be budgeting for when it comes to buying a Victorian property.
Link to the State Revenue Office duty calculator: https://www.e-business.sro.vic.gov.au/calculators/land-transfer-duty.
Link to the State Revenue Office pensioner duty calculator: https://www.e-business.sro.vic.gov.au/calculators/pensioner-concession-duty.
Transfer registration fees
When a property is transferred to you in Victoria, you need to pay the Victorian land titles office a fee for registering the transfer at settlement.
The property transfer registration fee you pay is based on the purchase price you pay for the property. The higher the purchase price, the higher the fee.
We recommend before buying a property in Melbourne or Victoria, that you visit the Victorian land titles office website and use their online calculator to obtain an estimate of the registration transfer fee you may be required to pay at settlement.
Link to the Victorian land titles office calculator: https://www.land.vic.gov.au/land-registration/fees-guides-and-forms/transfer-of-land-fees-calculator.
That way, you can get a feel for how much you should put aside towards transfer registration fees.
Mortgage registration fees
In addition to the property transfer registration fee, you will also need to budget approximately $115.00 towards a mortgage registration fee, if you’re taking out a loan to fund the purchase.
This fee is subject to change by the Victorian land titles office and the information provided is current as at February 2022.
Property Exchange Australia fees
Property Exchange Australia, also known as PEXA, is the online platform that each conveyancer and property lawyer in Melbourne uses to settle property in Victoria.
At settlement, PEXA will charge each party to the transaction a fee for using the platform to settle the property.
We recommend that you budget no more than approximately $150.00 towards PEXA fees.
This fee is subject to change by PEXA and the information provided is current as at February 2022.
Your rates contribution
At a Victorian property settlement, you’ll be required to pay a portion of rates, taxes (such as land tax) and outgoings levied against the property you buy, because for some of the time in the year that settlement takes place, you’ll be the owner of the property.
So it makes sense that you’ll be paying at settlement, in the form of a reimbursement to the Vendor, some rates, taxes and outgoings towards the property.
In most cases, a budget of around $3,500.00 towards your rates contribution is sufficient for an average sized residential property in Melbourne or surrounds.
However, every property transaction in Melbourne and throughout Victoria is unique.
In some cases, a buyer's rates contribution towards rates can exceed $3,500.00 if, for example:
- there is a large amount of land tax payable against the property
- the property is significant in size
- there is a utility connection fee or property insurance that the sale contract requires you to reimburse the seller at settlement.
We highly recommend you get the sale contract and vendor statement reviewed before you buy a property in Victoria, so that you can get an idea of the rates, taxes and outgoings payable against the property and budget accordingly.
If your loan is going to be less than the amount you will be required to pay at settlement, you will need to cover the difference.
The difference you cover is also known as your "shortfall" payable at settlement.
You cannot assume your lender will value the property at the price you paid for it. Lenders are typically more conservative in their valuation of property compared to market price you pay for a property.
So how do you know if your loan is going to be less than the amount you need to pay at settlement?
The answer: Speak to your mortgage broker before your purchase the property to get a general understanding of what your shortfall is expected to be, so you can budget accordingly.
A good mortgage broker will factor in the 7 costs I outlined above, and any other fees, such as application fees or lenders mortgage insurance, in determining the estimated shortfall you can expect to pay at settlement.
There you have it, 7 costs you need to save for to buy property in Victoria.
By understanding the types of costs you can expect to pay at settlement, you’ll be able to decide if you can afford to step into the Melbourne property market, where you can afford to buy based on your budget or if you need more time to save for your first property.
Disclaimer: The information provided is general only and not legal advice. For a breakdown of the exact costs and fees applicable to your transaction, please consult with your Melbourne conveyancer or Melbourne conveyancing lawyer.
Mistake #2: Relying too heavily on the real estate agent's advice
Let us start by saying there are responsible, hardworking real estate agents in Melbourne.
However, it's important to remind yourself that real estate agents act for the Vendor (who pays their commission from the sale proceeds) and only in the Vendor's best interests to sell their property at the highest price.
So you can image our concern when a first home buyer tells us that they paid a deposit before signing the sale contract, or that they signed the sale contract as part of making their price offer to buy a property, because the real estate agent told them so.
Don't pay a deposit before buying
A word of advice.
Never pay the deposit before signing a contract. You are not obliged to hand over any money to anyone if you’re not contracted to do so.
Don't sign a sale contract to make an offer
Never sign a sale contract of sale as part of making your offer to buy a property in Melbourne or Victoria.
You can call the real estate agent or email them your offer, ensuring it is subject to getting the contract reviewed by a Melbourne conveyancing lawyer.
By signing the contract, you have potentially bought the property without even knowing it, if the seller accepts your offer.
That’s bad news for you if you haven't made up your mind yet on where you want to buy or if you haven’t done all your due diligence on the property yet.
You should only sign a contract of sale if:
- you’ve had the contract reviewed by an experienced conveyancing lawyer in Melbourne
- you’ve negotiated any changes to the sale contract recommended by your Melbourne conveyancing lawyer; and
- based on the outcome of the negotiations, you feel comfortable proceeding with the purchase.
It’s as simple as that.
An offer to buy a property can be made verbally or by email, ensuring the offer is subject to receiving advice about the contract from your conveyancing solicitor in Melbourne.
Only rely on the advice of your Melbourne conveyancer or conveyancing lawyer about when and how to make an offer to buy your first home.
The examples we've provided demonstrate that you can be caught at a disadvantage by relying too heavily on the advice of the real estate agent.
A responsible real estate agent won’t tell you to sign the contract as part of your offer or require you to pay the deposit before signing.
That concludes part 1 of our topic ‘5 Mistakes First Home Buyer’s Make' in the property market.
With the information you've received in Episode 3 of The First Home Show podcast, we hope that:
- you feel more certain about the types of costs you will need to save up for to buy your first home
- you understand the importance of relying on the advice of your Melbourne conveyancer or Melbourne conveyancing lawyer, rather than the advice of the real estate agent, before you buy your first property.
Tune into Episode 4 of The First Home Show, where we talk about the last 3 mistakes first home buyers make in the Victorian property market.
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