Seller’s Guide

What should a seller do first?

When a seller has decided to sell any residential property, the first thing the seller should do is consult a conveyancer. The seller may have been contacted by a Real Estate Agent or the seller may have one in mind to use, but they cannot proceed until after the seller has instructed a conveyancer.

The Law provides that before anyone, estate agent or owner, can place a property on the market, they must have a proposed contract prepared so that a prospective buyer can inspect the contract. There are hefty fines imposed on anyone caught promoting the sale of a property in anyway whatsoever before a contract is prepared.

The seller’s conveyancer will prepare the contract so that the seller can instruct the estate agent to proceed with the sale of the property.

The Contract for the Sale of Land

The Contract details the ownership, title details and the conditions of the sale together with what is included in the sale. It is prepared with all details leaving blank the buyer’s details and the sale price.

There are certain documents that must be attached to the contract and are specified in law.

These documents are called “Prescribed Documents”, without these documents attached, a buyer can pull out of the contract with no penalty.within 14 days from the date of exchange of contracts

Some of these documents are:

• a zoning certificate (s.10.7) from council
• a sewer diagram showing the location of the authority’s sewer main
• a title search and other registered documents obtained from the Land Titles Office
• For a strata or community title – the current bylaws
• Statutory warnings about smoke alarms, the cooling-off period etc

There are certain warranties that the seller must give. They may not necessarily be included in the contract but are prescribed by law. These are called “Prescribed Warranties” :

• the land is not subject to any adverse affectation (road widening, acquisition etc)
• the land does not contain any part of a sewer main
• there is no matter in relation to any building that would justify an upgrading or demolition
  order, unless disclosed in the contract.

Real Estate Agents and Agency Agreements

An Estate Agent must have an agency agreement signed before they can offer the seller’s property for sale. If the seller is not sure of the terms of the agency agreement the seller should have its conveyancer explain it.

There are several types of agency agreements:

• Exclusive agency agreement is most commonly used to sell residential real estate. The seller is giving the agent the exclusive right to sell the property. While the exclusive agency
  agreement is current and someone else sells the property (including the seller), the agent is entitled to be paid the agreed commission.
• Sole agency agreement is very similar to the exclusive agency except that it gives the seller the right to sell the property without being liable to the agent for a commission.
• Multiple listing agreement allows the agent who may be part of a network of agents working together to sell the property. The seller only pays a commission to the agent with whom the seller has signed the listing agreement.
• Auction agency agreement is used when the property is sold by auction. It is similar to an exclusive agency in that the seller give exclusive right to the agent to sell the property by auction.
• Open agency agreement will allow the seller to list with any number of agents the seller wishes. The seller only pays commission to the agent who finds the buyer.

Agency agreements are usually for a fixed period of time and cannot be ended prior to the end of that period unless both seller and agent agree. The period of the agreements is negotiated with the agent. It is usually 90 days but can be for any period agreed to. The seller should make sure there is only agreement at a time and do not commit to payment of a commission to more than one agent. The seller should also make sure any agreement is properly ended before entering into another ‘agreement with another agent.

Exchange of Contracts

Contracts are signed by all parties involved in the transaction and when the seller and buyer have both agreed on a price and the conditions of the sale the contracts are exchanged and dated and the deposit paid by the buyer

Contracts are drawn up in duplicate. One copy is signed by the seller and the other is signed by the buyer. The exchange of contracts is the exchanging of these copies so that each party ends up holding the copy signed by the other party.

The contract can be exchanged in one of two ways:

By the Estate Agent

In this case the contracts are signed and exchanged shortly after the sale price has been agreed to. The agent will send the appropriate copy of the contract to the party’s conveyancer and the buyer may have a 5 business day cooling off period (unless it is waived) in which to get any reports, finance approval and have the contract explained by their conveyancer. Often the period of the cooling-off period is extended – by agreement – to 10 business days. The seller does not have the benefit of the cooling off period.

By the Conveyancers

In this case, it would be normal for the buyer to have all reports done, financial approval and the contract explained by their conveyancer before the contracts are exchanged. It is usual practice for the buyer to waive their cooling off rights so that the contract is binding on both parties as and from the date of the exchange taking place.

Until such time as the contracts are exchanged, either party can withdraw from the transaction, it is only once contracts are exchanged that the parties are bound to proceed, and in the case of the buyer having a cooling off period the buyer is not bound until the cooling off period expires.

The Cooling Off Period

Every contract for the sale of residential property (less than 2.5 hectares) has a cooling off period of five business days (the cooling off period ends at 5:00pm on the fifth business day). This means that after entering into the contract the purchaser has five business days in which to “cool off”. The seller is locked into the contract and cannot withdraw from the sale. If the purchaser finds that for any reason he or she does not want to proceed with the purchase, they can rescind the contract within the five day period. If the purchaser does rescind the contract they forfeit to the vendor 0.25% of the sale price. The contract is then at the end and neither party has any further claim against the other.

The purchaser can waive the cooling off period by having the contract explained by a conveyancer or solicitor and a certificate signed by that conveyancer or solicitor and the certificate handed to the seller’s conveyancer. The certificate is drawn under Section 66W of the Conveyancing Act and is commonly called a “Section 66W certificate”.

The cooling off period can be shortened by the use of the S66W certificate whereby it will be stated that the purchaser has agreed to shorten the period to whatever number of days has been agreed.

There is no cooling off period if the property is sold at public auction or on the same day as the property was submitted for sale by auction and passed in.

Discharge of any Mortgage

If the seller owes money to a lender who has a mortgage registered, then he/she will need to have the mortgage discharged at settlement. The seller’s conveyancer will communicate with the mortgagee requesting they have a discharge of mortgage prepared in readiness for settlement, however most lenders will not do anything until they have the seller’s written authority to prepare the discharge. This authority also authorises the lender to communicate with the seller’s conveyancer, in particular regarding the amount required to payout the seller’s loan.

The seller’s conveyancer will try and organise the lender to send their authority form to the seller. But, as this can sometimes take time and hold up final settlement, the seller is advised to contact the lender to organise this.

The fixed payout figure will be given to the seller’s conveyancer and the loan will be paid out from the proceeds of the sale.

Building Insurance

In New South Wales all buildings on the property are at the seller’s risk until settlement. It is therefore essential that all building insurances be maintained and not allowed to lapse before settlement.

If the buildings are severely damaged by fire or flood or some other catastrophe, the buyer is not bound by the contract to proceed with the purchase. If the damage is relatively minor a buyer may proceed with the purchase after negotiating a reduction in the price to cover the cost of repairs. It is in the seller’s best interest to keep the buildings insured.

If the policy is due before settlement the seller should renew the policy and then claim a refund of the premium for the unexpired term after settlement. It is better to be sure than sorry.

Sold with Vacant Possession but Tenant in Possession

A tenant is not bound to move out of the property until the term of the lease has expired and a notice to vacate has been served.

If selling a property that is tenanted, the seller should be sure that the term of the lease has or will expire before the settlement is due.

If the term of lease has expired, the seller must also give 30 days’ notice to vacate to the tenant, and as the settlement date is normally 42 days after exchange of contracts the seller must arrange with its conveyancer and managing agent to give the notice immediately contracts are exchanged.

It is either the seller as the landlord or its managing estate agent who must give notice to the tenant. The conveyancer cannot give the notice but should check to see the notice has been served.

Council, Water Rates, Land Tax & Strata Levies

Council Rates

The Contract provides that council rates be adjusted between the vendor and purchaser as at the settlement date.

Council rates are levied for the financial year. They will be adjusted so that the vendor pays the rates up until the day of settlement and the purchaser will be liable from then until the end of the rating period, in this case, the 30 June. They are adjusted as if the rates are paid in full regardless of whether they are in fact paid or not. Any outstanding rates are paid from the sale proceeds (being the vendor’s money).

Council rates may be paid by instalments but are an annual levy, and hence it is normal practice to adjust the rates for the next full year not according to what instalment may be due next.

The rates are a charge on the land and any outstanding rates become the liability of the purchaser, so it is essential that they are paid up to date at settlement. One of the inquiry certificates the purchaser’s conveyancer will obtain is from council and sets out the amount of the annual rates, what payments have been made and what is outstanding.

Water Rates

In some country areas, the water rates are paid to council and may be incorporated within the council rates. In other areas where a separate water authority supplies the water and or sewer service an adjustment of these rates must also be made at settlement.

Water rates are usually quarterly (in some areas, 4 monthly) and the adjustment made will only be for the current period. The same principles apply to water rates as they do for council rates.

A water usage charge may have to be paid by the vendor. To assess whether a charge is payable or not can be done in one of two ways.

1. A meter reading can be organised, this will cost whoever organises it whatever the authority charges for a meter reading.
2. An estimate can be done, by using the last quarter’s water usage charge.

It is usual to use the estimate system to calculate the usage charge because quite often the cost of having the meter read is more than the charge itself. The seller will make an allowance to the purchaser for the usage charge so that when the actual bill for water usage is received the whole bill becomes the purchaser’s responsibility.

Land Tax

Land Tax is not payable for a property occupied as a principal place of residence by the owner(s). If, however Land Tax is payable (and it can be many thousands of dollars) then it may or may not be adjusted with the purchaser – depending on how it is dealt with in the contract. This should be discussed with the conveyancer with a view to inserting a specific condition in the contract to provide for such adjustment.

Irrespective, a seller is legally obligated to provide to the buyer a certificate from Revenue NSW to the effect that Land Tax is either payable or not for the property.

Strata Levies – Unit, Townhouse, Villa

The quarterly strata levy will need to be adjusted. The levy is adjusted in the same manner as council rates except that they are adjusted on the quarterly not annual rate. The quarter for strata levies may begin at any time. They are not necessarily the quarters of the calendar year. Because the levies commenced on a date determined at the first annual general meeting held by the Owners Corporation, the quarterly levies can commence at any date but for convenience, it is usually but not necessarily from the beginning of a month.

There may also be special levies to take into consideration. A special levy is struck when and if there are not enough funds held by the owners corporation to cover either the normal running expenses or a special job has to be carried out, and there are not enough funds held to cover the cost of the job.

Normally a special levy struck before the date of the contract has to be paid in full by the seller. \Sometimes the special levy may be paid by instalments. Unless otherwise agreed in the contract, all instalments must be paid by the seller. If however, a special levy is struck after the date of the contract, then that levy is adjusted between the seller and buyer.

Retention for Capital Gains Tax

The Federal Government now requires that all persons selling a property in excess of $750,000.00 (no minimum selling price from 1st January 2025) obtain from the Australian Taxation Office a certificate stating that a purchaser is not obliged to retain any of the purchase moneys to remit to the ATO.

If such a certificate is not provided to a purchaser then the purchaser must then retain an amount of 12.5% (increasing to 15% from 1st January 2025) and remit this to the ATO.

If no such certificate is provided to the purchaser – and the purchaser neglects to retain those funds – then the purchaser is then liable for the full amount which should have been retained.

Settlement

If the property is sold with vacant possession, then the seller needs to make arrangements to vacate the premises prior to or by the time of settlement.

The property should be left in a clean and tidy condition, and all possessions moved from the property.

It is not always easy to arrange for removalists etc. to have the fully vacated before the settlement time but the seller should be advised that the buyer does not have to settle if the seller has not left the property vacant by the settlement time. If need be, and the seller is able, the seller might consider moving out the day before settlement. But, remember that the seller is still liable for insurance and the safety of the premises until such time as settlement takes place.

If the seller is selling and buying simultaneously, the seller may have to arrange to have left the sale property and to be enroute to the property the seller is buying while the settlement takes place. If this is the case, the seller should be available in case something goes wrong, or there is a hold up in the settlement.

Sold with an Existing Tenant

If there is a tenant in the property who is staying after settlement, an adjustment of the rents will be made at settlement.

If the rent is paid in advance, then the seller will make an allowance in the settlement figures to credit the new owner with that part of the rent that applies after the settlement date. If the rents are in arrears no adjustment in the seller’s favour is made as the new owner is not expected to take over a debt that is owed to the seller.

Quite often, the managing agent may be holding rent in trust as they may collect rent weekly but account to the owner monthly. If this is the case, the adjustment of rent will be made by the managing agent. The conveyancer will determine how and what adjustments are to be made.

After Settlement

At settlement the conveyancer will account to the seller for any of the proceeds of sale that are to be paid to the seller after all adjustments are made and any loan repaid. These funds are remitted immediately by EFT.

The change of ownership details will be notified to Council, Water authority and Valuer General when documents are lodged for registration at the Land Titles Office immediately after settlement. Sometimes the seller will continue to receive either council or water assessments for the property. The seller should redirect them back to its conveyancer to deal with. The seller should not throw them away as the new owner may then have interest to pay on late payments of rates they never received.

WRITTEN by Paul Denny

Paul denny has over 45 years conveyancing experience and has assisted over 30,000 clients with their property transactions.

Contact us today on 02 48 111 554 or email info@bowralconveyancing.com.au to discuss how we can assist you with your conveyancing needs