Unconditional Contract of Sale: What You Need to Know
The Australian property market, especially in booming areas, may be fiercely competitive. When inventory is low and demand is high, buyers may be more prepared to make concessions to achieve purchasing their dream property.
It can be tempting for some buyers – particularly some buyers who have been trying for a long time to get their hands on a property – to get emotional about a particular property.
At times like these, making an unconditional offer is one option that purchasers may consider to simply secure the property before the opportunity is taken away from them.
Vendors – or sellers – love an unconditional contract.
Because an unconditional contract, as its name implies, has no conditional clauses.
This means that, aside from a buyer’s legal rights, the buyer must settle the property regardless of whether their financing is approved or not, and whether the physical condition of the property is acceptable or not, whereas a seller must proceed with the offer he or she chose to accept.
A contract like this must be followed exactly as both parties agreed and, in most cases, cannot be dissolved halfway through (unless exceptional circumstances arise).
Unconditional contracts of sale are commonly seen at auctions, where bidders are required to sign such a contract in order to successfully secure the home they have won, regardless of its condition.
The risks of engaging in such contracts are substantial, especially when the seller requests a big deposit.
As conveyancers, we see customers grapple with some of the challenges that might arise from these types of contracts.
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With that in mind, we’ve outlined a few of the potential pitfalls that come with an unconditional contract.
Overvaluation and undervaluation
A buyer’s rush to secure home may cause him or her to overvalue the property’s market value, prompting them to spend far more than they should.
The buyer must conduct thorough research before making an unconditional offer on a property. This can be accomplished by hiring a licenced valuer or a buyer advocate, as their findings must be based on quantifiable facts about the property.
The Lack of a Finance Clause
This is a significant factor to consider, particularly for buyers who will need to borrow money to complete the transaction.
There is always the possibility that a lender will refuse to approve a loan, but since the transaction is not conditional on the buyer’s ability to pay, he or she may be forced to forfeit their deposit.
As a result, a buyer considering making an unconditional offer should be confident that he or she will be able to pay for the home, whether through personal resources or strong confidence in the ability to acquire a loan.
Lack of assurance about the property’s status
This is a major worry, especially if the buyer signs an unconditional agreement without seeing the property in person. The buyer must complete the acquisition even if the property has deteriorated in some way, such as pest infestations.
To avoid this, a buyer should do comprehensive due diligence research of the property prior to making an offer to guarantee that it is exactly as the vendor has described it (fair wear and tear excepted).
Can you get out of an unconditional contract?
The seller’s signature seals an unconditional contract, therefore if a buyer has already made an unconditional offer and wants to back out, the only way to do so is if the vendor hasn’t signed a document yet by withdrawing an offer or by cooling off if the buyer is still inside the cooling-off period (if applicable).
In general, there are numerous dangers associated with unconditional contracts.
A pre-purchase contract review is a perfect way to learn more about the property you are looking to purchase and find out what is or is not possible with the property should you be successful.
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Contact us today to arrange a pre-contract review. At Tick Box Conveyancing, we specialise in providing our clients with expert pre-purchase contract reviews producing reports with the right advice.