Sometimes properties are advertised for sale before they have been built. You may be able to inspect a demonstration property or show suite to get a sense of the final product.
Buying such property is known as 'buying off the plan'. This has different risks and considerations compared with other property purchases. Also, how an 'off the plan' property is sold can vary between different developments. In some instances, the developer may be able to vary the design of the property without the buyer's approval, or buyers may need to pay more if the cost of construction varies. Delays in construction (eg. due to poor weather or further planning approval required) may also delay when the property is completed.
Potential buyers must review the contract carefully to understand exactly what they are buying. When buying off the plan, the date for completing the contract is usually not until the building is finished. Often the buyer pays a deposit to secure the property with the balance payable upon settlement.
Carefully check the conditions of the contract, obtaining legal advice on the benefits or restrictions provided by the terms of the contract. Buyers need to understand what they become liable for if they withdraw from the contract. Questions that buyers may want to ask include:
IMPORTANT: Always read your contract and get advice from a lawyer or licensed conveyancer.
The conditions under which properties are offered for sale can vary by development. Often properties are sold either to the highest bidder or at a fixed price. The method of sale for any particular property may also change over time.
Developers sometimes contract several real estate agencies to sell each property. Also, agents may be marketing and selling properties at the same time as the developer’s own marketing and sales activities are happening. Each agent may offer the property on slightly different terms and conditions.
An expression of interest payment will not secure the property. It signals your ‘interest’ only. When you pay an expression of interest, the agent must give a receipt and confirm in writing that:
Agents can take several deposits for the same property from other prospective buyers. Agents must tell you if other offers are later made on the property, or if it is sold to someone else.
If several agents are selling the same property, it may take some time for the specific agent you dealt with to become aware that the property has been sold to someone else.
Agents must not mislead or deceive any parties during a negotiation or transaction. When selling properties off the plan, sales agents are not allowed to:
Where there is high demand for housing in popular areas of NSW, it may be easy for developers to market such properties months before building work is complete. Consider the following before buying off the plan:
The NSW Office of State Revenue provides certain concessions to people buying property off the plan. These include stamp duty exemption and grants. Check whether or not you are eligible at the Office of State Revenue website or call 1300 130 624.
Builders carrying out residential building work (including the construction of strata units) valued over $20,000 must take out insurance under the Home Building Compensation Fund (previously called Home Warranty Insurance). However, there is an exception to this requirement for new multi-storey buildings constructed after 31 December 2003. A multi-storey building is a building of more than three storeys (not including the car park) and containing two or more dwellings. Exemptions also apply to certain types of retirement villages.
All other residential building work that is not exempt must be covered by insurance under the Home Building Compensation Fund. When builders take out insurance under the fund, they are issued with a certificate of insurance (see examples of a certificate of insurance and a certificate of eligibility on the Home Building Compensation Fund page for Tradespeople on the Fair Trading website).
Attaching the insurance certificate to the contract of sale
A copy of the insurance certificate must be attached to the contract of sale. The certificate shows that the necessary insurance has been taken out by the builder.
Insurance is required to protect the buyer against:
Check that your certificate is valid by using the Home Building Compensation Fund certificates register online.
Exemptions for attaching the insurance certificate to the contract of sale
Sometimes builders only take out insurance shortly before building commences. In that case, the builder does not need to attach the insurance certificate to the contract if certain requirements are met. These requirements are that the contract informs the buyer that:
For more information on making a claim under the Home Building Compensation Fund, visit the Home Building Compensation Fund claims page on the Fair Trading website.
The legal right to cancel the contract under the Home Building Act 1989 is limited to situations without insurance under the Home Building Compensation Fund at the arranged time. In this circumstance, the prospective buyer can only cancel before the contract has been completed (settlement).
A contract could be completed before the building work is finished and before any insurance is taken out. Where a contract of sale is completed and settled, the legal right to cancel the contract no longer applies, even if the builder has broken the law and not provided the necessary insurance.
When you buy off the plan, you are paying for a property where the end product may not only differ from your expectations, but be worth less than what you originally paid by the time it is finished.
If you are thinking of entering into a contract to buy premises not yet built, exercise caution and gain appropriate legal and other advice before signing any documents or paying any money.
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