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Buying by Private Treaty
The most common way to buy a house or apartment in NSW is by private treaty. The term “Private Treaty” simply means a private sale agreement between two parties. Usually, the seller advertises the property with the amount they’d like to achieve for it, and they negotiate in private with prospective buyers.
The contract for sale becomes activated once contracts are exchanged between seller and buyer.
Advantages of Buying by Private Treaty
- Unlike Auction sales, there is usually a cooling off period. This means that you’re able to cancel the sale and back out if you have second thoughts regarding the purchase. This is also very useful if you discover that there’s an unforeseen problem with the property that wasn’t detected during conveyancing.
- You’re less likely to be adversely influenced by the auction environment and make offers beyond what you can afford, or what you rationally value the property at. Auctions are notorious for encouraging people to bid beyond their top price – the frantic nature of the auction process, coupled with the direct competition with other bidders can throw even the most calm and calculated bidder off. It’s easier to stay composed and make sensible decisions when considering buying by private treaty.
Disadvantages of Buying by Private Treaty
- Just because you’re not at auction doesn’t mean you’re getting the best price! Vendors can (and will) list properties at sale prices higher than the minimum they’d be willing to accept. Getting the property at the lowest possible price takes skill in negotiation and a good dose of lucky timing. Also, sometimes a property is just overpriced – you won’t be able to get a good deal no matter how well you negotiate. The more research you’ve done into the market, the more you’ll be able to spot overpriced and undervalued properties.
- The deal is not done until contracts are exchanged, even if your offer is accepted. In NSW it’s perfectly legal for Vendors to sell the property to another party without giving you the chance to increase your offer. This is known as “gazumping”, and can end up being real waste of your time and effort. If you can go through the necessary proceedings as quickly as possible once you’ve accepted an offer, then you minimise the risk of losing the deal. This is where good solicitors are a real asset – they’ll be able to quickly but thoroughly review the contract and help you get the property you’re after.
The Deposit on Exchange of Contract is usually 10% of the Purchase Price. However, this DOES NOT MEAN the deposit must be 10%! There is no legal requirement for 10% specifically, even though it is very common. Deposits are generally negotiated between seller and buyer, or more commonly, between their professional representatives.
The deposit may be 5%, or any amount agreed upon with the Vendor – even $1 – to make the exchange contract binding at law. However, the Vendor usually requires the proposed Purchaser to provide a “reasonable deposit” to show their bona fides or good faith.