Buyers & Back-Up Contracts
Are you a frustrated buyer, arriving at open homes only to learn the property is already under contract?
Here's the thing: Even after obtaining a contract of sale we can"t advertise it as "under contract" until that contract is unconditional, and a good agent continues to market a property until this is so. Because anything can happen...
If we obtain a contract subject of building and pest, or subject to finance or subject to the sale of the buyer's home, or whatever other clauses have been added - we usually have 2-3 weeks and in some cases months until notification that the contract is unconditional.
Having seen a few contracts fall over in my brief time in real estate, my recommendations to buyers are:
- Get your finance approval in place BEFORE you commence your search. Know what you can borrow, know you are approved to the level of price you are searching. Things can still go pear shaped, but to inspect properties without having written notification that you can borrow to start is simply wasting everybody"s time.
- Don"t wait for an open home. Many sellers are now opting to NOT have open homes for a whole host of reasons. Call to arrange a private inspection. Do not hesitate to do so.
- If you want the property and it is already under contract, sign a back-up contract.
In the event the first contract is terminated - for whatever reason - the second contract kicks in and the second buyer gets the the property.
Most buyers say they will wait and see what happens and tell me to let them know if it falls over. But it will be too late. Because someone else will have put a back-up contract in and you won't even know.
In the situation where we have more buyers than sellers as we do today, this is absolutely the way to go to secure something in this rising market.
While you cannot be gazumped in Queensland once you have a contract, you do still have to beware once the agent has obtained a back-up contract, because this gives the seller options, and removes yours.
Let's say the back-up contract is for the same amount or a higher sum than the first, with better terms.
in the event you as first buyer want to extend any clause because you need more time for finance approval, for example, the seller likely won't grant it. They are under no obligation to do so. You signed a contract with a 14 day finance clause. That you need more time is not the seller's problem.
In this case, you would be given the option to go unconditional on the existing contract immediately, terminate the contract under the clause in which you have an issue (finance), or have the seller terminate the contract in favour of the back-up.
Other triggers of a back-up contract can be loosely completed paperwork on the first contract, or the first buyer not providing the seller with clause satisfaction (building & pest, finance) notifications on time.
Under such circumstances your contract can be lawfully terminated by the seller. And the second buyer gets the property.
Never get complacent with banks or building inspections, and the time-frame required for notification of satisfaction of each clause.
For this reason I chase for notifications throughout the due diligence process, never waiting for the end date.
If you have finance approval 3 days from the deadline, let the agent and your solicitor know so notification can be passed to seller. Likewise with all other clauses.
I have seen back-up contracts triggered due to slothful banks, complacent buyers, missed inspections and even incorrect due date advice from the buyer's solicitor.
PS There is a reason I recommend the inspectors and conveyancers I do... and not others.