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National Library of Australia Cataloguing-in-Publication entry: (e-book)

Title: Buying and selling residential property in


NSW/CCH conveyancing law editors.

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Subjects: House buying--New South Wales.
House selling--New South Wales.
Residential real estate--New South Wales.
Other CCH Australia Limited, issuing body.
Authors/Contributors:
Dewey Number: 643.1209944

ISBN: 978-1-925159-50-9



© 2014 CCH Australia Limited
Published by CCH Australia Limited
First published 2014
All rights reserved. No part of this work covered by copyright may be
reproduced or copied in any form or by any means (graphic, electronic
or mechanical, including photocopying, recording, recording taping, or
information retrieval systems) without the written permission of the
publisher.
Preface
Buying and selling residential property in NSW is a useful guide for
practitioners, conveyancers and real estate agents acting for either a
purchaser or a vendor in respect of the sale of residential property in
NSW. A particular emphasis is placed on conducting a transaction
using the standard contract for sale.
This e-book extracts and refines the most essential and popular parts
of CCH’s market-leading service, NSW Conveyancing Law and
Practice that discusses the sale of residential property. It contains
comprehensive commentary and practical explanations complete with
checklists to walk the reader through the steps of a residential
conveyancing transaction. This is complemented by tips and
suggestions.
For ease of reference, the structure of the book follows the
chronological time line of the conveyancing process for a torrens title
sale. Further, as strata living has become increasing common, chapter
4 has been devoted entirely to the particular nuances of conducting a

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transaction involving the sale of a property in a strata scheme.
While practitioners, property consultants and real estate agents
operating in the area of residential sales will find this e-book an
invaluable guide, it is also suitable for anyone curious about the
conveyancing process in NSW.

Wolters Kluwer, CCH


Acknowledgments
CCH Australia Limited wishes to thank the following who contributed to
and supported this publication:
Managing Director: Bas Kniphorst
Editorial Director: Scott Abrahams
Publisher: Adriana Giometti
Editor: Clare Kent
Project Coordinator: Fiona Harmsworth
Editorial Administration Assistant: Mele Aloua
Senior Marketing Manager: Lauren Ma
Cover Designer: Mathias Johansson

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CHAPTER 1 — PRELIMINARIES
TO SALE
Real estate agents
¶1-100 The role of a real estate agent
The role of the real estate agent is to locate potential purchasers. An
agent’s role also involves negotiating the main terms of the sale,
without binding the parties, to reach an agreement in principle for the
sale and then to leave the finalising of the sale contract to the parties’
solicitors/conveyancers.
The agent will usually advertise the property in local papers, on
property websites (such as on www.domain.com.au and
www.realestate.com.au), in the windows of their own offices and in
letterbox advertising. The estate agent is usually the purchaser’s first
point of contact when looking for a property and will be the first point of
call for any inquiries a prospective purchaser may have.
There are several advantages of using an agent as follows:
• An agent gives an air of authenticity to the sale.

• The agent will be able to advise on the market value of the


property as well as the best marketing and selling strategies (see
¶1-200) as the agent should be an expert in the area where the
property is located.

• The agent will do the negotiations regarding the sale price.

• The agent will conduct the property inspections.

Selecting an agent
Agent’s fees are negotiable. It may therefore be prudent for a vendor
to interview a number of agents before selecting one particular agent.
All real estate agents in NSW must be licensed. A licence check can
be conducted online or by calling the NSW Department of Fair Trading

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on 13 32 20. Agents can also elect to be a member of the Real Estate
Institute of New South Wales. Membership requires the agent to abide
by a code of practice and the institute encourages members to follow
best practices and to be fair and responsible in their agency practices.
The institute will also investigate any disputes. Members can be
identified on the institute’s website.

¶1-101 Types of agency agreements


NSW requires the appointment of a real estate agent to be made in
writing through the making of an agency agreement. Without the
agreement in place, the agent will not be entitled to a commission on
the sale or for reimbursement of their expenses. All the agent’s costs
and expenses must be detailed in the agency agreement.
An agency agreement may be one of the following types:
1. Exclusive agency agreement — where the agent has exclusive
rights to sell the property. This is the most common type of
agency agreement used to sell residential property. Even if the
property is sold by the vendor or by another agent during the term
of the agency agreement, the agent with an exclusive agency
agreement may still be entitled to the commission.

2. Sole agency agreement — similar to an exclusive agency


agreement where one agent is engaged to sell the property,
however, no commission is payable where the vendor finds the
purchaser themselves.

3. Open agency agreement — where the property is listed with a


number of agents. The agent who introduces the purchaser
receives the commission.

4. Multiple listing agreement — where the agent is part of a


network of agents working together. It is applicable to both
auctions and private treaties. The commission is paid to the agent
the vendor enters into the agreement with.

5. Auction agency agreement — used when the property is listed


for auction and gives the agent exclusive rights.

Prior to entering into the agency agreement, the agent must:

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• make a physical inspection of the property

• deliver to the vendor a sales inspection report, and

• provide the vendor with a copy of the consumer guide titled Agency
agreements for the sale of residential property which explains the
rights and responsibilities under the agency agreement.

Cooling-off period
The vendor is entitled to a cooling-off period during which the vendor
can decide not to use the agent. The cooling-off period commences
when the agency agreement is signed by the vendor and ends at 5 pm
on the next day that is a business day or a Saturday. It is possible for
the vendor to waive their right to a cooling-off period.

¶1-102 Effective cause of sale


The vast majority of disputes between estate agents and vendors
generally fall into one of three categories:
• When an estate agent has introduced a purchaser who
subsequently entered into direct negotiations with the vendor and
ultimately purchased the property.

• When the ultimate purchaser was introduced to the property by


one agent, but another agent concluded the negotiations and
appeared as the selling agent on the contract.

• When the vendor has also advertised the property privately and
sold to a purchaser who was introduced to the property earlier by
an estate agent.

There are infinite varieties of these situations and the ultimate result
depends on the particular facts and the terms of the agency
agreement. Usually the main question which is required to be
determined is whether the estate agent (or which agent) was the
effective (or efficient) cause of the sale.
When the vendor sells privately, after the property has been listed with
some estate agents, or when there is any doubt regarding whether an
agent (or which agent) introduced the purchaser to the property, it is
prudent to cover this by a warranty in the contract. That throws the
onus on the purchaser to guarantee the truth of the statement

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concerning introduction. The following is a suitable special condition:

“The purchaser warrants that he/she was introduced to the


property through an advertisement appearing on [insert
details of website, etc, where property was listed] and was
not introduced to it by or through any real estate agent. If an
estate agent successfully recovers commission from the
vendor, by establishing that he introduced the purchaser to
the property, the purchaser will be liable to pay to the vendor
the amount of the commission payable by the vendor and all
legal cost incurred by the vendor (including legal costs
ordered to be paid by the vendor) when contesting the claim
for commission.”

¶1-103 Estate agent’s authority


A real estate agent may exchange contracts (see ¶3-100) except
where the agent is informed or becomes aware that a solicitor is acting
for either party and the agent is not expressly authorised to participate
in the exchange by the party or their solicitor.
A real estate agent may also “fill up” a proposed contract by inserting
the following details in the contract:
• the purchaser’s details

• the purchaser’s solicitor’s/conveyancer’s details

• the purchase price

• the date of the contract,

• the description of any furnishings or chattels to be


included/excluded in the sale.

It is suggested, however, that the parties and their representatives


should resist the estate agent exercising these functions, except in a
limited range of transactions.

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Further, considerable care should be taken by vendors to limit the
representations which agents may make to prospective purchasers
regarding the property or the transaction and to ensure that any
statements made are authorised by the vendor and are factually
correct. That particularly applies to material in brochures, or submitted
in correspondence. Such representations have been the subject of
wide ranging litigation, resulting in some transactions being rendered
void, and in liability for damages by the vendor or by the agent or both.

Methods of sale
¶1-200 Introduction
The two most common ways of selling residential property is by
auction or by private sale. The pros and cons of each option are
explained at ¶1-204. A less popular means of sale is by tender
(discussed at ¶1-203).
Regardless of the method of sale, a draft sale contract must be
prepared by the vendor’s solicitor and made available to prospective
purchasers for their inspection at the time the property is being
advertised for sale.

¶1-201 Sale by private treaty


Where a property is to be sold by private treaty, the property may be
advertised with or without indicating a firm price. It is quite common for
properties to be listed with a price guide range.
Usually, an interested purchaser will make an offer that is below the
advertised asking price and the parties negotiate until they reach a
mutually agreeable final price.
Other features of a sale by private treaty include:
• The draft sale contract must be prepared and made available to
prospective purchasers prior to the property being
advertised/marketed.

• The acceptance of the purchaser’s offer does not mean that the
property is off the market. The vendor may still accept an offer
from another party prior to the exchange of contracts (see ¶3-

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100).

• The purchaser usually also has a five day cooling-off period when
the sale is by private treaty (see ¶3-200).

• A property may be sold by private treaty with or without an agent.

¶1-202 Sale by auction


Upon deciding that an auction is the most appropriate way to sell their
property, the vendor will usually appoint an auctioneer as the exclusive
agent. In the weeks prior to the auction, the property is heavily
advertised and is offered for inspection. Advertising is commonly via
websites such as www.domain.com.au, or www.realestate.com.au,
and to a lesser extent, through newspapers circulating in the locality in
which the property is situated. The property may be advertised with a
price guide (eg “offers over $X”). It is common practice for the vendor’s
agent to underquote the price guide in order to attract purchasers to
the auction.
The draft sale contract must be prepared and made available to
prospective purchasers prior to the property being
advertised/marketed.
Reserve price
The vendor should make the sale subject to a “reserve price” being the
lowest price at which the property may be sold. Before the auction
commences, the vendor must inform the auctioneer in writing of the
reserve price. During the auction, the vendor can authorise a reduction
of the reserve price however.
The vendor may withdraw the property from sale at the auction.
Disappointed purchasers usually are not able to claim damages for the
expense of making pre-contract inquiries of for attending at the
auction.
The bidding process
In a sale by auction, prospective purchasers make successive and
increasing offers to purchase the property. Each bid that is made for a
property constitutes an offer to purchase it, and the offer is accepted
when the property is “knocked down” to the highest bidder. When the
property is knocked down, there is an oral contract which becomes
enforceable when the contract for sale is signed at the auction.

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Prospective purchasers need to be recorded in the Bidders Record,
with an identifying number that should be displayed by each bidder at
the auction.
If the start of the bidding is slow to commence or the vendor wishes to
force up the bidding once it has commenced, the auctioneer may
make a bid on behalf of the vendor but the auctioneer is only entitled
to make one bid during the course of the auction and only if
appropriate notice is first given to the persons attending the auction.
If the highest bid does not reach the reserve price, the property will be
“passed in”. Interested bidders may be encouraged to negotiate with
the vendor after the auction if the property is passed in.
Signing the contract
An auctioneer is required to collect the deposit and to have a binding
contract executed immediately after the conclusion of the auction. No
cooling-off period applies (¶3-200) where the sale is by auction. If the
purchaser is unavailable or is unwilling to sign the contract, the
auctioneer has authority to sign the contract for the purchaser.
The following features of an auction sale distinguish it from a sale by
private treaty:
• Usually, the auctioneer is appointed as the exclusive agent to sell
the property, the duration of the agency being from the date of the
agency agreement to the proposed date of the auction and for
some additional period after that date.

• Auctioneers require the vendor to pay for pre-auction and


advertising expenses, whether or not the property is sold at the
auction.

• The obligation of an estate agent, in order to earn his or her


commission, is to find a ready, willing and able purchaser. The
estate agent is not obliged to participate in concluding a legally
binding contract between the vendor and the purchaser. An
auctioneer, however, is required to collect the deposit and to have
a binding contract concluded and executed immediately after the
conclusion of the bidding.

Purchaser’s solicitor duty when sale is by auction


The purchaser’s solicitor frequently learns that his or her client is
purchasing a property only after the auction sale, when the executed

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contract has been forwarded to the client. The solicitor must then
ensure that searches and inquiries are made promptly and that
requisitions or objections on title are made within time. The
purchaser’s solicitor frequently has no opportunity for pre-contract
inquiries and the range of inquiries may be confined by the terms of
the contract.
When the purchaser seeks his or her solicitor’s advice prior to an
auction, the solicitor is able (at least) to inspect the auction contract
and to advise the purchaser whether it covers adequately the matters
listed at (¶2-503). The purchaser’s solicitor should also alert his or her
client to any unusual conditions or dangers that appear from the
contract. The purchaser must then make an informed decision on how
much expense should be incurred on title and other inquiries, having
regard to the uncertainty of whether the property will be sold at the
auction or of whether he or she will be the successful purchaser.

¶1-203 Sale by tender


A less common means of selling residential property is via a sale by
tender. This method of sale is often described as a “blind auction”
whereby prospective purchasers are invited to put forward an offer in
secret to the vendor by a certain date without being aware of what
offers are being made by other bidders. The prospective purchaser
can make their offer conditional if they wish but the vendor may take
this into account when deciding which offer (if any) to accept. In theory
this encourages purchasers to put forward their best offer.
The vendor may then choose the offer that is most acceptable to them
at a pre-determined time. However, there is no obligation for the
vendor to accept any of the offers made and the vendor may try and
negotiate with a purchaser who has submitted a bid. Alternatively, the
vendor may elect to proceed to use another means of sale.
A sale by tender may be an effective means of selling a unique
property where the market value is not easily determined as there are
no comparable properties on the market. It can also be an effective
means of achieving a high sale price where the property is likely to be
a purchaser’s “dream property” for which they are prepared to pay a
premium.

¶1-204 Pros and cons of each sale method

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The method of sale selected by a vendor will depend on a number of
factors including:
• the state of the market

• the desirability or uniqueness of the property

• how quickly the property needs to be sold,

• the vendor’s preference and appetite for risk.

The following is a summary of the main pros and cons of each method:

Sale by private treaty


Advantages:
• Purchasers are usually most comfortable with this method of
sale and therefore the property might attract more interest
than an auction or sale by tender.

• A vendor has time to consider each offer made.

• The property can remain on the market indefinitely until the


vendor receives an acceptable offer.

Disadvantages:
• If the sale is protracted, prospective purchasers may be wary
of a property that has languished on the market for a lengthy
period.

• A sale by private treaty is usually subject to a cooling-off


period during which time the purchaser may change their
mind about the purchase.

Sale by auction
Advantages:

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• An exclusive agent is likely to concentrate more on the sale of
the property than one (or several) agents, none of whom
have an exclusive agency.

• An auction, in a buoyant economic period, is likely to achieve


a high selling price, which may be beyond what is considered
to be the market value. This is especially true where the
property is highly desirable with prospective purchasers
getting into a bidding war over the property.

• There is no cooling-off period when the sale is by auction (see


¶3-200).

• An auction may be the preferred method of sale when the


market value of the property is difficult to ascertain (eg where
the property is unique).

• Provided the property sells at auction, the vendor has a


definitive date to look forward to in which the transaction will
be completed.

• If the sale is by an executor or a mortgagee, a sale by auction


is the best way to demonstrate that the best price was
obtained for the property.

Disadvantages:
• An auction tends to be more expensive than a sale by private
treaty.

• The vendor is tied to a single agent, whereas several estate


agents or multiple listing may more readily produce a willing
purchaser.

• A property not sold at the auction tends to have reduced


appeal.

• An auction may lead to the vendor being forced to make a


quick decision at the auction as to whether to accept the
highest bid which is below the reserve price.

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