Buying a new build "House and Land" package has become a popular option for many first home buyers. It can involve a deposit lower than 20% of purchase price (depending on finance), and means you have the time it takes to build to keep saving towards the purchase of your new home.
However, there are many things to consider when buying a house and land package (or a vacant section with a separate building contract).
In an effort to give first home buyers some guidance about what to think about, we at McVeagh Fleming Lawyers have summarised some of the key areas to consider.
1. Get a Copy of the Sale and Purchase Agreement
Obtain a copy of the Agreement for Sale and Purchase including the Building Contract so that your solicitor may review it and advise you before you sign it. Bear in mind that the vendor's solicitor has prepared these contracts in the best interests of their client – so they may (or may not!) be fair and reasonable to you as purchaser. In recent times many vendors have included price increase clauses, allowing them to put the price up at the last minute … to the immense dissatisfaction of buyers!
2. Do Your Homework on Lending Options
Don't automatically use the vendor's suggested lender - shop around to get the best deal either directly or through a mortgage broker – the banks are still offering generous cash incentives for new borrowing, you might as well take advantage! Interest rates can also vary between banks at different times, you could save thousands of dollars each year with a little time and effort. Talk to your lawyer too, they often know the best rates and who's offering them.
You will also need to inform your chosen lender that it is a house and land package and therefore settlement may not be for some time (usually once title/CCC has issued) – to ensure that this will not cause any last minute financing issues.
3. Confirm a Building Timeline
Find out when the builder can start the building process and the timeframe for it to be completed (try and get this included in the contract so you can plan to give notice to a landlord, organise a moving company etc).
Get a written contract with your builder, including details of guarantees, payment schedules and completion dates. They will probably provide a "standard" contract, but you can ask for changes or even provide your own. Whichever you choose, make sure it covers everyone’s needs and involve your lawyer.
4. Check Warranties and Guarantees
Find out what warranties will be able to be transferred to you as purchaser on settlement and also check whether a building guarantee will be transferred to you on settlement – often, newly erected dwellings carry a 10 year Master Build Guarantee. Ask for a copy of the Guarantee so you can review it and ensure you are aware of how it works/what it covers. Your solicitor will also be able to advise you as to what is expected/normal.
5. Confirm Materials, Colour Schemes and Appliances
Usually a building contract will contain a specifications schedule setting out what building materials will be used, what brands and types of appliances will be installed at the property, and what the standard colour scheme will be (unless you agree to change it). If you want to change any of these features you can usually negotiate it during the consultation stage – if you leave it until later, there will usually be a variation fee and additional costs you won't be able to negotiate.
6. Investigate the Builder's Reputation
Check out the builder’s reputation (ask for references from prior customers, do a google search, ask your lawyer about them) and also ask for confirmation in terms of public liability insurance held by the builder for the building works being undertaken.
The above is not legal advice but hopefully you will find it useful in deciding how to proceed – the best advice we can give you is to engage a good lawyer early on! Ask your lawyer for examples of other jobs they are working on to check they have the knowledge and experience to best advise you. If you get it right from the start, you will save time, stress and money later on.
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© McVeagh Fleming 2017
This article is published for general information purposes only. Legal content in this article is necessarily of a general nature and should not be relied upon as legal advice. If you require specific legal advice in respect of any legal issue, you should always engage a lawyer to provide that advice.