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Dear vendor, don’t book the holiday until the money’s in the bank

4 Jul 14

Real estate agents should always be aware of potential issues associated with “unconditional” contracts of sale. It is common practice to place a “SOLD” sticker on the street sign when a contract goes unconditional, however there are a number of factors that can cause problems ahead of settlement or even prevent the settlement from proceeding. Today we discuss the reversal, by the lending institution, of finance approval.

In a typical “Subject to Finance” real estate transaction, our industry normally accepts a letter for the approval of finance from the lender to satisfy the contract’s Finance Special Condition. It should be noted that many of these finance approval letters are not unconditional and contain a “let out” clause where the lender reserves the right to reverse their finance approval under certain circumstances. If the lender does withdraw the previously approved finance, then the agent is likely to get caught up in a tense situation where the Purchaser wants to terminate the contract and the Vendor may take the view that the contract should proceed. When disputes of this nature occur, Agents should always advise the parties to seek their own independent legal advice.

Continuing on the same theme, if Finance on a contract is declined then the Purchaser is likely to expect a refund of their deposit and a termination of the contract. Agents will occasionally have to deal with Vendors who are unwilling to release the deposit or terminate the agreement. In these cases, both parties should be advised by the Agent to seek independent legal advice and the Agent should not, under any circumstance, determine who is entitled to the money or release the deposit to the Purchaser without the Vendor’s written approval. If the matter goes to Court, then the Agent must follow the Court’s written direction on how the deposit money should be dealt with (refer Land Agents Act 1994).

In the above scenarios it is likely that conveyancers are already acting for both sides. This being the case, it is REISA’s best practice that all notices relating to the contract must be prepared and served by the respective conveyancers and not by the Agent.

Agents are reminded that REISA offers a Professional Development session titled “Residential Contract to Settlement” where best practices relating to this area of activity are explored and discussed.

For further information, please contact George Ganter on 8366 4300

 

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