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• 1. Do you like any of the suburbs you can afford?
• 2. Won’t you be paying too much for the privilege of owning a home?

Let me explain about the second question - if the houses are overpriced at the moment, perhaps you could save up for a couple of years and then buy when the prices will stabilize. Many people believe that real estate market in Australia is racing up all the time, when in fact it had several slowdowns and now is heading for another one.

Stage four: what kind of house should I buy?

Start to think in more details about the house you’ll buy - how many bedrooms you need, how many bathrooms, should it be a unit, a townhouse or a regular house? It’s a good idea to choose such home that will cover your needs for a long term, because buying and selling take time and cost money - and moving home is a nuisance.

Having figured out what kind of home you need (in terms of bedrooms/bathrooms), you can start narrowing down the list of the candidate suburbs. Visit one of the big realestate sites (domain.com.au or realestate.com.au) and check what is the price range for your specific house type there. If you find that its beyond your budget - that suburb is off your list. Too confusing?

Example:

Let’s say you need a 4 bedroom 2 bathroom home and your budget is 350,000$. Do a search in Suburb A from your list for all the recent listings of 4 bedroom/2 bathroom homes. Let’s say the asking prices start from 370K - cross out that suburb because you clearly can’t afford to live there. Then do the same kind of search in Suburb B from your list. If the asking prices are from 320K to 400K, you have a decent chance of finding an affordable home there - so Suburb B stays on your list.

Stage five: what amenities do I need?

Now you will be comparing the suburbs on your list by the amenities they offer:

• How close are they to the CBD (Central Business District)?
• What kind of transportation is available (train / tram / bus)?
• What are the closest hospitals, schools?
• How about shopping centers and entertainment (restaurants, cinemas, fitness clubs, aquatic centers, etc)?
• What other points of interest are around? This one depends on your hobbies.

The easiest way is to give a suburb one point for each type of service that you need and it has. Keep the ones that scored the highest and cross out the rest.

At this point I have to say that you can’t have too many suburbs on your list - realistically, one or two are all you can handle. If you leave any more than that, looking for a specific house will be too difficult because there will be too many houses to consider. The most time-consuming stage of the house-hunting starts when is you have to actually inspect the houses, and the more you have - the longer it takes to pick “The ONE”.

Stay tuned for “How to buy a house - part two”. To make sure you don’t miss it, subscribe to my feed (click on the link below).

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At this stage people start paying attention to the situation in the real estate market - is it slowing down or racing up, what is going on with the interest rates, are they going up or down. After getting the big picture, people start shopping around for a loan, going to the banks and getting information about the different types of loans, interest rates and repayments. Finding yourself a mortgage broker is a good idea at this stage - read here how he can help you out. It all comes down to finding out what is your borrowing capacity - or in plain English how much money you can borrow from the bank.

Stage two: what’s your budget?

Using the information about your borrowing capacity and your monthly repayments, you can decide about the upper limit of your budget. Confused?

Example:

Let’s say the maximum amount the bank is willing to let you borrow is 500,000$ and the interest rate is 8%. Take the longest period possible (30 years), your monthly repayments will be about 3660$. If you can pay that much a month, then 500,000$ will be your upper budget limit. If not - you lower the amount of loan until you get monthly repayments that you can afford.

Stage three: where do you want to live?

This is a tricky one - you have to choose the area you’d like to live in - in the boundaries of your budget. So basically you’d make a list of all the suburbs with their median prices and cross out those where median price is above your budget. Some reports list the lowest property price too, not just the median price - that will help you not to cross out suburbs that might be affordable, in spite of median price being beyond your budget. Confusing?

Example: Let’s take 3 suburbs

Suburb A: Lowest price 300K, Median 350K
Suburb B: Lowest price 350K, Median 410K
Suburb C: Lowest price 400K, Median 450K

If your budget is 400K, looking only at median prices you would dismiss suburbs B and C because they are beyond 400K. But Suburb B has the lowest price of 350 - which means there are houses you could find below 400, so it can stay on your list of “candidate” suburbs.

Stay tuned for “How to buy a house - part two”. You might want to subscribe to my feed (click on the link below) to make sure you don’t miss it.

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When a house is “Under offer” or “Under contract”

When the vendor accepts the buyer’s offer, they sign a Contract of sale or a Contract note. Usually that document is subject to conditions, such as building and pest inspections and financing.

Signing a contract subject to conditions is a very logical thing to do - inspections cost money (you can expect to pay anything between 500 - 1000$) so you need to have some certainty that you’re inspecting a house that you’re going to end up with. Also, getting your loan approved takes time - well, banks were never famous for doing things quickly. So on one hand you want to sign the contract to secure that house you like so much - but on the other hand you want to be able to walk away if it has problems you don’t know about yet.

At this stage, when you have a signed a contract (by both the buyer and the vendor), but still haven’t done the inspections, didn’t get the finance approved and didn’t pay the deposit yet - the estate agent puts a sticker “Under Offer” or “Under Contract” across the advertising sign.

When a house is considered “Sold”

Usually the inspections are done within a week of signing the contract, and once you have the building and pests reports back, your loan has been approved and you have paid the deposit - the agent will change the status of the house from “Under offer” or “Under contract” to “Sold”. Even though the settlement date is in two or three months and the main amount of money is yet to be paid - the house is considered to be sold once all the conditions in the contract were met.

Interestingly, houses being sold through auctions don’t have that “under offer” stage - they go to “Sold” or “Passed in” immediately after and here is why. When a house is being sold at an auction, all the inspections and loans should be done and approved before the bidding starts, because in auction the contract is non-conditional. If you haven’t done the inspection or don’t have the money - too bad, because when the auctioneer announces the house as sold to you - this is it, it’s yours for better or worse :).

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• Your name and the vendor’s name can be misspelled and that may cause problems later on
• The dates and the amounts can be mixed up and that may also cause problems later on
• You don’t get another chance to fix anything in that document and once a vendor signs it - you are bound by it, getting out won’t be easy and might cost money.

Contract note consists of little sections; you will find below an explanation and example for every section:

First, there is a cooing-off period when you can cancel the contract for any reason. It starts from the date you have signed the contract and lasts for 3 business days, this post explains more about the cooling off period and exceptions to it.

THE ESTATE AGENT

In this section the real estate agent fills the name of his agency, its ABN (Australian Business Number) and his own name. Here is what it looks like:

THE VENDOR

This section should have the vendor’s name and address, and if there is more than one (a husband and wife, for example) then it needs to list all of them. All of the names should be written in full version - not using initials. Have a look:

THE PURCHASER

This section should list all of the purchasers and their addresses, also full names not initials.

THE PROPERTY

In this section the property need to be identified in the same way as in Section 32 document.

THE CHATTELS

This section should say what will remain in the property when it passes to the purchaser. The best advice I could give you - do not assume that something will stay there, write it down in this section, whatever it is - a dishwasher, a dryer, a bench, write it down.

THE PRICE, THE DEPOSIT, THE BALANCE

The price you will be paying should be specified here, broken down into the deposit and the balance, so that Price = Deposit + Balance. Also, one of the phrases “Plus any GST” and “Which includes any GST” must be crossed out. The dates of when you will pay every part are very important, double check to make sure no mistakes were made there. Pay attention in “The Balance” there are 2 options, a) and b) and one of them must be crossed out.

SUBJECT TO

This section specifies the conditions that must be met, otherwise the contract is ended.

Paragraph 1 is only filled in those cases when a tenant will continue to live in the house after the settlement date. Otherwise just leave it empty.

Paragraph 2 has 2 options, of which one must be crossed out. If you want to get an empty house on settlement date, cross out the “receipt of rents and profits of the property” and leave the “vacant possession” in.

Paragraph 3 basically says that you have applied for the loan and should specify what bank/finance company will be your lender, how much are you borrowing and by when your loan should be approved.

OFFER BY PURCHASER

Here you need to fill in the dates when your offer is valid. If the vendor wants to accept it, he’ll need to sign before the “will lapse” date. And, of course, a signature (yours or of your power of attorney).

VENDOR ACCEPTED

If you receive the offer back and the vendors have all signed this section - you are under contract. The vendor doesn’t have a cooling off period and that means that if you won’t breach or end the contract - the house is yours, just pay the money

VENDOR’S SOLICITOR and PURCHASER’S SOLICITOR

This section has a misleading name - you don’t have to hire a solicitor, you can only have a conveyancer. Confused? This post here explains the difference between solicitor and conveyancer.
The details you provide here will be used so that your estate agent could link both parties’ lawyers to handle the deal.

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There is one tool I find interesting at Findmeahome.com. It was designed to get you a price range of a house you’re interested in - and you get 20 attempts for free. They do ask for a valid mobile phone number as means of identity verification but don’t sell it to third parties. I have given my 2 numbers and never got any spam. There is a simple explanation on how to use the system here.

One thing about that tool was unclear to me - they want you to rate the house you are asking about, compared to other houses on the same street, on scale from 1 to 10. My first question was - I can look at the house but I can’t see through the walls, so I have no idea how many bedrooms/bathrooms are in each house. To me it didn’t make sense to compare a house with 2 bedrooms to a house with 4. Also none of the features that influence the house price (such as spa, pool, new kitchen etc) are visible from the outside.

I asked David Philips from Residex, the person behind the blog of FindmeAhome.com to explain what exactly people should do here, we exchanged a couple of emails and here’s the explanation:
“The rating is based on taking all the properties on the street, arranging them in order from what we think are the cheapest to the most expensive, and splitting it into groups: 1/10, 2/10, 3/10, … 9/10, 10/10: the way that you would work out the rating of a property would be to compare it to other properties on the street… to some extent, the exterior of a property will let you work out its rating: we work it out based on our knowledge of what’s sold, and how much the various properties are worth”

I checked their system on a couple of houses and it gave me some pretty accurate numbers - now that got me thinking: how do they do it? Well, in a nutshell, Residex has access to a huge pool of statistical data and using some smart tests they work out those estimates. These smart tests include:

1) Checking the average value of houses with same number of bedrooms in the same street
2) Using the street rating we discussed (see above)
3) Median value of properties in the same street
4) Value of house divided by land size - t.e. cost per square meter
5) Capital growth of the suburb applied to the last sale price of that house

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