So you will see in my previous article Negotiating to buy a unit/house – my story the amount of effort to get to the point where the seller has accepted my offer to purchase her unit for a final price of $287,500 .
Time to sign the contract to buy the unit.
The real estate agent came to my parents house a few days later and I (with my parents) reviewed the contract which I signed.
Because in NSW you get a ‘cooling off’ period before you have to pay the deposit (usually 10% - note other states don’t always get the ‘cooling off’ period) – the real estate also asked that I pay a 0.25% holding deposit on exchange of contacts. This equated to $718.75 which I borrowed from my parents and they wrote a cheque after I signed.
The balance of the 10% deposit ($28,750 less holding deposit) was to be paid after the cooling off period.
What the hell is concrete cancer?
4 Days later I received the faxed Strata report from my conveyancer.
The report included:
- Minutes from the previous strata meetings
- Profit and Loss of the building
- Balance sheet including balance in Administration and Sinking Funds.
see http://www.stratareports.com.au/ for a bit more on what a strata report is.
What I found was a little bit disturbing … OK very disturbing.
- There was concrete cancer mentioned in the large garage underneath the building.
- There was $30,000 in the sinking fund.
- One quote they had to fix the problem was for about $200,000
So what this meant to me is that the Strata would probably have to eventually get rid of this concrete cancer (at huge cost). And given that they didn’t have much in the sinking fund – the amounts would probably have to be raised by a special levy.
Special Levy – owners pay up!
A special levy is a levy which is charged on all unit holders (based on entitlement) usually to assist with a special project/maintenance.
$100,000 divided by 50 units is only $2,000 a unit. However one cost estimate was $200,000!
A hard decision ahead
I spent a few days going back and forward about this. I spoke to guys at work who had bought units – they told me the report was pretty crap.
I spoke to the real estate agent – he mentioned how the ‘real’ quote was probably only $50,000 and that they might not get it fixed for a while anyway.
I think 2 days before I had to tell them I spent about 2 hours talking with my parents about whether to go through with the purchase or not.
Decision made….No Deal
I eventually told the real estate agent/conveyancer who told the sellers solicitors that I wouldn’t be purchasing the unit (and I would forfeit the holding deposit paid).
Costs to me in not buying the unit
- $718.75 Holding deposit paid
- $250? Strata report cost paid for (this was the best money I’ve ever spent)
- $200 extra documents? (I got all the loan/legal documents – can’t remember if the bank charged me a fee when I got the 2nd set of loan documents for the unit I ended up purchasing)
- My time of going back and forward with the real estate agent
- My time costs of having to START AGAIN looking for a unit to buy
Lessons/Benefits of Wisdom:
- Don’t pay a holding deposit -when I had signed the contract the seller couldn’t sell to anyone else). My mortgage broker actually recommended I not pay the holding deposit.
- Buy a strata report – in situations like this it can help you to avoid buying a lemon property.
It was definitely an experience where I learned a lot. It helped when I purchased a unit a few months later.
I think the unit I didn’t buy has gone up in value. However I think the one I ended up purchasing was a better choice in the end.
I never did found out whether they fixed the problem with the unit I almost bought and if they had to issue a special levy to get the problem fixed.