The conveyancing myth: greedy Canberra lawyers cream people for hundreds of dollars for doing an essentially clerical task and if only we had a system of land-brokers like South Australia it would be much cheaper.
The fact: South Australian land-brokers are now charging as much as Canberra lawyers.
Further, the government charges in South Australia are horrific, so the home-buyer there pays as much as here.
What should home-buyers look for? What should they expect? Is conveyancing a huge rip-off? Can you do it yourself?
The main fees are those of real-estate agents (sellers only), stamp duty (buyers only), lawyers, surveyors, building inspections and fees of government bodies.
Consumers have rebelled against the increasing cost of buying and selling property. It has resulted in several inquiries and changes recently.
The most significant for Canberra buyers are the Prices Surveillance Authority inquiry into real-estate-agents’ fees and a proposal by the ACT Attorney-General to remove the lawyers’ monopoly on conveyancing.
Without doubt, however, the biggest increase in costs for home-buyers over the past decade has been government taxes and charges.
Stamp duty rates have not been adjusted properly for inflation. The marginal rate on houses over $100,000 of 3.5 per cent was meant to apply to up-market mansions. Now $100,000 will hardly buy a hovel.
More on government charges later. Let’s first look at the total conveyancing costs buying and selling a $160,000 house. Selling: Agent $5750 (negotiable); lawyer $575 (negotiable). Registration fees $54 per mortgage to be discharged. Total (say) $6400. Buying: Stamp duty $4115; lawyer $625 (negotiable); surveyor $350 (optional); building report $200-$400 (optional); search fees $250 (maximum); registration fees $54 plus $54 for each mortgage. Total (say) $5400.
What does a conveyance require?
Buying:
1. Select house, determine price, pay agent holding deposit (which has no legal effect but they insist on it to indicate buyer is fair dinkum).
2. Lawyer gets sales details from agent and puts searches into train while waiting for seller’s lawyer to prepare the contract of sale.
3. The searches are (a) on the title from the Land Titles Office to make sure the person selling has good title and what mortgages are outstanding. (b) on the building to make sure the building is approved and within the boundaries and in a sound state and has no asbestos (c) on debts which the owner of the land is liable: rates, water, land tax.
4. Advice on the contract. If joint buyers do they want survivorship to apply. What shares should it be divided into. What are family law and bankruptcy implications. Can buyer afford it and understand mortgage obligations and so on.
5. If satisfied, buyer sign one copy of the contract and exchange it with a copy signed by the seller, paying the deposit. Only at this stage do legal rights and duties arise, under which one party can force the other to go ahead and/or forfeit the deposit.
6. Fill out memorandum of transfer form provided by Land Titles Office and sign it.
7. Get memorandum of transfer and contract stamped at ACT Revenue Office and pay stamp duty.
8. Send stamped memorandum to seller with any requisitions on title arising from the searches or other matters. They ask questions and make demands like: Has the seller any pending judgments of the Family Court, has s/he committed an act of bankruptcy, are all the fences on the boundary line, The requisitions are usually returned with sellers’ answers saying things like “”not as far as the seller is aware”, “”noted” and “”buyer to rely on own inquiries”. Essentially they protect the lawyer against negligence actions because the lawyer can say, at least I asked.
9. Prepare and agree with seller on settlement figures. This is purchase price, less deposit, plus or minus and adjustment for rates depending on the settlement and the date up to which the rates have been paid. Seller will say how they should be paid (in separate bank cheques) so that the seller’s existing mortgages, lawyers’ fees and other amounts can be paid exactly on settlement.
10. Attend settlement making sure all mortgage discharges and the transfer are in a registrable state. Pick up the keys.
Selling:
The steps are the other side of the buying. The seller prepares the contract and calculates the figures to pay out existing mortgages.
The important point for the seller is to get the money in bank cheques (which do not bounce and cannot be stopped) or cash.
Warning and disclaimer: the above is not a guide to do-it-yourself conveyancing. It is a rough explanation of the work required to do one. Many conveyances have difficulties and special features. I am not aware of any up-to-date do-it-yourself guide on conveyancing.
The president of the ACT Law Society, Russell Miller, contrasts conveyancing with panel-beating. You can go to a panel-beater who is a member of the recognised trade organisation, you can do it yourself or you can go to a backyarder.
“”In all three cases you usually can see what you get.” he said. “”Conveyancing is different. If you go to the back-yarder or do it yourself, it might look all right, but the problems show years later when you come to resell the house.
“”Restricting conveyancing to lawyers is for consumer protection, not lawyer protection.”
Charging: Since 1974, lawyers’ in the ACT have been subject to the Trade Practices Act (unlike in the states where the federal law does not reach individuals, only corporations). There is no scale fee. Lawyers can charge what they like. The result has been a very competitive market for conveyancing.
The cheapest I came across was a flat fee of $450 plus out-of-pocket expenses (mainly government search charges).
Allan Anforth, of Stacy and Nyman at Ainslie shops, said he could still make a reasonable profit charging at that rate.
Other solicitors charge more and have various reasons for doing so. Some big city firms have higher overheads, but offer a wider number of partners and practitioner skill to draw on.
Hunnu Mannering ÿsubs: correct charges between $575 and $600 for a sale and $625 and $650 for a purchase. His would be at the mid-to-lower end of charges. Some charge as much as $900. Mr Mannering points out that his firm has no clerical staff. All the work is done by qualified solicitors.
He fixes a firm price and sticks to it, even if complications arise later on. He explained that often a solicitor was asked to quote before the exact nature of the conveyance was known, but he thought it better to give a firm price.
The sort of extra work that might arise during a conveyance included: postponed settlements, extra mortgages and simultaneous settlements.
He spent an hour with most clients explaining the nature of the contract.
Some other solicitors were concerned about the amount of work done by clerks. One said he had not spoken to a solicitor on the other side for years, only clerks.
Ross Watch is chairman of the conveyancing committee of the ACT Law Society and practises with Macphillamy, Cummins and Gibson, a large city firm.
He said he properly delegated clerical tasks, such as calculating settlement figures, to clerical staff. However, the important legal part of the conveyance such as advising on the contract were done personally by him.
“”Buying a house is the largest investment in a person’s lifetime,” he said. “”All good consumer advice tells people to get properly advised and to question everything before making big purchases. That’s what lawyers do. Lawyers are trained to look for problems.
“”Sure you can do your own conveyance. You can sign all the forms blindly and be none the wiser, only to find serious problems later on.”
An important point was that the solicitors carried indemnity insurance in anything went wrong.
The society opposes moves to remove the lawyers’ monopoly and allow land-brokers or real estate agents to do it.
One lawyer said the number of court cases over conveyances would rise dramatically if agents did it. They were out to get a sale and their commission. Lawyers tended to care for their client more. That meant giving advice, which might delay a sale or cause it to fall through. Agents did not like that. They often pushed lawyers to get a quick exchange so they could get their commission.
In South Australia, land-brokers do nearly three-quarters of the conveyancing. They are not allowed to practise as real-estate agents at the same time.
Brokers’ fees were deregulated by the Landbrokers’ Society had recommended fees on a sliding scale. It was $470 for a purchase of a $120,000 house and $400 for a sale. On a $200,000 house it was $578 and $492 respectively. The rate was cheaper if the broker did both the purchase and the sale.
The president of the society, Fran Booth, said brokers did a three-year part-time TAFE course (now being up-graded to associate diploma) or could now do a full-time degree course.
Brokers’ fees aside, she that South Australia’s stamp duty and registration fees were the highest in Australia. On a $120,000 house stamp duty was $3630, rising to $8070 on a $240,000 house. Registration-of-transfer fees (a flat $54 in the ACT) were about $400 on a typical house. They were calculated at $37 per $10,000 value of the house. But registration of other interests such as mortgages was $60 ($54 in the ACT).
Government fees in the ACT came under severe criticism by lawyers and real-estate agents.
Stamp duty is calculated at $2015 for the first $100,000 and 3.5% for the next $200,000, thereafter 4.5%.
Other fees were: title searches, leases, rates, water rates, land tax, building file and bankruptcy searches, registration fees. These couples with telephone, fax and cheque costs add about $250 to an ACT conveyance.
In 1974, all the government search and registration fees came to $4.
During the Whitlam years a government conveyancing office was set up, but it was dismantled under Malcolm Fraser. It did conveyances for about a quarter the cost by lawyers. But lawyers still had scale fees and were not permitted to advertise for much of that time.
The abandonment of the scale fees and advertising has brought prices down dramatically. The Law Society says this means further deregulation is not only unnecessary but would harm consumers because less qualified people would be doing the work.
It might have been necessary in NSW (which recently introduced non-lawyer conveyancing) because the rule against advertising meant prices had been kept high.
Lawyers also criticised scattering of ACT searches. A decade ago all searches could be done in two or three places. Now searches had to be done at the following: Land Titles, the Department of Environment, Land and Planning, ACTEW, the rates branch, bankruptcy and the building section. Lawyers say all of these should be on the one computer at Land Titles, but the each authority did not want to lose its power.
However, Mr Anforth said that nearly all the searches could be done by fax and the results got back by fax, so the lawyer did not have to leave the office.
ACT conveyances were easier than NSW where anti-gazumping law and requirements to append zoning and planning information to the contract made it more difficult. ACT charges should not be based upon NSW fees, which they often were.
Gazumping: There is no law against gazumping in the ACT. If you pay an agent a holding deposit, it means nothing. If a buyer offering more comes along, the agent is obliged to pass the offer on to the seller.
Buyers are in a bind. The only way to secure a purchase is to sign a contract. But it is madness to sign a contract unless you know what you are doing or you are properly advised.
The law should be changed so that upon payment of a holding deposit of say $100, the property is taken off the market, but the deposit is lost to the seller as an inconvenience fee if the sale does not go ahead because of the buyers’ fault. This would prevent buyers from putting down several holding deposits.
Advice summary: Ring around. Solicitors are allowed to advertise. Check The Canberra Timesreal-estate pages for the latest bargain. Look in the yellow pages. When asking for quotes ask whether it is a flat fee, can it be increased if the conveyance becomes more complex, what will the out-of-pocket expenses be?
Out-of-pocket expenses are important. Some solicitors charge not only the government-imposed fee but add-on charges for paying it, drawing the cheque, telephone, faxes and so on. They should come to no more than $250. Ask for a ceiling figure on out-of-pocket expenses. Sometimes the extras lawyers charge for out-of-pocket expenses would make them better described as in-the-pocket expenses.
Before asking for a quote have as much information about the house you intend to buy or sell with you. Price, number of mortgages, whether finance is arranged, is a survey certificate available, are there any unapproved structures and so on.
Surveys and building reports: Surveys should be done if : (a) The house is the first resale of an ex-government house. (b) If there are any unapproved structures close to the boundary. (c) If the house is more than 40 years old and no survey has been done. (d) If you are super-cautious and think that $350 for a full boundary and siting survey is a small price for peace of mind.
In general, ACT law requires surveys to be done on all new private houses and on all alterations and new structures that might fall within spitting distance of the boundary.
Building condition reports should be done as a matter of course on all houses older than 20 years and for peace of mind in any event, especially if you think $200-$400 is cheap for peace of mind.
Asbestos: There is an advanced state of paranoia about asbestos in the ACT. Whatever the economists say, market prices are heavily influenced by human emotions, not on rational considerations. With all due respect to the asbestos-removal program, asbestos taints forever the market price and saleability of a house.
Do not under any circumstances sign a contract to buy a house in the ACT unless you have checked with the building section whether it has got or ever has had asbestos in it. Let me repeat that: Do not under any circumstances sign a contract to buy a house in the ACT unless you have checked with the building section whether it has got or ever has had asbestos in it.
Unapproved structures: You can be made to pull down unapproved structures. However, building authorities are so stretched with new approvals and the like that the law is not enforced and no-one enforces it unless the neighbors complain. Warning: neighbors are more likely to dob in a newcomer than people they know. So if there is a hideous unapproved structure blocking some neighbors’ amenity beware.
There is nothing wrong with buying a house with unapproved structures provided you are aware of the risk that you might have to pull them down. Weigh this up with the price.
Agents: The Prices Surveillance Authority is inquiring nationwide into agents fees. In the ACT the recommended maximum is as follows: 5% of the first $30,000, 4% of the next $40,000, 3% for the next $80,000 and 2.5% thereafter. In shorthand, $5500 for the first $150,000 and 2.5% per cent thereafter. These fees can be negotiated. Extras can be paid for more advertising or a lower fee can be negotiated by shopping around.
The general-manager of the Real Estate Institute of the ACT, Bruno vanovich, says agents do a great deal of work for their money. More importantly, from a seller’s point of view they can more than cover their fee by getting a better price and getting a quicker sale, so a seller is not paying off large mortgages on an empty house.
He said agents knew the market and could balance price against speed of sale. They could target advertising, organise inspections, help with buyers’ finance and help negotiations to secure a sale.
Many people sell without an agent. Here good advertising is essential. It is no good “”saving” $100 by having a small advertisement, only to bear several hundred dollars through failing to sell. Put several advertisements in starting with different words to attract attention: suburb, general area, features such as view, pool etc. Make at least one of them a large advertisement or add lines or stars to make it stand out.
Summary: You can do things yourself and you can save money, but that carries a risk. True, in the ACT the risk is lower than anywhere else in Australia because our system of titles is more secure and our houses are newer. The risk is that you may pay out more in the long run if you don’t get professional help.
It used to be said that whenever large sums of money change hands or people are in trouble, there you will find a lawyer. It seems appalling that in the transfer of a house from one person to another as much as $15,000 goes in things other than bricks an mortar. But as much of that is government-imposed as from elsewhere.
We can now say that whenever large sums of money change hands, there you will find the government.