Buying off-the-plan

Rosy Sullivan

At many of our CPD courses, salespeople are continually raising the issue of buying properties off-the-plan, meaning that people are purchasing a property before the building has been constructed.   Most times, these style of purchases occur in strata units, community title estates or retirement village homes.  The most concerning issue for many purchasers is that they are not able to view and assess the finished product, prior to making a decision.

When purchasing property off-the-plan, the buyer usually pays a deposit to secure the property, with the balance payable upon settlement.  The settlement date may be a long time in the future and many purchasers have difficulty in understanding the complete process for this style of purchase.

As an agent, you need to be sure to disclose all information to purchasers in relation to the building of the property, this includes providing all information in relation to the fixtures and fittings, proposed strata levies, amount of deposit and how it will be secured during the building process.   The disclosure of this information falls within the legislative requirement for the disclosure of all material fact about a property.

NSW Fair Trading has published information on its website in relation to the purchase of off-the-plan property.  If you are selling an off-the-plan development, it may be useful to adapt some of this information into a brochure for potential purchasers.

One of the major issues that a purchaser usually has with an off-the-plan purchase is understanding the contract for sale.   You should always recommend to your purchaser that they have the contract checked and that they obtain legal advice in relation to their specific situation and the purchase of the property.

Some of the questions that a purchaser may ask an agent include:

  • Are there any penalties for withdrawing from the contract

  • Can changes be made to the finishes

  • Can changes be made to the type of inclusions such as stoves and dishwashers or floor and wall tiles

  • Can the purchaser visit the site during construction

  • If the building is finished early, is settlement brought forward

  • If the building is delayed, what happens

  • Is the deposit secure if the building doesn’t proceed

  • Can the property be on-sold during the construction period

If you don’t know the answers to these types of questions, you should clarify with the developer and/or their solicitor to ensure that the information that you are passing on to the potential purchasers is accurate and reflects the contract.

Other issues that purchasers may raise when considering the purchase of an off-the-plan property is the insurance for the building.  The builder is required to take out home warranty insurance for residential building work valued over $20,000.   The exception to this requirement is for the construction of new multi-storey buildings built after 31 December 2003.  A multi-storey building is a building of more than three storeys (not including the car park) and containing two or more dwellings. Exemptions also apply to certain types of retirement villages.

All other residential building work that is not exempt must have home warranty insurance cover in place and a copy of the certificate of insurance must be attached to the contract of sale. The certificate is to show that the necessary insurance has been taken out by the builder.

The insurance is required to insure the buyer against:

  • the risk of non-completion of the work, and

  • breach of statutory warranties relating to the work.

However, a developer who sells a non multi-storey strata unit off the plan is exempt from attaching a certificate of insurance to the sale contract, but only if the building work has not yet commenced and the contract informs the buyer that:

  • the developer selling the property does not need to give a certificate of home warranty insurance if the building work has not yet started

  • the law requires there to be home warranty insurance in place for the building work before commencement of the work

  • the developer is required to give the buyer the certificate of home warranty insurance within 14 days of the insurance being taken out

  • the buyer can cancel the contract of sale if the home warranty insurance certificate is not provided within 14 days of the insurance being taken out.

Selling off-the-plan property is a specialised area of sales and an agent must ensure that they have extensive information about the property, the building and the developer if you hope to be successful in this type of sale.   As well as the usual provision of information to potential purchasers, you will need to understand that the finished product may be different from the purchaser’s expectations of the property.  This is a difficult process to manage, and relies heavily on the provision of information that you give at the commencement of the sales process.  

Personally, I am an off-the-plan convert and believe that off-the-plan purchases have great opportunities for both the agent and the purchaser.   Undertake discussion with your developer (vendor) and ensure that they have given you ALL of the information that you need and make sure that the developer understands your process of disclosure to potential purchasers.   So……good luck if you are selling this type of product and always remember that disclosure of information to the purchaser is always the best option.