Wood Property

FAQ - Buying an apartment

An owner’s corporation (OC) formerly known as a body corporate in Victoria is responsible for managing the apartment building’s common area, and things like insurance, security, cleaning, maintenance, fire services, and enforcing operational rules. It is controlled by legislation and can be complex.

The legislation for OC management varies from state to state but they look after everything outside an apartment whereas a property manager or the apartment owner is responsible for everything inside the apartment. All the common areas and services in a building are managed, cleaned and maintained by the OC.

All the owners in an apartment building pay a proportion of the OC costs and usually the allocation is based on the table of entitlement and liability as contained in the plan of subdivision. The bigger your apartment the more you pay.

When buying an apartment in Victoria, the contract of sale includes an owner’s corporation certificate which contains a lot of valuable information about the body corporate including a copy of the most recent annual general meeting. Buyers should read this carefully.

The OC is controlled by a committee of elected owners who appoint an OC management company to set and implement the budgeted management program. This budgeted cost is then allocated between all the owners. Each building will have different costs especially if it contains costs for refurbishment or major maintenance works that may be a one off.

Sometimes an OC will implement a long-term maintenance plan and charge all owners a regular amount each quarter that sits in an account (sometimes called a sinking fund) to pay for scheduled maintenance cost such as repainting common areas or equipment replacement. In Victoria, this is compulsory for larger developments (generally over 100 units) and optional for developments under 100 apartments.

When you are comparing apartments and review the OC fees it may or may not include a maintenance fund contribution. It is helpful to know if there is a maintenance fund already established with savings to fund future works. Otherwise, you will have to pay for these works in the future. This information will be in the owners corporation certificate.

The level of OC fees varies because each development will have its own operating costs, management fees, scheduled works and a different number of apartments to allocate the costs to. Sometimes the OC fees may be low because the building is not being well maintained.

In the last few years some OC budgets have included consultants reports to address potential combustible cladding and works which may add one off costs to the annual fees.

An active OC committee and quality management company are critical to ensuring the building remains well looked after and all the rules and processes put in place keep the building secure, well looked after, and a great place to live.

The estimated selling price or indicative selling price or agent price guide are all the same thing. It is a legal requirement for the agent to provide it in the statement of information which must be provided on all web site advertisements. The owner’s reserve price often sits within this range but in a rising market your main concern is what price other buyers will pay. .

An apartment may sell above both the estimated selling price and the owners reserve because buyers compete at auction and bid the price up.

It’s important to remember that the agent selling the property is acting for the seller and their job is to encourage as much interest in the apartment as possible to create competition and negotiate or bid the price up.

Many years ago, there was a practice known as underquoting where the estimated selling price was set below both the market value and the owners reserve specifically to encourage buyer interest. Legislation now prohibits this practice but if the market is rising rapidly then it is not unusual for the sale price to be well above everyone’s expectations. This is not necessarily underquoting.

Sometimes an owner also just changes their mind on the acceptable price or reserve.

For these and other reasons try not to be too focused on the agents estimated selling price. While it may feel frustrating understanding how the agents estimated selling price relates to the owner’s reserve and market value but rather than debating the merits of all the rules and behaviours by all parties, here are two important things for buyers to keep in mind.

The first one is that the agent is engaged (and paid) by the seller of the apartment and their job is to get the highest price possible for that seller. A buyer should be under no illusion that somehow that agent will act in their best interest as well.

The second thing to consider is you are about to spend a large amount of money to buy an apartment, so please don’t base your value judgement on advice from the seller’s appointed agent. You may wish to either engage a buyer’s agent to advise you or better still follow the Apartment Hunters MAP process and make your own value assessment based on the adjusted sale price of similar recent apartment sales. This way you can negotiate or bid with confidence at a value you know is fair, and you don’t waste time, money or dreams on apartments not in your price range.

That’s great…. Well kind of.

Buying and apartment can be a very emotional experience. When inspecting an apartment, you envisage yourself living there and cooking or having friends over or sitting on the balcony. Our homes are a reflection of our selves including our personalities, values and aspirations.

Normally, when an apartment is sold, it’s dressed up in a style that exudes a homely elegance and evokes those emotions in your mind. Sometimes you may walk into an apartment and it is a mess. Usually this means the apartment is leased to someone who is not too worried about people walking through their messy home and they don’t feel compelled to help out the owner and tidy it up. When you get past the shock of a poorly presented apartment, it may become a real opportunity for you.

Firstly, other buyers will be turned off by the poor presentation and either not inspect it at all or walk in and walk straight out. This obviously reduces buyer competition which is good for you.

Secondly the owner doesn’t actually want the apartment to be presented like this but obviously they cannot wait for the lease to end (at which point they could tidy it up and present it properly) so they must be extra keen to sell it. This could suggest they are a bit more negotiable on the price.

It could present a real opportunity for you and you may have to use your imagination to envisage the apartment looking more ‘homely’, and how you would style it to understand what life could look like there for you.

The downside is that you may not be able to see everything you want with the renter’s property in the way. This also makes maintenance or repair work that needs to be done less noticeable. Whether it’s large carpet stains under the couch or damaged paint work behind the painting.

A totally empty apartment is often considered best for the buyer, with no set dressing and no renters furniture in the way, you are able to see the apartment in all its naked glory. Still, a leased apartment offers up a lot of opportunity, so don’t shy away from those offerings.

Not quite…

Firstly, there are single or normal spaces which can be open, undercover, secured, basement or garaged.

Secondly there are tandem spaces which means if your apartment has two spaces one space maybe behind the other which means you need to move the second car to get the first car out.

Then there are stacker car parks which come in many versions, but essentially this is a car stacking system that you drive your car into, you then get out and it moves your car up, down, or sideways or all three to enable others cars to get in or out. Then when you want your car back it moves it back to same spot you drove it in, you get in and drive off. They are pretty quick and work quite well.

One important thing to note is car park stacker spaces often have height and weight limits which vary depending on which space in the stacker is yours. eg – top, middle or bottom. If you have a larger than normal car, make sure it fits in your space.

And lastly there are car lifts which are not a car park of itself, but they are sometimes used in apartment buildings to get your car into or out of the car park. You simply drive your car into the lift, and it goes up or down to get you in or out.

You may have a firm preference for one or the other or you may not really mind, but please go and have a look at the car space and understand exactly what you are buying. The type of car space czn influence the sale price so when you compare one apartment to the next make a note of the car park type.

One of the key features many people look for in an apartment are views and light or sunshine. While many are aware of the risk of it being taken away from them by a nearby development it is very difficult to guarantee it won’t.

One way to check the risk of a nearby development happening in the future is to check the planning scheme of the land in question or adjacent to you. You can do this online in Victoria at https://mapshare.vic.gov.au/vicplan/

Once you have the zoning you then you can read the details about that zone and what type of development it allows, but it starts to get a bit complicated, and unless you know your way around town planning you won’t get a straight answer. You can also search that local council website for any current development applications. You may also try a visit to the local council to speak to the town planners and get their view.

The other way to understand the risk of being built out is to look at the lot sizes of the adjoining land. Are they small terrace house lots or is there one large parcel of land with an office or warehouse on it? Developments are more likely to happen on larger blocks of land. It is difficult (but not impossible) for a developer to buy up lots of small house lots to create one large parcel that may be developed, whereas a large single lot of land can more easily be developed even if it already has a building on it.

Obviously if you overlook a road that is good protection but look on the other side of that to assess the risk of a development.

Parks are also unlikely to be redeveloped as are some other public buildings.

If you look onto another apartment building – the view may not be breathtaking, but you know what you have, and it’s not going to change anytime soon.

To some extent you can’t hold back progress or development and over time more and more developments will occur but it is important to understand the risk or likelihood of it so you don’t pay a premium for a view that is suddenly taken away.

Just to ensure we all understanding the issue here and if compass directions are not your strong suit… the sun rises in the East, moves around in the Northern sky before setting in the West. As a tip, you will find a compass app on your phone super handy to orientate yourself when you are in an apartment.

If you are a morning person and love morning sun streaming into your apartment when you get back from a 5.30am Pilates, then an East facing apartments maybe best for you.

You can get some amazing sun sets from the balcony of a West facing apartments but, in the Summer, it can also get pretty hot if you don’t have the appropriate shading and blinds.

North facing apartments get most of the sun during the day and are magnificent in Winter but again can get hot sometimes in Summer. If it is protected from the Western sun, then that can be OK. Sometimes apartment that face North and West can get really hot in the summer, but you will hardly need to touch your heater on those sunny Winter days.

If you work odd hours or just don’t really want direct sunshine annoying you anytime, then South facing is the one for you. These also stay super cool in summer avoiding the need for air conditioning much at all.

So, what sort of person are you? North, South, East or West?

Oh, one last thing. When you look at photos online it is hard to tell which way the apartment is orientated, but if you look at the floor plan it will usually have a north arrow on it.

Building or apartment reports can be really handy to give you not only a detailed understanding of any building issues within the apartment but also peace of mind that you’re not missing anything. The apartment building report covers everything internally but will not provide advice on the structure or condition of the overall building.

They are relatively inexpensive (about $300 for a 2 bedroom) so it is money well spent.

One thing to remember is if you are in a competitive negotiation to buy an apartment and your offer is subject to an apartment building inspection and the other offer is unconditional then your offer will be less attractive. You could get the building inspection done prior to negotiating but then if you cannot agree a price the building report is a waste of money. Then again having the report done gives you confidence to buy and maybe you will be more likely to be successful.

If the apartment is being auctioned, then you will need to bid unconditionally. You can organise a building inspection prior to the auction but you may then be unsuccessful at auction.

If you are overly cautious in your approach you may find it difficult to find an apartment with no issues at all. Most building reports will find some issue which may even be obvious to you. It is important to understand how to use the report and if any issues highlighted in the report are able to be fixed or managed.

Your decision about getting a building report therefore depends on the age and general condition of the property, the method and stage of the sale and your own comfort with the risk.

Auctions make most people anxious too so you’re not alone. There is a lot of pressure. You have to think fast, and it can get competitive and emotional. Even seasoned real estate agents and auctioneers sometimes prefer to get someone else to bid for them so they don’t get caught up in the moment and pay too much.

You could write an entire book of the bizarre things that have happened at auctions and the various bidding tactics that people try in an attempt to buy the property for less.

Sometimes when a buyer feels like they have shown their hand in pre-auction negotiations and are worried the agent knows what price they will pay, they may ask a friend to bid for them. But when the selling agent sees someone they have never seen before suddenly start bidding they will assume it is for another buyer anyway.

In an attempt to solve that issue, sometimes buyers try the tactic where the known buyer starts bidding and then stops, so the agent hopefully thinks they are no longer interested. Then a friend takes over the bidding for them. This was once attempted not so successfully. The known buyer started bidding and then stopped at the agreed price, and then their friend started bidding. So far so good… But there was a big crowd, and the two bidders couldn’t see each other. The known or first bidder couldn’t be sure if their friend had started bidding or not and out of fear of missing the property they started bidding again. The friend was bidding as planned but couldn’t see who they were bidding against, so now the two friends were both bidding against each other. Not ideal…

Another bidding tactic is to intimidate the other bidders by being extra bold or aggressive. Do you think this works? Would you stop bidding below your limit because someone else was bidding aggressively? This doesn’t work, or worse still, it can cost the successful bidder more money because the auction just goes crazy or their final bid is $10,000 over the last bid where a $1,000 bid may have won the auction anyway.

All the theatre or bidding tactics makes no difference at all. If you want to buy an apartment at auction, don’t be too tricky or clever. All you need to do is bid to the price you are comfortable with, and if you’re not experienced in the ways of an auction, get someone else to bid for you.

If the bidding reaches the vendors reserve, then the auctioneer will announce the apartment is “on the market” and is going to be sold to the highest bidder. No amount of tricky bidding or tactics is going to make any difference.

If you want to buy an apartment at auction then go along and bid (or get someone to bid for you) to the price you are prepared to pay. It isn’t any more complicated than that.

When you first look at a contract of sale it can be a bit daunting. Some apartment contracts of sale are over 200 pages long and it is difficult to know what to look for. Also different sections and certificates are just consecutive with no header pages so it can be hard to know where one certificate finishes and the next one starts.

Quick disclaimer: This is not advice, nor is it written by a qualified solicitor and you are strongly encouraged to seek professional legal advice when purchasing an apartment.

Let’s break down a Victorian contract of sale to help you understand it a bit better.

The contract of sale is one document, but in Victoria comprises 2 parts.

  1. The Contract of Sale
  2. The Vendors Statement (or Section 32)
  1. Contract of Sale

This is the front part of the document and is the actual contract which details who is selling what to who, and all the particulars of the sale such as price, deposit, settlement date, and any other conditions like finance approval. It also includes both special and general conditions which are legal terms and conditions of the sale. These don’t make for interesting reading and are generally not specific to the actual apartment.

There will be a guarantee form so if you are buying in the name of a company or trust you will be asked to sign a personal guarantee.

  1. Vendors Statement

This is also known as a Section 32 (which is Section 32 of the Victorian Sale of Land Act 1962) and requires the Vendor to disclose lots of things about the property. The most important things for you to review are:

  • The Council and Water Rates and any land tax
  • The certificate of title which for apartments includes the plan of subdivision.
  • The owner’s corporation (OC) certificate

The council and water rates are pretty straight forward and just give an overview on how much each of them are.

The certificate of title and plan of subdivision can be lengthy especially if there are many apartments or multiple plans of subdivisions and planning agreements that attach to the title. The only thing you really need to do here is check what you think you are buying is on title by identifying your apartment plus any other areas like the car park(s) and storage cage(s). Any more detailed analysis is best left to experts.

The owner’s corporation certificate is helpful to apartment buyers and should be read in full. It includes minutes of the most recent OC annual general meeting which gives you important information and an insight to the quality of the OC committee and management. It also includes details about the sinking fund (if there is one) and other current issues.

All auction bidding needs to be unconditional, but many apartments are offered for private sale meaning you can negotiate a price subject to certain conditions including finance.

To understand this let’s just look at it from a seller’s or agent’s perspective for a minute. If you are buying in a competitive negotiation and your offer is subject to finance but other buyers are unconditional, then assuming the prices are similar, the owner and agent will accept the other buyers offer over yours.

If you are the only buyer or offering the highest price then you have a bit more wriggle room. Let’s say you agree a deal subject to financial approval, then the apartment needs to be withdrawn from sale for about 14 days while you go through your approval process. Again, thinking about this from the seller’s perspective this means for 14 days the owner can’t sell it to anyone else even if they get a higher offer. Also the two main marketing costs (furniture hire and internet advertising which both have a 6-week life span) are chewing up time and money. If the owner agrees to sell their apartment to you subject to finance, and your finance is not approved, then the owner has used up 14 days of valuable marketing time and cost andany other potential buyers may have moved on.

To off set this risk sometimes an owner may need a slightly higher price to compensate.

It might be prudent to negotiate subject to finance, but just be aware it can prejudice your offer. Your mortgage broker will encourage you to negotiate subject to finance but try to get as far down the approval process as possible to remove the risk.

You will generally negotiate a better price if your offer is unconditional.

There are other options, such as getting someone else (Mum and Dad Bank) as a back up in case you don’t get all your finance straight away. This way you can negotiate unconditionally which makes you a much more attractive buyer and you may even buy the apartment for slightly less because you are unconditional.

Please note, it is important to seek independent financial advice from a qualified expert beyond what is written here. We know what we’re talking about, but every situation is unique.

There is no short answer or hack to this one. You’re about to spend a considerable amount of money and you need to have done your research.

Your options are as follow.

  1. Pay someone to help you advise you what it is worth.
  2. Offer a price less than the asking / estimated price and hope it is right, or
  3. Follow the Apartment Hunters MAP buying process where you look at many apartments and record their values and how well they meet your needs to understand its value to you.

If you engage a valuer to advise you, their valuation process is to compare the apartment you wish to buy, to other similar apartments that have recently sold and then adjust the sale prices for differences between them. This is exactly what the Apartment Hunters MAP process does. In fact, the MAP process is better than a valuer as it assesses the value specifically to your needs and not just the general public.

To use the MAP process, head to your book and read through the instructions on creating your profile. Your profile can be used to compare similar apartments, their relative value to you, and their asking price against their physical attributes. This process is as simple as visiting many apartments and comparing them in your book.

If by chance you’ve made it this far without a book, go to www.apartmenthunters.com.au to get it delivered free of charge.

During the process of apartment hunting, there’s a good chance you will google “what is my apartment worth” and type in the address so it might help to discuss what you will find and how to interpret it. There are many web sites and apps all too happy to posture a view on what an apartment is worth.

The way they calculate an apartment’s value is by using a multiple regression analysis which analyses a number  of sales and compares their quantifiable features like number of bedrooms, bathrooms, car spaces, size, suburb, location, and date of sale to the sale price. It then weights different features depending on their correlation to value and works out an algorithm to apply to the subject apartment to estimate a value.

It may also provide a confidence range which ratesthe strength of correlation of the sale prices to the quantifiable metrics.

The algorithm however cannot process unquantifiable data. Things like natural light, views, overlooking, floor plan configuration, size of the living space or bedrooms are not included in the calculation at all.

There is no substitute for spending time looking at lots of apartments and using the Apartment Hunters workbook to record and analyse them against your criteria to understand what an apartment’s value is. Even expert valuers often do not agree on an apartment’s value as there is an element of subjective judgement. Some say auction is the ultimate judge on an apartment’s value.

This is pretty true but if you auctioned the same apartment each month for a year, there is a good chance you would see 12 different (but similar) sale prices. That is why an agent provides a value range because quiet literally the value lies within a range and not a single number.

Congratulations on finding an apartment you love! It’s an exciting time and hopefully this is the one.

Obviously, you want to buy the apartment for as little as possible, but it is important to remember the main objective is to actually buy it and not miss out, as well as paying a fair price. If you are in the market looking for bargains then there is no point doing all the inspections and research, you can just go from apartment to apartment and offer the agent 20% less than the asking price in the hope that one day someone accepts it.

If the apartment is being auctioned, the price you pay will be sorted out at the auction and you hope the bidding stops before it reaches your limit and you win.

If it is a private sale and assuming you have been following the Apartment Hunters MAP Workbookprocess, you will already have a confident feel for the market and what you are prepared to pay. The objectives are now knowing what you want to pay, landing the deal, and doing so at the lowest possible price. if you are too cute with your offers you may miss out.

As we have discussed valuing property (which is essentially what you are doing in your negotiation) is not an exact science and an apartment’s value will sit within a 2% to 3% range of its value. So if is value is about $600,000 then you may pay anywhere between say $590,000 to $610,000.

The best offer is one that is at the lower end of this range but with some room to move as culturally we all need to feel we have had a win in a negotiation.

After that it is a matter of just trying to agree a price as close to the lower end of that range as possible and there are many scenarios that can play out.

Being open and transparent with the agent helps, and you will find they will engage well with you and help you agree a price with the owner.

Like everything involved in buying an apartment if negotiating is not your thing, engage an expert to advise or act for you.

This use to be a simple matter of writing out a cheque but no on has cheque books anymore. If you do still have a cheque book it is a simple option. Otherwise, we need to do it some other way.

You are unlikely to be able to transfer the money from your phone banking app as the deposit is likely to exceed your daily limit.

Some agents have an arrangement with their bank where they have an app which allows you to enter your account details and approve it to draw the money out of your account.

Another option is you can get a blank bank check form from your bank that you fill out after the auction if you are the winner.

Cash might work but it is not a great idea…

The only other option is agree with the agent that you can pay a small holding deposit of say $5,000 on the day of auction that you can transfer from your phone and then you can go to the bank on Monday to organise a cheque or direct transfer for the balance of the deposit.

Importantly if you do intend to bid at auction contact the agent and ask them how they would like you to pay the deposit.

This is a really important question but a very complicated topic that can’t be fully explained here.

Here are some links to give you more information about it.

Link 1

Link 2

One way to see if a building has any type of combustible cladding or been issued any notices is in the vendors statement in the contract of sale. It may be a certificate or noted in the minutes of the owner’s corporation AGM. The selling agent may have some knowledge and had discussions with the OC about it so ask them about it.

The councils and state government have assessed thousands of buildings in Victoria but there is no public register that you can check so not only is the entire issue around combustible cladding complicated, the difficulty for a buyer to find out if an apartment or the building has an issue with it is also complex.

This is also not something you can engage an expert on to assess the building. The most knowledgeable source of information with be the OC manager for that specific building. As a buyer you don’t have access to that information so if the Agent doesn’t already know then ask them to make enquiries with the OC on behalf of the owner.