Mortgage Blog Article

Dangerous Property Obsession

• Jennifer Schelbert
• 2nd December, 2018

NO MATTER HOW DESPERATE YOU ARE TO GET INTO PROPERTY - Do not! Accept an ‘early settlement discount’!

This is a euphemistic name for misrepresenting the price of a property, and involves collusion between the buyer and seller against the lender – and the Australian Taxation Office. Say a property is worth $100,000. The contract of sale says you’re buying it for $100,000, subject to “Clause D” (or whatever). Clause D – not part of the formal contract – says you get a $20,000 discount if you settle early. It lets you borrow 100 per cent of the purchase price ($80,000) because the bank thinks it’s lending you 80 per cent. The vendor agrees to save on capital gains or, in the case of new developments, to inflate the price of similar properties. It might seem like a cool way to buy a house without a deposit. It is illegal.

Don’t do it.

Get sucked in by ‘two-tier marketing’

This is where promotional companies, not registered real estate agents, rush you into ‘bargain’ property deals – including providing lightning-speed finance and ‘paralegal’ advice – at way over market value. The scamsters typically target people who have no idea of actual property values and could easily believe that an $80,000 Gold Coast apartment, for example, was worth $120,000. Tougher laws are now in place in Queensland to combat these rip-offs, but people are still getting burnt.

Don’t let this be you.

Believe property values always increase

This is especially important if you fall for a buy-off-the-plan-and-sell-before-you-settle deal. A favourite of get-rich-quick advisers, you buy a yet-to-be-built apartment at a modest deposit. Nothing wrong with this if you plan to buy the joint. But it’s sometimes recommended as a way to make money fast – you “buy” off the plan but pay nothing, then you sell a year later when the property has increased in value. But if the property doesn’t go up in value? Or decreases in value? Or you can’t sell at all? You’re left with a massive financial commitment, and no way to pay.

Don’t do it.

Exploit other people

The same get-rich-quick advisers may also recommend you seek out people whose loved ones have died, marriages fallen apart, have lost their jobs or – ideally – all three. These people can be harassed into selling below market value, apparently.

Don’t do it.

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