As just about everyone is acknowledging, real estate and finance are fast-changing environments.

Previous assumptions about your ability to obtain finance for property might need to be re-assessed. At the very least, it is worth checking with your bank or mortgage broker to see if your understanding of your lending ability is still the case.

We are aware of more than one case recently of purchasers assuming their pre-approval for finance meant they could offer either unconditionally, or subject to finance with a long settlement date to enable them to sell their current property but without making their offer subject to house sale. It has only been at a late stage, when a contract is in place, that some buyers have been told by their bank that they needed to make their offer subject to the sale of their property. Fortunately, some swift legal work has resulted in contracts being saved and a revised agreement in place.

Another unsafe buyer assumption is that pre-approval means their lender will lend up to a certain amount on any property their client offers on. As a mortgage broker contact pointed out, pre-approval means the lender has approved a borrower’s ability to service a loan, not that the particular property is acceptable to the bank.

It is worth noting that a finance clause might mean that a lender requires, as a minimum, a brief on the property. This could just mean checking a copy of the contract, but could be more involved, such as the bank requiring a building, plumbing and electrical report, particularly if the property is an older one. Another factor a lender might check on is unconsented work. If borrowers are at the limit of their borrowing threshold, these kinds of checks are more likely to be sought by the lender.

A more common requirement in this real estate environment, when sale prices are often well above capital (or rating) values, is for a registered valuation. Banks can require this as part of the finance condition. My strong recommendation to buyers is to seek advice from their bank soon after agreement is reached on a property to ascertain if the bank requires a valuation, or any other report, as part of the finance condition. This will avoid the situation, as has happened not infrequently, of buyers discovering only a day or two before confirmation is due, that they need to have a valuation or some other report. In some cases, this has meant that buyers have been unable to confirm by due date, have not been granted an extension and have lost the property to another buyer – an extremely disappointing experience, especially if they have accrued costs as part of their due diligence.

So, in summary, check and re-check. Don’t assume.