The sale of a home is of huge importance to both the Seller and the Buyer, with all involved hopping for a smooth process. The traditional sales method is a well defined, relatively fast process. Normally it doesn’t have the same level of challenges experienced by longer term, vendor finance sales arrangements.
How could we improve the vendor finance process?
A Vendor Finance Transaction Breakdown
If you break a complete vendor finance transaction down into its constituent parts, it looks some something like:
- Listing the property – i.e. entering into an agreement to assist a residential property Owner sell her/his property via a Terms Contract;
- Marketing the property – ensuring all marketing meets the requirements of the Australian Consumer Law and National Credit Code;
- Application – conducting the application process according to the NCCP Act’s Responsible Lending requirements;
- Qualification – qualifying a prospective Purchaser in accordance with the NCCP Act’s Responsible Lending Requirements;
- Instructing a Solicitor – to draw up the Terms Contract in accordance with the National Consumer Credit Protection Act (“NCCP”);
- Possession – ensuring the pre-possession checklist has been completed, prior to the Purchaser taking possession;
- Administration – ensuring the Terms Contract is administered, for its entire duration, in accordance with the National Credit Code;
- Refinancing – giving assistance, as required by the Purchaser, with refinancing from the Terms Contract into a traditional home loan.
(If this transaction were to be undertaken by the consumer Owner/Seller, i.e. without the aid of a Vendor Finance Broker, the first process in this list, i.e. Listing, would not be required.)
Who Does What?
Traditional Sale – The real estate agent is responsible for Listing and Marketing. The mortgage broker carries out the Application and Qualification processes. With a combination of the traditional lender and solicitors carrying out and co-ordinating the rest.
Vendor Finance Sale – The vendor finance broker (or consumer Owner/Seller) is responsible for either carrying out or co-ordinating all of the above processes.
The Committee’s Suggestion
The FBAA Vendor Finance Committee recently addressed this startling observation in its submission to the Victorian, Consumer Property Law Review. The Committee suggested a greater role for Vendor Finance Brokers (VFB’s), in vendor financed property transactions. As follows:
“The Committee’s collective experience is that the average consumer Owner is unlikely to have the knowledge, experience, and in some cases the necessary degree of engagement, required to undertake all seven processes in a manner that is consistent with the requirements of all the legislation surrounding Terms Contracts. As a result of trying to do it themselves and not having a full grasp of the requirements, consumers are acting to their own detriment by unwittingly waiving important rights and obligations or agreeing to egregious terms.
The Committee suggests that it should be compulsory for a consumer Owner, planning to sell his/her residential property with a Terms Contract to, as a minimum, engage the services of a VFB on a consultative basis, to ensure the following processes are conducted within legislative requirements:
- Marketing the property;
- Instructing a Solicitor;
Here’s a full copy of the FBAA’s Review submission.
Clients First – Always.