Securing Your Purchase: Understanding the 'Subject to Finance' Clause in Western Australia Property Contracts
1. Plain English Definition
Subject to Finance means your offer to buy a property is conditional on you obtaining a loan to pay for it. If you can't get the necessary finance by a specific date, you can usually withdraw from the Western Australia property contract without losing your deposit, provided you've followed all the steps correctly. This clause is a crucial safety net, especially for first-home buyers and investors, ensuring you're not forced to buy a property you can't afford.
2. The Danger Zone: Buyer's Risk
- Deposit Forfeiture: If you fail to apply for finance or don't notify the seller in time that your finance has been declined, you could lose your entire deposit, which can be tens of thousands of dollars on a typical Western Australia property, a significant buyer's risk.
- Missed Deadlines: The REIWA Contract specifies strict timeframes for obtaining finance approval. Missing these deadlines, even by a day, can result in you being legally bound to purchase the property regardless of your finance status, exposing you to significant financial risk under Western Australia law.
- Inadequate Effort: Western Australia law requires buyers to use "reasonable endeavours" to obtain finance. Simply applying to one lender and giving up might not be enough; if you're deemed not to have tried hard enough, you could be in breach of the REIWA Contract.
- Conditional Approvals: A "conditional approval" from your bank is not full finance approval. If these conditions (e.g., property valuation, further documentation) are not met by the due date, you might still be deemed unable to secure finance, leading to potential contract issues despite initial optimism.
- Unclear Communication: Failing to provide proper written notice to the seller or their agent about finance approval or non-approval by the specified date can lead to disputes and potentially force you to complete the purchase, even without a loan, escalating your buyer's risk.
- Valuation Shortfalls: Your lender's valuation might be lower than your offer price. If this reduces the amount they're willing to lend, and you can't cover the shortfall, the "Subject to Finance" clause may not automatically protect you unless specific conditions around valuation are included or you follow the non-approval process correctly within the REIWA Contract terms.
- Hidden Costs and Fees: If your finance falls through due to your fault, beyond the risk of losing your deposit, you may also be liable for the seller's losses, such as remarketing costs or a lower sale price if they have to re-list the property, adding to the financial burden.
4. Real-Life Western Australia Scenario
Mei Lin, an investor from Sydney looking to buy her first investment property in Perth, signed a REIWA Contract for a unit in Subiaco "Subject to Finance." Her bank provided a pre-approval, but when it came to full approval, the property valuation came in $50,000 lower than her offer, and the bank reduced the loan amount. Mei Lin, unfamiliar with the strict notice periods in Western Australia property contracts, missed the deadline to formally advise the seller that her finance was not unconditionally approved. As a result, the seller argued Mei Lin was bound by the contract and threatened to keep her $30,000 deposit. Mei Lin had to scramble to find extra funds and pay higher interest to avoid losing her deposit and facing legal action. The lesson: Always understand and strictly adhere to the "Subject to Finance" clause deadlines and communication requirements.