When you are looking at buying a house, it’s easy to get excited about living in a new place and
adding your own personal touches to it.
However, buying a home is probably one of the biggest investments you will ever make. It is sensible to obtain the best advice not only to ensure your purchase is smooth and trouble-free, but also to make sure the house is in good order, there are no issues with the property title, and that any
future plans you may have for the house can be achieved.
Taking some time at the outset to read and follow the steps in this book may help save you time and money, and will give you the peace of mind that everything is well organised when you buy your home.
We are here to help and guide you through the entire process from when you first look at buying a new house to settlement day when you open the front door to your new home, and beyond.
Talking with us before you even start looking at houses will help you make the right decisions and ensure your property purchase is carried out effi ciently and cost-effectively.
We can give you some preliminary advice about the Agreement for Sale & Purchase and the buying process, and also talk with you about the best method to protect your investment. For example, if you do not already have a family trust, you may want to look into whether this is the best method to safeguard your newly purchased property. If so, you may want to consider establishing a family trust before you buy your new house, and you will need to set aside some time to do this.
Most importantly, do not sign an Agreement without talking with us first.
The real estate agent dealing with the property you are thinking of buying has been engaged by the seller (or vendor) of the property and not by you. This means that the agent is acting for the seller and is acting in their best interests. Any advice the agent gives you, however well meaning, is secondary to the advice given to the seller.
If you want to receive independent advice that is tailored to your own interests, it is best you talk with us, rather than with the seller’s real estate agent.
You have found a house you want to buy and want to make an offer. Before you go ahead, there are a number of things you should think about before the offer documentation is completed.
You may wish to make some further checks before you go too much further. These may involve obtaining:
The latter two points are particularly important if you are worried about a leaky building. You should note that in a multi-unit development, the leaky building could involve all the owners, including yourself and not just the owner of the individual leaking unit.
As these reports will often involve extra costs to you, you may wish to make these part of the offer conditions.
In addition, you must take particular care to ensure that the financial side are things are water-tight, see more below.
When you decide to put in an offer on a new home you will need to make sure you have sufficient funds available to pay a deposit and to service a loan. To calculate your ability to service a loan, your lender will usually give you a comprehensive work sheet asking you to list your assets and liabilities, income and expenditure, together with a monthly budget, to ensure you can meet the loan repayments.
If you want to do some preliminary calculations, most lenders provide calculation worksheets on their website.
Banks and other lenders place emphasis on different criteria for loans. There is a wide variety of lending products available, even within the same bank. It is well worth doing some research to ensure you have the best loan and one to suit your own circumstances.
You will need to talk with your proposed lender to make sure you will have all the funds necessary to ensure you can meet the obligations of your offer, on the terms that suit you.
Your lender will help you decide on the term (length) of the mortgage and on the mortgage product best suited for your circumstances. They may suggest a fixed or floating rate for your loan, or a combination of both. You may want a table, reducing or interest-only mortgage.
We can recommend a mortgage broker. Using a broker may save you time having to shop
around for the most appropriate arrangements to suit your own financial requirements. There is more information on this process under 'Applying for a Loan'.
Lenders often charge an application fee for a mortgage (or it is added to the loan itself). Make sure that you have included this in your calculations.
Do be cautious if the seller’s real estate agent offers to arrange your finance. The agent is still acting for the seller and a conflict of interest may arise if they are acting for you and for the seller at the same time.
Our advice is to make arrangements with your lender yourself; alternatively, we are happy to act on your behalf.
If you plan to make alterations, additions or to sub-divide the property, talk with us about the viability of doing this. For instance, many house alterations require building consent, and subdivisions will require resource consent and may involve accounting for GST. This may have implications on the cost-effectiveness of your proposed projects.
In addition to the funds required to finance your new property, you should write a budget for the actual relocation cost.
Your budget should include the moving company’s fee, insurance to cover the transport of your possessions from one place to another, telecommunications, power or gas connection fees, burglar alarm check or installation of an alarm at your new property, boarding kennels for your pets if needed and so on. You should also ensure you have some contingency funds so you have the cash to pay for
any unexpected expenses.
To put in an offer for your new home, you will need to complete the Sale Agreement, formally called the ‘Agreement for Sale & Purchase’. We refer to it as the ‘Agreement’.
In 2009 changes were made to the Agreement for Sale & Purchase. The Auckland District Law Society (ADLS) updated its existing Agreement form, and the Real Estate Institute of New Zealand (REINZ) introduced its own new Agreement. The real estate agent for the property you hope to buy will use either one of these forms.
It is vital that we check the Agreement BEFORE you finally sign it and present it to the seller. Faxing the Agreement, emailing a PDF or handing over a photocopy for us to check is fine.
DO NOT be tempted to make the Agreement simply ‘subject to lawyer’s approval’. This is not the time to cut corners and that simple phrase may not mean what you think it says.
You must decide if your offer is to be made conditional on the sale of your existing home, obtaining finance or some other matter such as a builder’s or engineer’s report; or whether you can sign the Agreement unconditionally.
Making this decision will depend not only on your own circumstances but also on the strength of the property market at the time; there may be market pressure to make an unconditional offer.
It is fair to say that an unconditional offer, or an offer with only a small number of conditions, is likely to be viewed more positively by a seller than one that has many conditions. However, you should note our comments regarding LIM Reports and pre-purchase building inspection reports before deciding to make an unconditional offer.
A deposit is paid to the seller as a sign of good faith that the property purchase will go ahead, and that any conditions in the Agreement will be fulfilled. The Agreement provides for this to be paid to the seller’s real estate agent’s trust account (or sometimes the seller’s lawyer), when you sign the Agreement. An alternative, which is becoming more common, is to make the deposit payable once the conditions are confirmed.
The deposit is usually 10% of the purchase price. However, this is negotiable and many sellers are happy with a lesser amount of, say, 5%.
As the deposit is a sign of good faith, your deposit (if paid before the agreement is unconditional) could be placed at risk, or forfeited, if you do not take all the necessary steps toward satisfying any conditions in the Agreement, or indeed if you confirm but do not settle.
Although you may have discussed with your lender their agreement to the financial arrangements to buy your new home, you should always make your offer conditional on your finance being formally confirmed.
When finance is confirmed, your lender will probably instruct us to act for them as well as you the buyer. This saves doubling up on many expenses and we will make sure the lender’s conditions (which are often quite rigorous) are met.
Settlement date is the day on which the property is paid for in full, and it is usually the day that you move into your new property.
It is usual to allow four to six weeks from signing the Agreement to settlement date. Many people name a Friday for settlement, however you may find it more convenient to choose another weekday. Moving companies are very busy late in the week, and you may find it easier to move on another day.
You should allow about 10 working days for finance to be formally approved. Another 10 working days should be allowed for the legal documents to be completed in time for settlement. Although these
times can be shortened, you will find that plenty of time is needed to arrange your move.
We would strongly advise you to get a Land Information Memorandum (LIM) Report for your prospective property before making an offer. The LIM Report is provided by the local authority, for which you will need to pay a fee. Alternatively, the seller may have this available for prospective
buyers to look over before making an offer; just check the LIM Report has been issued within the last few months.
The LIM Report gives information about plumbing, drainage and water reticulation plans, issued consents and permits, compliance schedules, licences, special site features, swimming pool fence regulations, unsatisfied requirements and a host of other details about the property.
The LIM Report may not give a complete picture if, for example, the seller or previous owner has done work without notifying the local authority. You should ask the seller specifically for details of any such
work. It should be noted that gas installation certificates may not be covered in the LIM Report.
A pre-purchase building inspection by a builder or building inspector can be included as a condition in the Agreement. An inspection will provide a comprehensive checklist against which a building is checked. It should include structural soundness, dampness or leaks, defects, repairs or alterations that may not have building permits.
When the inspection is being carried out, you may want to arrange to meet on site to ask any questions or to have some aspects of the inspection explained to you.
The Agreement has a clause to allow a final inspection before settlement. We recommend that you instruct the real estate agent to arrange a time with the seller for you to make a final inspection of
the property one or two days before settlement. It may pay for you to check all the chattels are in place, and that appliances are in the same condition as the time the Agreement was signed (in working order or not). The inspection may include turning on all the elements on the hob, switching on all the lights (it has been known for all the light bulbs to be removed), checking the garage door operates, the TV aerial is working, water and night store heaters don’t leak, and looking for any new damage.
If you find any problems with this pre-settlement inspection, you should get in touch with us urgently so we can contact the seller’s lawyer to rectify any problems before settlement
For a newly built house, and where the seller has done any work that requires a building consent, the standard Agreement requires the seller to supply a Code Compliance Certificate (CCC) from the local authority.
This confirms the seller has carried out work on the house with a consent, and a CCC has been issued to confirm the work has been done within the consent conditions. The LIM Report will show whether CCCs have been issued for any previously approved work.
Some lenders may not provide finance, or release monies, on settlement day if a CCC has not been issued.
Chattels are usually included as part of the sale price and should be listed on the Agreement. (Remember, the Rating Valuation does not include chattels.)
Standard chattels listed are typically the stove, carpets, curtains, blinds and TV aerials. They may also include dishwashers and washing machines. If you are a rural dweller you may want to include items
such as tunnel houses.
If you are buying the property as an investment, you will need to make a detailed chattels list and have the chattels valued for tax purposes A special clause will need to be added to the Agreement to cover this.
As mentioned earlier in this section under ‘First Step’ you should talk with us early on about the best type of ownership for your new property. Buying the house in your own name, or in your own and your
spouse or partner’s name, may not be the most appropriate or useful method for your circumstances, particularly in light of the Property (Relationships) Act 1976. ‘Protecting Your Investment’ discusses in more detail various methods of property ownership.
The printed terms in the standard Agreement are considered essential for both parties’ protection. Do not delete any of these printed terms unless we advise you to do so.
Location of the house on the property: In very old subdivisions occasionally houses are not located entirely on their own sections and encroach onto a neighbour’s land.
To make sure the house is properly located on the section, look on the LIM Report.
The Agreement provides that the seller is not bound to point out the boundaries so fence lines cannot necessarily be relied upon. However, it is still helpful to ask the seller where these are.
Limitations on the title: Some titles are ’limited as to parcels’ which is a legal term indicating the size of the section is not guaranteed until a new survey is completed. This can often result in surprises for owners and their neighbours. We recommend that you obtain the site plan from the local authority before proceeding.
Access: All land must have legal access to it from the roadway. If the access involves a rightof-
way, ie: access that is over someone else’s land or access is shared, you should check that there is a defined right to use the right-of-way. You should also check any maintenance provisions are fair and are properly understood by all the parties involved.
Restrictive covenants: Restrictive covenants (such as height restrictions for buildings and trees, not allowing television aerials on houses nor allowing front fences, specifying minimum floor areas and prohibited building materials) may appear on the property’s title. We will check the implications of these restrictive covenants for you.
Buying rural land: If you are buying rural land or a lifestyle block, you will need to check whether there is town water on the property, available water rights, whether you will need a septic tank, and the
cost of getting services such as telephone, electricity and gas on to the property.
Whilst local authority rates on rural land are usually much less than on a town property, all the above services cost extra and you will need to allow for the provision of these in your budget.
You should get a copy of the Land Information Report (LIR) from the local authority. The LIR gives details relating to the physical and natural resources relevant to a property, lists what services are available and any restrictions there may be on the use or development of the land.
There is more discussion on lifestyle blocks in ‘Other Types of Property’.
The Agreement has a provision for us to check the Certificate of Title to the property you propose buying.
In most cases, a title search obtained immediately after the Agreement has been signed will suffice. However, if you are concerned about whether there are special conditions which will apply to the property, for instance, in the case of bare land and new subdivisions where a title may not yet have been issued (where rights-of-way and building covenants will be important), we will arrange a title search before you make an offer.
Once you are happy with the conditions in the Agreement, it is ready for you to sign.
The Agreement should be signed by all the parties who will be bound by it and whose names will be listed on the title. If, for example, your family trust is purchasing the property all trustees must sign
It should be noted that if you sign as a nominee, you are still personally bound by the Agreement.
Once you have signed the Agreement with an offer, the real estate agent will present it to the seller.
Your offer may be accepted straight away or the seller may come back to you with some additional conditions noted on the Agreement.
These may include:
• ‘Cash out’ or ‘escape’ clause: This applies where your offer is conditional. It means that if the seller receives what they believe to be a better offer (where that offer is either unconditional where
yours is conditional, or at a higher price, etc) before you make your offer unconditional (usually by selling your existing property or confirming finance), they must give you several working days to
make the Agreement unconditional before they can cancel it. If you have to spend money on a valuation or building report, this type of clause may not suit you
• Back-up agreement: The seller may already have another offer, but is giving you the option to buy if the first offer does not become unconditional by a given date, or
• The seller may want to alter the price you have offered for the property, delete or change one of your conditions, change the proposed settlement day or alter some other detail.
These changes, or new conditions, become a ‘counter-offer’ and you are not bound to proceed unless you accept the seller’s new terms.
Each time a counter-offer is made, the Agreement and the changes are initialled by all parties (including trustees and/or nominees) and the real estate agent takes the Agreement back to the other party for written confirmation.
When your offer is accepted and both parties have signed the Agreement and initialled all the changes, you are both bound by its conditions. You will have to pay the deposit within the agreed
timeframe; a late or unpaid deposit will attract interest. Failure to pay after three working days’ written notice demanding payment will allow the seller to cancel the contract.
Any deposit paid to a real estate agent’s trust account must be held for a minimum of 10 working days, unless agreed otherwise.
From the date the Agreement is signed and all alterations initialled by all parties, any time limits in the Agreement begin to run. Make sure you let us have the Agreement as quickly as possible so that we can ensure all the conditions are met on time.
In New Zealand there are various ways in which title to property is held.
Some of these are:
• Fee simple: Fee simple is the most usual form of title available. It denotes a title on which there are no restrictions in the manner in which it can be held, kept or transferred, or passed on by Will.
‘Fee simple’ is not to be confused with ‘freehold’ which generally refers to a property that does not have a mortgage debt secured against it.
• Unit Title: Special considerations arise if the property is held under a unit title, particularly in relation to the rules of the body corporate which govern the relationship between the various owners and the
contributions to be made to the body corporate.
There may also be ‘local’ rules that apply in an ad hoc manner, such as booking arrangements for a shared tennis court.
• Cross-lease: The terms of a cross-lease need to be considered, for example, whether there are areas defined around the building for your sole use, ensuring the outline of the building on the plan correlates to the actual outline of the dwelling, and that details are given about the common areas and use of the driveway.
It can be an expensive exercise if additions have been made to the property, such as a conservatory built, without the legal documentation and survey completed to record those additions on the title.
• Leasehold: In some cases property may be leased for varying terms (usually 21 years for residential properties). There are several types of perpetually renewable leases. The exact provisions in relation to rent reviews and the basis of calculating rent should be discussed with us.
Satisfaction of conditions
The Agreement states that a condition is not fulfilled until the party to be bound by it has received confirmation in writing.
If your Agreement has conditions, you should contact us well before the required confirmation dates. We will not confirm any conditions to the seller’s lawyer without your explicit instructions.
Remember that the time limits to fulfil any conditions apply strictly. The penalty could be that the
Agreement could be cancelled by the seller, and you will miss out on buying your new property.
Having advised you on the best method of ownership for the property, see ‘Protecting your Investment’, we will prepare the transfer of the property into the appropriate names and complete the forms to ensure the local authorities get details of the transaction.
All law firms are now required to register land transactions electronically. Early on in the settlement process we will ask you to sign documents authorising electronic registration; we are also required to ask you for photographic governmentissued proof of your identity (driving licence or passport).
The lender will forward their instructions shortly after the loan is approved and we will prepare the documents to be signed by you or your purchasing entity.
After checking the seller’s statement of the amount to settle the purchase, including apportionment of rates and other outgoings to the date of settlement, a complete statement of the amount required
to settle will be sent to you. This statement takes into account the mortgages provided, your cash input and the deposit already paid.
After you have signed the lender’s documents we will ensure that their requirements are met and arrange for the funds to be available to you on settlement day.
On settlement day, after receiving all the funds necessary to complete the purchase, we will arrange for the seller’s lawyer to be paid, clear title to be given to you and the keys made available. You will then be entitled to legal possession of your new property.
If settlement is delayed or takes place after the settlement date, you may be liable for late settlement interest on the unpaid purchase price.
Following settlement, we will complete electronic registration of the transfer of the title into your
name and the registration of any mortgages required by the lender.
With all titles now being stored electronically, after registration we will send you a photocopy of the title
showing the property registered in your name, including the details of any registered mortgage.
If settlement of your prospective property is to be delayed, we may suggest a caveat be registered to protect your interests. A caveat is an official warning or caution registered on the title to a property
that another party may have an interest or right over that property.
Registering a caveat will mean that any other prospective buyer of ‘your’ property will be warned of your interest or right over it.