When you’re looking to buy a home, it’s a good idea to have an overview of what to consider and the legal procedures involved. This guide is intended to set out, in plain English, what’s required when making an offer, checking things out and seeing the transaction through to completion. While the process can seem daunting at first, you should bear in mind that thousands of New Zealanders go through it every week and, if all matters are properly attended to, problems should be rare.
When making a purchase you need to make an offer to the vendor. If the property is being sold through a real estate agency, the agent will usually prepare the offer on your instructions. If the property is being sold privately, you will need to instruct a lawyer to prepare the offer.
In almost all cases the offer will use a “standard” sale and purchase agreement jointly published by the Auckland District Law Society and the Real Estate Institute of New Zealand. If signed by the vendor, the offer becomes a binding contract. The standard agreement is updated from time to time, so you should ensure that the latest version of the form is used.
Before giving instructions on the offer, you will need to decide the following things:
- The price you will offer.
- The deposit (usually up to 10% of the purchase price) – which should be expressed as only being payable when the agreement becomes unconditional.
- The settlement date.
- Confirmation that the property will not be tenanted when the transaction settles.
- A list of chattels and furniture to be included in the purchase.
- The conditions to be satisfied before you finally commit to purchasing the property.
Remember that the deposit is different from any funds you can withdraw from your Kiwisaver withdrawal account and the HomeStart grant. Unless your Kiwisaver provider allows you to use your withdrawal for the deposit, you need to be able to pay the deposit from your cash on hand.
The agreement can be cancelled for non-payment of the deposit which could lead to your being sued – so it is important to get this right.
The signed agreement is a binding contract when signed by both parties. However, if the agreement is expressed to be subject to any conditions, then you will be able to cancel the transaction if the conditions are not fulfilled.
At a minimum, the conditions included in an agreement should be:
- The bank giving you a written offer of finance on terms you are happy with.
- Your solicitor approving the title – this is important because a defective title could limit your ability to enjoy the property and make getting bank finance difficult.
- Your obtaining confirmation that a Kiwisaver withdrawal and HomeStart grant will be available. If you are looking to take advantage of these schemes, we recommend giving yourself at least three weeks to determine this.
- A building inspector looking at the house and confirming that the house and any other structures are in a condition that is satisfactory to you.
- You approving a substance contamination report on the property.
- Your approving a LIM report from the local council so that you can have some confidence that the house was properly consented or permitted (as the case may be) and complies with other council requirements. See our further article “LIM reports and Council records” for more information.
Buying a property is a big investment, so it pays to check things out carefully.
Once all the conditions of purchase are satisfied then you need to let your lawyer know. He or she will then notify the vendor’s lawyer and the agreement will then become “unconditional” - which means that you will be committed to seeing the purchase through to completion.
At this point, you will need to arrange with the agent for immediate payment of the deposit.
GETTING THE MONEY TOGETHER
Your bank will pass loan and mortgage instructions to your lawyer for signing prior to settlement. In almost all cases, the bank will want to transfer the loan money direct into your lawyer’s trust account for payment to the vendor on the settlement date.
If you are contributing your own funds to the purchase (i.e. apart from bank finance) you will need to arrange for them to be paid to your lawyer’s trust account directly by your bank. Funds can only be paid out of a trust account if they are “cleared” – which means that either they have to be deposited with your lawyer three clear days before settlement or if your bank faxes or emails your lawyer to undertake that the payment is of “cleared funds and will not be reversed”.
If you are borrowing money from a bank, it will require proof of insurance. You should do this as soon as possible and ask your insurer to send a “certificate of insurance” to your lawyer so that insurance can be confirmed to the bank. You should also ensure your insurer makes a note on the policy of the name of your bank.
PAYMENT ON SETTLEMENT
Rates will be apportioned in the settlement statement which the vendor’s lawyer will issue to you through your lawyer. These are normally paid by the vendor to the end of the next instalment with your being required to reimburse the vendor their share of what has already been paid. This usually means an additional cost for you to pay on the settlement date which you will need to allow for.
TRANSFERRING THE TITLE TO YOU
Before the settlement date, you will need to sign documents authorising your lawyer to transfer the title to the property into your name (and register the mortgage, if you are to have one). These documents must be signed and witnessed according to very strict rules. In particular, it is very important that whoever witnesses your document is able to sight an unexpired New Zealand Driver Licence, passport or firearms licence to verify your identity. If you don’t have any of those things you should contact your lawyer right away to discuss what alternative forms of identification might be acceptable.
INSPECTING THE PROPERTY
You are entitled to inspect the property once before the settlement day. This can usually be arranged through the agent (if there is one) or directly with the vendor. If the property has been damaged or is in need of repair, your lawyer can attempt to negotiate compensation. We recommend doing your inspection at least 48 hours before the settlement day because if you leave it any later, it may be too difficult to negotiate a satisfactory solution.
THE BIG DAY - SETTLEMENT
On the settlement day your bank needs to advance the required funds and your lawyer needs to complete any final checks and receive certain assurances from the vendor’s lawyer to ensure the title can transfer over to you. The remaining funds owing can then be paid in accordance with the settlement statement.
Your lawyer will then contact you to confirm the deal has been settled – and at point the property is all yours!