So, you've decided that you want to buy a property.
- What do you do now?
- Where do you go?
- Who do you ask?
This guide steps you through the buying process, in particular
- the offer,
- the agreement for sale and purchase,
- conditions (eg. title, LIM, finance, insurance),
- confirmation of the contract,
- forms of ownership,
- the Property (Relationships) Act,
- what happens after the contract is confirmed, and
- how much your legal fees will be.
Starting the Process
Once you've found a property that you wish to buy, the next step is to make an offer. If the property is being marketed by a real estate agent, the agent will prepare an offer on your behalf and, after you sign it, present it to the seller.If there is no agent, then it's common for the buyer's lawyer to prepare the offer.
Before you make an offer, you must decide:
- The price to be offered - the "purchase price"
- The deposit to be offered - normally between 5% and 10% of the purchase price
- The settlement date - the day you pay the purchase price and take possession and ownership of the property
- Chattels (furniture, furnishings, appliances, farm equipment) to be included - you need to list all chattels that you expect to receive as part of the purchase price
- Conditions to be included (see below)...
The Agreement for Sale and Purchase
The usual form of agreement for sale and purchase is called the "ADLS 10th Edition". This contains the terms of your offer to the seller. When you sign it, it's an offer by you to the seller to buy the property on the terms set out. Once accepted by the seller, it's a legally binding contract which neither party can withdraw from unless the conditions have not been satisfied, or, in certain circumstances, when the seller is in breach.
When considering making an offer you need to decide whether you should include special conditions. The real estate agent, or your lawyer, can help you with these. Common conditions are:
- Your solicitor approving title
- You obtaining satisfactory finance
- You obtaining a satisfactory LIM (Land Information Memorandum)
- You obtaining other satisfactory reports such as a building or valuation report
- You selling your existing home
- Overseas Investment Office approval
The conditions will have to be satisfied within a certain time period. If any conditions have not been satisfied in time, usually the buyer and the seller will have the option of cancelling the agreement. The buyer should take all reasonable steps to satisfy those conditions. If a buyer does not take reasonable steps, then they may be in breach of contract. We'd suggest a quick chat with your lawyer to understand where you stand.
In a competitive offer situation (such as a tender) you may like to consider whether you can safely remove any of these conditions prior to making an offer either to reduce the number of conditions, or to make an offer without any conditions. This will make your offer more attractive to a vendor than an offer with many conditions. For an auction, you cannot include any conditions, so you need to ensure you have made all necessary investigations prior to bidding at the auction.
If you have made your offer subject to title approval, your lawyer will search the title, provide you with a copy, and (if required) advise you about any legal issues that arise in relation to the title. You will need to satisfy yourself that the diagram on the title shows the land you intend to purchase.
If there are encumbrances on the title (such as easements or land covenants), your lawyer will need your confirmation that you are prepared to proceed subject to those encumbrances.
There may be other issues with the title if the title is a leasehold, cross-lease or unit title, or if the property is a company share flat. You will need to discuss these with your lawyer.
If you have included a finance condition, you should either engage a mortgage broker, or discuss the purchase with your bank, to endeavour to arrange bank funding to assist with the purchase. Once you are comfortable that a bank will lend the necessary funds, on terms you are happy with, you can advise your lawyer to confirm the finance condition.
If you have included an insurance condition, you should discuss the purchase with your insurance company, to ensure they will insure the property on terms you are happy with. Whether or not you have an insurance condition, you will need to insure the property to take effect from the day of settlement. If you have a mortgage, the insurance company should note the interest of your lender on the insurance policy. You will have to provide details of the policy to your lawyer as your lender will not advance funds until it has proof of insurance. Also, check that any contents insurance you hold covers your contents while in transit.
A LIM is a report on the property provided by the local Council setting out all of the information held on their records in relation to that property. The report normally indicates:
- What building consents have been issued for any buildings, or alterations to any buildings, on the property. It is important that you pay particular attention to this as the lack of a building consent could cause problems in the future.
- The zoning for the property.
- Site plans of any buildings and/or alterations on the land.
- Location of drains.
- Any outstanding Council requisitions or requirements on the property which have not been complied with.
- Rates information.
- Any proposed notified public works in the area.
- Any notified Resource Consent applications for properties adjoining the property which may affect the property.
If you have building report, valuation or other report conditions, you should arrange those reports and ensure you will have them to read and consider prior to the confirmation date.
You selling your home
If you need to sell your own home before purchasing another, you may consider including a condition giving you time to sell your own home. Such a condition is not desirable from the seller's viewpoint, as it provides a long period of uncertainty as to whether the seller has sold their property.
Often a seller will insist an escape clause accompany such a condition. An escape clause allows the seller to continue to market the property, and to accept another offer commonly called a "backup offer". The escape clause provides that if the seller gives notice to the buyer that they have received another satisfactory offer then the buyer has a fixed time period, normally 3-5 days, to confirm the agreement. If the buyer does not confirm within that time the seller can cancel the agreement, in which case the backup offer is in force.
Overseas Investment Office approval
Only New Zealand citizens (and in some cases Australian and Singaporean citizens and holders of residence class visas) can buy residential land in New Zealand. If you are not a New Zealand citizen, you should discuss with your lawyer whether you have the right to buy residential land in New Zealand.
On, or before, the date or dates for confirming the conditions you will need to discuss with your lawyer whether those conditions have been satisfied.
On your instructions, your lawyer will advise the seller's lawyer and the real estate agent when each condition is confirmed. Once all conditions are confirmed the agreement is binding on both parties and enforceable by both parties. This is normally when the deposit is paid.
Forms of ownership
There are points to consider when deciding how you should own a property. Here are some of the options:
This is where two or more individuals own the property. On the death of one party, the property passes to the survivor or survivors, irrespective of any provisions in a Will. You may not want this to happen, especially if you are in a subsequent relationship as it would mean children of a prior relationship will not inherit their parent's share in the property.
Tenants in common
This means each owner owns a share of the property. If you die, your share in the property will be left to beneficiaries named in your will.
A family trust is often used to own a family home or a holiday home. This is usually to protect a major asset against creditors and other risks, and also provides an effective estate planning tool. New trust legislation came into force on 30 January 2021, so if you have a family trust you should discuss the requirements with your lawyer.
A company is often used to own rental properties. A company, also known as a limited liability company, will have directors and shareholders. If a bank is lending to a company, the bank will usually require personal guarantees from the directors and/or shareholders.
Property Sharing Agreement
If you are buying a property with someone other than your partner (such as other family members, or friends), it would be advisable to record the details of your arrangement in a Property Sharing Agreement. You should talk to your lawyer about this.
Property (Relationships) Act
Another important issue to consider is the possible impact of the Property (Relationships) Act.
The provisions of the Act apply to all relationships (marriages, civil unions and de facto relationships).
In relationships that last for more than 3 years, property will generally be divided equally on separation.
Remember, you do not have to be living together for three years under the same roof for the Act to apply. This may affect you if you are in a relationship and own or are buying a property in your sole name or in unequal shares. If that is the case you may need a written Property Contracting Out Agreement with your partner.
Individuals are also at risk if they commence a relationship after buying a property. If that relationship lasts for more than 3 years, the property may become 'relationship property' and be divided equally on separation. If a relationship commences after you purchase a house, and you do not wish to be subject to the equal sharing rules, you and your partner need a Contracting Out Agreement, drafted by your lawyer, to protect you. These agreements are only binding if each partner received independent legal advice from different law firms.
You can find more information about Contracting Out Agreements here.
After Confirmation (of contract)
Once the agreement has been confirmed your lawyer will prepare the legal documentation, including any loan documentation and securities, to enable settlement to take place and possession to pass on the settlement date.
You will need to attend to the practical aspects such as:
- Moving home
- House insurance
- Arranging service providers such as power, gas and internet
- Advising people, authorities and organisation of your new address
- Booking a removal company.
Your lawyer will provide you with a statement setting out the amount required from you to complete the purchase, including legal costs and any other expenses.
You will need to see your lawyer prior to the settlement date to sign any required documents and arrange payment of the amount required from you.
The ADLS 10th Edition form of agreement provides that the buyer may inspect the property before the day of settlement to ensure that the property is still in the same condition as it was when you first inspected and that there are no missing or damaged chattels. If there is a problem you need to notify your lawyer immediately.
Prior to settlement, you will need to provide your IRD number(s) to your lawyer, for inclusion in the tax statements your lawyer will prepare.
These statements collect information for the New Zealand Government regarding the citizenship and visa statuses of buyers and their families, the tax residency of buyers, and information for the purpose of assessing tax on the sales of certain properties.
Your lawyer will ask your lender for your loan advance and will ask you for any cash contribution due from you.
On settlement, your lawyer will pay over the settlement figure to the seller's lawyer. You are entitled to vacant possession of the property as soon as the funds have been paid over. Your lawyer will also finalise the transfer of the title of the property to you.
After settlement, the local Council and QVNZ are notified of the change of ownership by your lawyer.
Local Authority Rates
On settlement, local authority rates are apportioned between the seller and buyer.
As most rates are payable by instalment it is a good idea for you to check when the next instalment is due just in case the next instalment notice is forwarded to the seller and not passed on to you.
After settlement, your lawyer will provide you with a full report setting out the details of the transaction.
The fees for residential conveyancing will depend on the complexity of your purchase, including whether a mortgage or other loan is involved, whether you are using Kiwisaver, how many houses we are dealing with (are you buying and selling?) and other considerations.
Before proceeding with your work, we will outline our fee estimate so you understand what you can expect to pay.
For straightforward residential conveyancing transactions, you can expect a fee from $1,000 for sales and from $1,100 for purchases (excluding disbursements, which will usually add between $250 and $400 to this cost).
If you'd like a fee estimate or want to talk to us about how we can help you with buying a home, please call contact one of our specialists below: