You have decided to sell your home. What do you need to do before you put it on the market? There are a few preliminary matters that you need to deal with before you find a buyer for your house, these include:
- Talk to someone to set the price
- Prepare your home for sale
- Decide on which sale method to use
We can help you with advice on these areas and point you in the right direction. Alternatively, there are many resources available such as the Real Estate Authority or Trade Me Property.
Confused by all the property jargon? Here's some common terms you may find being used when it comes to buying a house.
Starting the legal process
Once a buyer is interested, the next step is for the buyer to make an offer. If the property is being marketed by a real estate agent the agent will prepare the offer on the buyer's behalf and, after signature by the buyer, submit it to you.
If there is no agent then it is normal for the buyer's lawyer to prepare the offer.
Before you consider an offer you must decide:
- The price: "purchase price"
- The deposit - normally between 5% and 10% of the purchase price
- The settlement and possession date (the day you receive the purchase price and give possession/ownership of the property to the buyer)
- Chattels (furniture, furnishings, appliances, farm equipment) to be included
- Any conditions that you are prepared to accept (see below)
The Agreement for Sale and Purchase (Contract)
The form of Agreement for Sale and Purchase commonly used is a form jointly prepared between the Real Estate Institute of New Zealand and the Auckland District Law Society.
This contains the terms of the buyer's offer to you. When signed by the buyer it is an offer by the buyer to you to buy the property on the terms set out.
Once accepted by you it is a legally binding contract which neither party can withdraw from unless any conditions contained in the contract have not been satisfied or, in certain circumstances, when a party is in breach.
The agreement normally contains certain warranties (or commitments) given by you as the seller. You need to be aware of these:
- If the property is a vacant residential lot that all boundary markers are present and will be in their correct position as at the possession date.
- That as at the date of the agreement you have not received any notice or demand and have no knowledge of any requisition or outstanding requirement in relation to the property.
- You have not given any consent or waiver which directly or indirectly affects the property and which has not been disclosed in writing to the buyer.
- That all the chattels will be delivered to the buyer in the same state as they were at the date of the agreement.
- That all electrical and other installations on the property are free of any charge.
- There will be no arrears of rates or water rates.
- If you have done or caused or permitted to be done on the property any works requiring a Resource Consent or Building Consent that Resource Consent or Building Consent was obtained, the works were completed in compliance with such consents, and where appropriate a Code Compliance Certificate was issued for those works.
- That between the date of the agreement and settlement, you have not given any consent or waiver which directly or indirectly affects the property and that any notice or demand received which directly or indirectly affects the property has been delivered forthwith by you to the buyer.
- There are further warranties and undertakings of a procedural nature that are included in the agreement, which will be dealt with as part of the sale process.
When considering an offer you need to decide whether you will accept an offer subject to conditions.
The real estate agent or your lawyer can help you with these. Common conditions are:
- The buyer's lawyer approving title
- The buyer obtaining satisfactory finance
- The buyer obtaining a satisfactory LIM
- The buyer obtaining other satisfactory reports such as a building or valuation report
- The buyer selling their existing home
The conditions will have to be satisfied within a certain time. It is the person buying the property's obligation to take all reasonable steps to ensure that they satisfy those conditions by that time. If a buyer does not take reasonable steps to satisfy the conditions then the buyer may not be able to validly withdraw from the contract if those conditions are not satisfied and could be in breach of the contract. If that happens you should discuss that with your lawyer.
You may also consider imposing a condition that you obtain a replacement property satisfactory to yourself. For obvious reasons that type of condition is not particularly attractive to a buyer.
There are two common ways of wording a building report condition.
The first is entirely subjective and reads something like this:
"This agreement is conditional upon the purchaser obtaining a report from a builder on the property on terms and conditions entirely satisfactory to the purchaser within five working days of the date of this agreement."
If there is anything wrong with the property whatsoever then the purchaser may withdraw from the agreement (although there may be an argument that if a particular defect was readily apparent to the buyer, for example, if the house needed painting, then the buyer cannot rely on that defect to withdraw).
A second common type of building condition is more akin to a building requisition. In this type of clause the buyer must submit a copy of the report to the seller specifying any defect and if the seller agrees to remedy that defect then the purchaser cannot withdraw. That type of building report condition is more preferable from a seller's point of view.
If the contract is to be subject to a condition that the buyer sells their existing home or some other condition that contains a long time period for confirmation you may consider putting in an escape clause.
An escape clause entitles you to continue to market the property and accept another offer, commonly called a "backup offer". The escape clause provides that if you give notice to the buyer that you have received another satisfactory offer then the buyer has a fixed time period, normally 3-5 days, to confirm the contract. If the buyer does not confirm within that time you can cancel the contract in which case the backup offer is in force.
You'll need your lawyer to search the title. It is your obligation as the person selling your home to give the buyer clear title on settlement. That means that any mortgages or other charges shown on the title have to be cleared by you on or prior to settlement.
The general terms in the agreement provide the buyer the opportunity to check the title for the property for any problems or defects.
Common examples of defects in titles are things like a sewage or wastewater pipe for your neighbour's property runs under the back yard of the property you are buying, but there is nothing about this pipe (an "easement") on the title that sets out the rules for what happens as to ownership, care, and repair of that pipe.
Or, you're buying a "cross lease" property and the last owner built a big new lounge extension on the side of the house, and now the plan on the title doesn't match the footprint of the actual house.
If there is a defect in the title the buyer can use the clause in the general terms of the agreement to ask you to fix the defect at your cost before they pay for the house and move in. The seller doesn't have to do this, and if they choose not to, the agreement can be cancelled by either party.
If this general term is not crossed out, even if the offer is a cash offer with no conditions, these rules still apply.
On the date for confirmation, the buyer's lawyer will, hopefully, confirm the conditions. If the conditions are not confirmed you have to decide whether to grant an extension if requested by the person buying the property, or terminate the contract.
You will need to instruct your lawyer to do that. The contract does not automatically terminate.
Once confirmation is given, the contract is binding on both parties and enforceable by both parties.
Once the contract has been confirmed your lawyer will attend to the legal documentation, including obtaining any discharge of mortgage required to enable settlement to take place and possession to pass on the settlement date.
You will then need to attend to the practical aspects such as:
- Moving home
- Cancelling home insurance
- Advising people, authorities and organisations that need to be notified of your move
- All other ancillary matters
- Your lawyer will provide to the buyer's lawyer a statement (called a "settlement statement") setting out the amount required on settlement including apportionment of any outgoings, such as local authority rates.
Prior to settlement, you will need to see your lawyer to sign any necessary documentation and advise your lawyer of what you want to be done with the proceeds of the sale.
On the settlement day, your lawyer will collect from the buyer's lawyer the amount required to complete settlement of the purchase and repay any loan outstanding that is secured against the property. The buyer is entitled to vacant possession of the property as soon as the monies have been paid over and to have the legal title transferred. After settlement, the local Council and QVNZ are notified of the change of ownership.
Local authority rates
On settlement, local authority rates are apportioned between the seller and buyer. As most rates are payable by instalment your lawyer will normally apportion the rates on the basis that all current instalments, and the next instalment due, are paid or will be paid out of the proceeds of the sale.
After settlement, your lawyer will provide you with a full report setting out the details of the transaction and pay any balance settlement proceeds to you or to your nominated bank account.
If you'd like a price estimate or want to talk about how we can help you, please contact one of our Property specialists below.