DATE: 29/08/2014
CATEGORY: Blog, First Home Buyer, Home buying, Mortgages

sale and purchase agreements

IMG_1607For weeks, months or maybe even longer, you’ve combed the real estate mags, scanned open2view, Realestate.co.nz and Trade Me Property and had almost given up on the hope of ever finding the right property.

But the day has arrived. You’ve found your dream home and want to give it your very best shot!  So where to next?

You’ll need to decide how much you can afford or are willing to offer and work out your negotiating strategy. Unless the property is being sold by auction, you’ll need to fill out a tender document or let the real estate agent know the terms and conditions of your offer. You could email the agent with the terms or let them know verbally.

You get to call the following shots:

  1. The things you want to check out before you fully commit to buying – referred to by those in the trade as the ‘offer conditions’.
  2. The time you’ll need to satisfy your offer conditions.
  3. How much dosh you’re willing to part with as a deposit. This seals the sale and means there’s no turning back. The property is yours!
  4. When you want to move in or take possession – known as the settlement date.

offer conditions  

In principle, the more conditions you include in your offer the less attractive it will appear to a seller wanting an uncomplicated, quick sale.  But given what’s at stake when buying property you should avoid cutting corners and becoming exposed to unnecessary risk.

It’s easy to succumb to pressure or let your heart strings run away. We’ve all been there and done that. Laurie Wills, the property guru himself once got caught out big time. Taking what he thought was a calculated punt, in the final wash-up opting not to get a LIM cost him sixty grand and nearly a full-head of grey hair – something he’ll share with you in a blog post to come soon.

A sale and purchase agreement is a legally binding contract, so be sure to run it by your lawyer before signing. Seek their advice regarding conditions to include.

Here’s a few of the most common conditions – including timeframes, and estimates of the costs it takes to satisfy them:

Finance five working days but up to ten if you’ll need extra time for example to arrange a registered valuation

Building inspection five working days (Around $600)

House insurance one working day

Land Information Memorandum (LIM) ten working days ($330)

Registered valuation report five working days (Around $650)

Body corporate minutes and financial records five working days. A must do if you’re looking to purchase an apartment!

Title search one working day. It’s a good idea to have your lawyer check the title before signing the sale and purchase agreement as the cost is usually minimal and this then means one less offer condition.

Check out our star-performers for the names of lawyers, building inspectors, valuers and other experts you can trust and who will help you check out the property like a pro.

council property information

You can find out about the types of property reports available from the Wellington City Council by following the link here – Wellington City Council Property Information.

If the property you’ve got your heart set on is outside the Wellington area simply log on to the relevant Council website and follow your nose.

A large number of sale and purchase agreements and tender documents we come across are conditional on a Property Report rather than a LIM Report as many consider this adequate to check for things like unpermitted building work or outstanding consents.  But again this is something you should discuss with your legal eagle who will walk you through the pluses and minuses of the various options.

deposits

The deposit is usually paid to the real estate agent by the buyer once the sale and purchase agreement becomes unconditional (when all offer conditions have been satisfied). Or it can be paid on acceptance of the offer.

The money is initially held in the real estate agent’s trust account and the agent usually takes their commission from the deposit when the contract becomes unconditional.

Real estate agents may ask for a 10% deposit but in our experience a 5% deposit is most common. Rather than a percentage, parties often agree on a fixed sum such as $25,000.

Tenders usually require that a cheque is attached for the deposit. But how many people these days have cheque books?! Most end up paying the deposit by making a bank transfer after being notified that their tender has been successful.

Make sure you have access to cash to pay for the deposit as getting a short term temporary overdraft from the bank is expensive.

Once the offer becomes unconditional you won’t be able to get your deposit back if you change your mind for any reason. So be sure you really want the property!

settlement date

The settlement date can be some time after the date the offer becomes unconditional. Most people aim for four weeks after all the offer conditions have been satisfied and the sale has been sealed.

It’s common for the agreement to show next to the date “or earlier by mutual agreement”. This means that if everyone is on the same page you can move in or take possession earlier than initially agreed.

If the preference is for a real speedy settlement, this can happen in as little as a couple of days. We recently helped clients move in within just 48 hours of sealing the sale!  Be sure to check with your lawyer before agreeing to a really short settlement date as an “urgency” fee may apply. And a word of caution if you’re using KiwiSaver to buy the home – short settlement dates won’t work as application to withdraw KiwiSaver funds can only be made when the sale and purchase agreement has gone unconditional (all offer conditions have been satisfied).

residential property sale and purchase guide

Click here to download a copy of the Real Estate Agent Authority’s guidelines: REAA Residential Property Sale and Purchase Agreement Guide.

risk versus return

Of course you can always weigh up the pros and cons of checking things out before making an offer.

On one hand you’ll have a cleaner offer or possibly even an offer with no conditions. But on the other hand, how will you feel, having parted with a wad of cash to check everything out if your offer isn’t accepted?

At the end of the day information is power and smart decisions are informed and considered decisions.

Wishing you happy (and careful!) house buying.

P.S. Remember, always have your lawyer check your sale and purchase agreement before you sign it!

 


SHARE:
Tags: , , , , , , ,
Posted in Blog, First Home Buyer, Home buying, Mortgages

Leave a Reply