Various Ways To Buy A Property
- August 28, 2020
- Posted by: admin
- Category: About Us, Loans
DIFFERENT WAYS TO BUY A PROPERTY – NOT EXHAUSTIVE
- The most common is through a public listing of a property by a Real Estate Agent open home at set times or with prior appointments – price is negotiated through the agent. You can make a conditional purchase offer through the agent.
Some of the Purchase Conditions are –
- Subject to finance – 5 to 10 working days
- Subject to building inspection
- Subject to LIM report
- Subject to solicitors approval – 3 working days (insert this if you are not confident about what you are signing).
Another popular clause is a Due Diligence clausethat gives you full control on the purchase process but isn’t nearly as popular with Agents for this reason.
REMEMBER it is a legal contract. Talk to a solicitor before signing the contract.Once you go unconditional you are committed to purchasing the property.
You put in a written offer within a specified timeframe which the seller considers at the same time as any other written offers.
You can put conditions on the offer but this might make it less appealing than other offers.
PRIVATE TREATY / PRIVATE SALE
This is where you buy by negotiation directly with the vendor.
Good negotiation is about doing your research.
REMEMBER, YOU DO NOT HAVE AN AGENT TO GIVE YOU INFORMATION ABOUT THE PROPERTY IN THIS SITUATION.
YOU NEED TO RESEARCH HISTORIC SALES DATA YOURSELF.
These transactions have the risk of something going wrong because there is nobody to manage the process. Please involve your solicitor and any experienced friend or family member.
If you buy privately a Registered Valuation will almost always be required and you should insert a solicitor’s clause (e.g. “subject to solicitor being happy with the contract in all regards within 3 working days”) or have your solicitor check the agreement before you sign it.
PRIVATE TREATY / SALE CAN BE CONDITIONAL.
- An auction is an unconditional purchase.
- This means you need to have done all of your due diligence upfront.
- The Real Estate Agent will provide you with a copy of the S&P agreement, Title and LIM report upfront.
- You may need to do a building inspection and/or valuation before the auction, which can become expensive if you keep going to auctions.
- You need to register your interest in an auction before the day and you will need a 10% deposit that is payable on winning the auction. How do auctions work?
Auction check list
- Register your interest with the agent before the day
- Arrange your deposit – you need a 10% deposit
- Agree any changes to the deposit or settlement day with the Agent before the auction
- Have your solicitor check the title
- Get your finance fully approved
- Read the LIM report and do any other due diligences
- Do a building inspection or valuation (if required)
Auction can be requested by the Vendor or it can be a Mortgagee sale
Sale and Purchase Agreements
Once you find a place you’ll be asked to sign a Sale and Purchase agreement. This is largely template driven with space to insert your own purchase conditions. We’ve outlined the main conditions below.
- finance date – 5 to 10 working days from offer date
- settlement date – the day you take ownership of the house
PAYING THE DEPOSIT
Often you will not have the deposit available when you buy a property. This can cause some stress around unconditional date so I thought I’d outline the rules and process:-
The amount of a deposit is completely negotiable.
With an auction it is set at 10% but you can negotiate with the Real Estate Agent before the auction if you do not have 10% available. Agents/vendors want as many bidders as possible at the auction so will generally agree to a lower deposit.
With private treaty (by negotiation) sales you set the figure as part of signing the S&P agreement. 5% is usually enough. With bigger purchases you can usually cap the deposit at a set amount, say $25k.
When is the Deposit Paid?
You normally agree to pay the deposit on going unconditional. Occasionally Real Estate Agents ask for the deposit upfront but this is not as common.
If you do not have funds available we will set up a temporary overdraft or draw down the funds on your existing property to form the deposit.
Although it is best to pay the deposit on unconditional day this is often not possible due to the amount of paperwork required to get temporary facilities in place – especially if you are a first home buyer. In this situation you can go unconditional, and as a courtesy let the Agent know that the deposit will be paid within 48 hours.
Always check with your solicitor – you have 3 working days from being served notice (by the vendor’s solicitor) to pay the deposit. This means you have at least 3 working days from going unconditional to pay it.
Building Inspection and Valuation
Once you’ve signed a sale and purchase agreement we can arrange for a building inspection and valuation and have these available for you prior to going unconditional.
A LIM report is prepared by the council and is based on its property records. It will tell you whether or not the property has the right consents and a code of compliance. We do not arrange LIM reports. If you want a LIM report you will need to order it from your Council. It costs around $150 and takes up to 10 days so order it immediately after signing the Sale and Purchase agreement. Alternatively you can check the council’s property file yourself.
THE LAWYER AND SIGNING CONTRACTS
Your Lawyer is an important part of the house buying process. The first question you need to ask yourself is what level of service you require. There is a massive range of Lawyers out there both in terms of quality of service, quality of advice, and cost.
If personal service is important then as one client put it, pay extra and go to a reputable law firm. There are also a number of low cost transactional services available. These work well provided you do not need advice or lots of reassurance. Your lawyer will manage all dealings with the vendor (i.e. confirming that you would like to go unconditional), they check that the title of the property is clean, run through the mortgage documents with you, and settle the funds.
If you are outside of Auckland or Overseas, they will courier the mortgage documents out to you to be signed in front of a Justice of the Peace or Public Notary. For non-residents you do not need to come to New Zealand to buy property. Just allow enough time for us to manage the paperwork back and forth.
Buying a Property – Use a Due Diligence Clause
Buying a house is an exciting and frightening thing.
Exciting – for all the obvious reasons.
Frightening too because you may discover unpleasant things: “Did you hear about Chris who bought a house and then found out some horrible things but could not get out of it?”
“Unpleasant things” could be:
- Water-tightness issues
- An inability to find finance
- An unnoticed drain running very near the house
- Discovering it was prone to flooding
- Finding out that those alterations to the house were done without a permit and may need to be demolished.
All of these things – and more – can be avoided with the right clause inserted in the sale and purchase agreement before you sign it.
It is a known fact that real estate agents put a lot of pressure on you to sign a purchase contract – preferably an unconditional contract – to get the best deal for their client, the vendor.
Having said that, it is the agent’s skill and training that will pull the deal together. The agent gets you to pay as much as you can afford and gets the vendor to accept as little they can afford to sell for.
Almost all agents do a great job for their vendors and we enjoy working with them.
But what should you do when you are making an offer?
The prudent and wise thing to do is to have as few conditions in the agreement as possible, but make those conditions effective. They need to give you maximum possible protection so that if you find any “horrible things” you can walk away.
The clause we recommend is a clause called “due diligence”.
We recommend that you get the agent to insert it in the contract as clause 15.
Once the vendor has signed the agreement this clause requires you to do everything you can to confirm this contract. It does not just allow you to change your mind later and walk away.
You must make inquiries of your bank and other sources of finance to find finance that you can afford.
It allows you to get a building consultant to go through the property and give you a report on its conditions. We strongly recommend that you do this. You are also required to contact the local council and check on permits and consents for the house. You can also have a valuer determine in their opinion the value of the house and give you a written report. This clause allows you to carry out whatever investigations you think you need to do.
If as a result of these inquiries and reports something horrible does come up, you can walk away from the agreement. You must then advise the vendors that the contract is at an end.
This clause does not cover the situation where you have a house to sell. If you have to sell your own house then you must put in a clause which covers that. The agent will have a clause that will do the trick. But make sure that the agent does insert this clause in before you sign the contract.
These are the magic words to create a “horrible things avoidance clause”:
DUE DILIGENCE CLAUSE
This agreement is entirely conditional upon the Purchaser in its sole discretion being satisfied that the property is suitable for the Purchaser’s intended uses following the Purchaser carrying out due diligence investigations on the overall viability of the property and including but not limited to searching any and all easements, and of any requirements of the local authority or financier, this clause is for the sole benefit of the Purchaser and the Purchaser shall have until 4pm on 10th working day from the date of this contract to give to the Vendor’s solicitor notice that this clause is satisfied failing which the contract shall be at an end. This clause may be waived by the purchaser prior to the prescribed time at the sole discretion of the purchaser.