WHAT TO EXPECT WHEN BUYING YOUR FIRST HOME
You’ve saved enough for a deposit, the bank has provisionally said ‘yes’ to your lending, and you are going to open homes and checking online for private sales… congratulations!
How does this all work, and what should you expect?
When do you bring in a lawyer? Do you even need a lawyer – can’t you just do a private sale?
There are so many questions, and it can be extremely overwhelming – this is one of the biggest investments you will make in your life, and it is stressful.
We understand, and we’re here to help.
To start you off, we have prepared the top 10 things you need to know when getting onto the property ladder.
1. Don’t sign anything until your lawyer/legal representative has checked it!
This may sound like a money- grab, coming from a law firm, but truly it is to protect you. An Agreement for Sale & Purchase is a 21- page (minimum) document that sets out the terms and conditions for your purchase. Some of these can have significant effects on you as the purchaser, and once you sign you cannot simply change your mind and back out. You need to be very sure that the agreement you are signing reflects what you intend to purchase, and how you intend to purchase it.
2. What does my lawyer do?
Your lawyer (or registered legal executive) is looking out for your best interests. They will walk you through the process, they will check your contract, and they will undertake the registration process in LandOnline. When you become a property owner, your name(s) goes on the title (this is the land record, or Record of Title) together with any interests, and this information is stored in a central database called Land Information New Zealand. LandOnline is the web portal where updates are made to your title, and only an authorised (certified) legal representative can access this and make changes.
3. What is a title?
The title is the record of the land you are buying. There may be interests noted on your title. These are documents that record easements, covenants and interests. An easement provides for something to pass over or through your land such as electricity, water and waste water or telecommunications. An interest might be your mortgage that the bank requires as security for your lending. And there are other instruments that may be registered – a fencing covenant, a covenant from the developer of the land that dictates how the property may be used, what kinds of pets you can or cannot keep, or what type of dwelling may be built. These are all things that your legal representative will check and go through with you, and you need to be aware of what each of these mean for you before you confirm your contract.
4. Conditional Clauses
These are conditions contained in the Agreement for Sale & Purchase that need to be met by both the vendor (the people selling their home) and the purchaser (you!) before an agreement becomes unconditional. You might include clauses for finance, building report, LIM report and solicitor’s approval. These are all important things you need to think about, and the agent and your legal representative will guide you to think about what you need to include.
5. Finance Options
When financing your purchase you will have your deposit, and your bank lending, but there are other options: will you withdraw some of your Kiwisaver fund? Are you eligible for the Home Start Grant? How about a Kainga Ora First Home Partner package? Are the ‘Bank of Mum & Dad’ helping you out? You need to be aware of the timeframes for obtaining these funds, and if you are using them towards your deposit then you need to allow time for these funds to be withdrawn. In most cases these funds will have to be paid directly to your law firm’s trust account – the money is not paid to you, and these funds can only be used for the purchase of the property, they cannot be used for renovations, or paying off other debt.
6. Building report, LIM report – what are all these reports, don’t they say the same thing
Great question – yes and no. The building report condition provides for you to hire a builder who will go through and inspect the dwelling for any issues (moisture, insulation, any cracks etc). The builder cannot put holes in the walls or do invasive testing – they can only look at what is easily seen, but they can go through the crawl spaces under the house and in the roof to check these areas. A LIM (Land Information Memorandum) is a report prepared by the local council and provides information on the land you are buying - this includes any earthquake damage, flood and hazard maps and their records for building consents and Code Compliance Certificates they have issued for the property. The standard agreement gives 15 working days to obtain these reports, review their content, and confirm the condition. Even if the agent provides some of this information to you, check with your legal representative – there is still some risk involved!
7. Insurance
You need to ensure you can insure your new home! The weather events and earthquakes throughout New Zealand in recent years have made some properties hard to insure, and sometimes the age of the property you are looking to purchase can have an impact as well. Insurance companies sometimes have specific things they will not cover for a property, such as subsidence, flood risk or earthquakes. They may still cover fire and other damage, but you need to be very careful that your property is adequately insured. Your bank will want to see proof of this before they pay out funds to your law firm’s trust account. Your legal representative can guide you through this process and ensure that you and your new home are protected.
8. Time frames
Once you have signed your agreement it will be sent to your legal representative, and the time frames for confirming the conditional clauses start. Once your conditions are confirmed the agreement becomes “unconditional” and you need to pay the deposit. After that there will be documents to sign and your legal representative will be working towards the settlement date (i.e. the day you take possession of your new home).
9. Pre-Purchase Inspection
After you have signed all your documentation but before you take ownership of the property, you are entitled to carry out a pre-purchase inspection. This gives you an opportunity to check that the lights work, the taps run, the water is hot and that the chattels (fixtures and fittings that are passing with the property, such as heat pumps and automatic garage doors) are working correctly. You will make arrangements with the agent to re-inspect the property and make sure that everything is as it was when you first signed the agreement. The vendors may have painted the walls to make the property look nicer for you, and this is okay, however holes in the walls and piles of rubbish lying around are not okay – if you don’t check these things prior to settlement then it is very hard to get anything fixed after you have paid the money and been handed the key!
10. How long will all this take?
Some agreements are only a few weeks long, others can take months (or in the case of a new build in a subdivision, even years). It will depend on the conditions in your agreement, how long it takes to get your funding together, and when both parties can realistically move in/out of the property.
Settlement
Your settlement date is included in your offer to purchase the property but is often negotiable after the agreement has been signed. On the day of settlement your legal representative will be waiting for funds to come through from your bank, and they will be waiting for documents from the vendors’ lawyers too. Once the money has been paid to the vendors’ lawyers, they will ring the agent and tell them to give you the keys. This is when the transfer of the ownership of the property goes into your name in LandOnline, and the mortgage is registered over your new property.
Congratulations
You now own your own home, and the unpacking begins…
The information contained in this article is for general informational purposes only. The content of this article is not intended as legal advice and should not be relied upon as such. Please get in touch with us if you require legal advice in relation to any matter.
