Risks
It can be difficult and costly for a buyer to get redress if a property purchase turns out badly. Under the standard real estate sale-and-purchase contract the seller has some obligations – for example, there must be no outstanding rates on the property. However, houses are not covered under the Consumer Guarantees Act 1993, and private sellers are not bound by it. All the act requires is that the businesspeople involved with the sale (property developers, engineers, lawyers, valuers, builders and real estate agents) must act with reasonable care and skill. Under the Fair Trading Act 1986 buyers must not be misled about a property, but they don’t have to be told anything unless they ask. It is important, therefore, for buyers to beware.
Preliminary checks
Buyers can check on a property by:
- getting a copy of the property’s title from Land Information New Zealand to identify any conditions such as easements (where someone else has rights to use part of the property, e.g. for a driveway) or covenants (restrictions on how the land can be used, e.g. a council requirement that a house on the property must be built with concrete foundations)
- obtaining a land information memorandum (LIM) from the local authority, to check on consents issued, drainage systems, and problems such as potential instability of the land
- enquiring with the local authority about amenities or road works planned for the area, zoning restrictions and building regulations
- asking the current owner to provide copies of building consents for any work done on the property
- getting a builder’s or engineer’s report on the condition of the property.
Financing
Once a buyer has decided to make an offer on a property, usually the first step is to organise finance. Most people pay a deposit, but have to get a mortgage – borrow money, usually from a bank – to meet the full purchase price. The amount a lender will lend usually relates to the buyer’s income, which indicates the level of interest payments they can afford on the mortgage. It also determines the total price the buyer can afford to pay for a property.
A mortgage must be arranged before bidding at an auction.
Real estate speak
The hype and euphemisms of real estate advertisements can deceive new buyers. Cynical definitions of terms abound, such as:
Bijou = cramped
Compact = very cramped
Original features = the place hasn’t had any work done on it since 1974
It’s got potential = this house is a wreck!
Making an offer
The buyer can make an offer with a price and date on which the property will change hands. With a negotiated or tender sale, this offer may be conditional on obtaining satisfactory finance, certificate of title, LIM checks or a builder’s report. The buyer may reject or accept the offer outright, or make a counter offer, usually suggesting a higher price. Once an offer is accepted, it is legally binding on both the buyer and the seller.
Settlement
Once an offer has been accepted by the seller, the buyer pays a deposit, usually 5–10% of the purchase price. This goes into the real estate agent’s trust fund, and the agent’s commission is taken out of it. It stays in the trust fund for a minimum of 10 days, while any conditions on the agreement are met. Usually a valuation of the property and insurance are organised before the mortgage is finalised. On the settlement day the balance of the price is paid and keys to the property change hands. Formal paperwork for the transfer of ownership (conveyancing) is carried out, usually by a lawyer, and the updated title document is sent to the new owner (or their mortgager) after settlement day.
