WHAT YOUR AGREEMENT FOR SALE AND PURCHASE NEEDS WHEN BUYING PROPERTY
As the property market finally cools off, potential purchasers have an opportunity to move up the property ladder. Making well-researched buying decisions and having a good contract for sale and purchase (the agreement) will help you sail into a smooth settlement.
Here are our top three tips for home buyers navigating today’s slower market.
1. Methods of sale are shifting
As house prices soften, buyers have more negotiating power. More listings have price indications on them, or are for sale ‘by negotiation’, rather than the more pressured ‘sale by auction’. This means you have more time to do your research on the property, and put appropriate conditions in the agreement.
2. Make your agreement work for you
Conditions can be added to the agreement and they usually allow a certain number of days in which to satisfy them. Conditions can be for the benefit of the vendor or for the purchaser. The deposit is (usually) payable on satisfaction of all the conditions in the agreement.
In this market, the wording of the conditions of your agreement is important – when purchasers are harder to find, vendors can be reluctant to let them walk away from a deal and may more readily exercise their powers under the contract.
As a buyer, some key clauses you will want to see in your agreement are:
- LIM (Land Information Memorandum) – A LIM is essential, and usually a standard condition. It may tell you, among other things, if the house has a building consent or Code Compliance Certificates, zoning and environmental risk information, any swimming pool fencing information, and may also alert you to unconsented works done on the property.
- Finance – The timeframe for this clause should match the LIM. This is to avoid a situation where you have finance pre-approved for a certain value and then the LIM shows up certain things which may affect your ownership of the property or ability to obtain finance. You do need to be careful relying on this clause to back out of a sale, as you may need to provide the vendor with proof that you were unable to obtain finance (e.g. a letter from your bank). If you’re planning on using your KiwiSaver for your deposit, make sure you submit your application in plenty of time (they can take 4 weeks to process) and be aware that you need to let the vendor know you are planning on doing so, as the funds will be held in trust until settlement and not released beforehand to the vendor.
- Builder’s report – This will tell you if the house you want to buy is structurally sound! Or, if there are any defects or aspects that need repair, or maintenance likely to be needed soon. To rely on this clause to cancel the contract, or make a claim against the vendor, then your building report must be prepared by a “suitably qualified building inspector”, not just a ‘handy’ mate.
Title
The standard agreement also allows your lawyer 10 working days to check the title of the property. You can make objection to the title in certain circumstances if the title is not in order but the scope for using this clause to cancel the contract is limited.
3. Cancelling the contract
If you’re not 100% sure that you wish to buy the property, but you want to put an offer on the table so you don’t miss out, you’ll need a well-drafted due diligence clause in your contract. These can be worded in a broad way to ensure you can cancel the contract if you find something that makes you change your mind. Talk to your lawyer before relying on a Solicitor’s Approval clause to do the same job – a solicitor’s approval clause is not a “get out of jail free” card and has limitations.
Happy house hunting!
How we can help
Our highly experienced, trusted Property team can help guide you through your rights and obligations. You can view our Property team here.
WRMK Lawyers takes all reasonable care to make sure that the information in this article is up-to-date and accurate at today’s date. It is necessarily general information and not intended as legal advice to be relied upon.
Our thanks to Natalie Robinson for writing this article.
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