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    Whether you’re negotiating for a property purchase either by negotiation or through auction, we can’t stress enough how important it is that you have a clear understanding of how purchase of property and /or auctions work. A clear understanding of the ins and outs of bank lending, and you are aware of the conditions that you can include in your Sale Purchase Agreement (SPA) to protect your interest.

    Once you sign an SPA, it becomes a legally binding contract, and you’re legally obligated to follow its terms and conditions. Changing your mind is not an option.

    What is a Sale Purchase Agreement?

    A sale and purchase agreement sets out all the details, terms and conditions of a property sale. A major part of the negotiations on a property sale revolves around which conditions are included in this agreement.

    To ensure you, the buyer, are on the safe side, it’s vital to have the right clauses in place before signing and you need to consult your lawyer to ensure these clauses are correctly worded. Otherwise, they may not offer you the protection you think they do.

    A well-drafted SPA provides you with safeguards

    Without the right clauses, even if issues are found later, the contract remains binding, and you may have to bear the costs if you do not honour it.

    We spoke to Aseem Agarwal, Head of Mortgages at Global Finance in New Zealand to find out what he considers to be an important clause that you should include in a sale and purchase agreement and why they should be there.

    Finance condition: Beyond pre-approval

    “Even with pre-approval, including a finance condition gives you time to validate your property acceptance as a security with the bank,” says Aseem Agarwal.

    If, like most of us, you need a mortgage to buy a property, you’ll need a pre-approval from your bank before you can proceed beyond window shopping. However, pre-approval alone is not enough to proceed with a purchase unconditionally.

    Aseem advises adding a finance condition to your SPA so you can run the agreement past the bank. Why? Because you should not presume the bank will extend the approved loan amount for just any property within the pre-agreed price range. You will need to make sure the particular property you’ve set your heart on aligns with the bank’s lending criteria and must be acceptable to the lender also as a security.

    Building inspection: Uncovering hidden issues

    “Don’t be swayed by appearances. Get a building inspection to reveal any hidden problems and negotiate accordingly.”

    A newly renovated or well-maintained property might still have underlying issues which is why building inspection is crucial, especially for older properties or properties that may have been affected by flooding.

    An inspection will unearth any potential maintenance or repair needs. A builder’s report clause in an SPA should be comprehensive enough to outline what happens if a builder’s report reveals defects. It should give the vendor a chance to rectify the issues or allow the purchaser to cancel the agreement.

    Valuation Clause: Getting a fair go

    Depending on factors like the loan amount and property type, banks may require a valuation of the property. This ensures that the property’s price aligns with its market value. If the valuation falls short, you might need to adjust your deposit or reconsider the purchase.

    Aseem explained that “a valuation condition safeguards you from overpaying and ensures the bank’s confidence in the property’s value.”

    LIM and title check

    “Clear LIM and title are essential for securing home insurance and hassle-free settlement”, Aseem tell us.

    A Land Information Memorandum (LIM) report from the council is crucial. You should engage a solicitor to check the LIM and title. A LIM gives the history of the property, such as building and resource consents and restrictions on the land, like zoning. As a purchaser, you need to be sure the physical appearance of the property matches the consents and certificates disclosed by the LIM. Why? Because banks require customers to have adequate house insurance as a condition of a mortgage and many insurers may be reluctant to provide insurance for unconsented buildings or works. Banks may also require a LIM report because they identify flood risks because they may impact the insurability of the property. Even if your lender does not require LIM report, still verifying that your property is in the flood zone or not is vital for you. Buying a property in the flood zone or can be affected due to flood may be be a risky option for you.

    Insurance clause: An Extra Layer of Protection

    While not a standard condition on the SPA’s front page, you can include an insurance clause in the Further Terms of Sale. This clause allows you to back out if you don’t receive satisfactory home insurance. Consulting with your lawyer can help craft a legally sound clause.

    Aseem advises that “including an insurance clause gives you an exit strategy if you encounter issues with obtaining suitable home insurance.”

    Toxicology clause

    For properties that have been tenanted, you may wish to include a toxicology clause. A meth test can reveal any harmful traces left by previous occupants. Ex-meth labs have to go through extensive and expensive clean-ups before they are fit for living in.

    Aseem suggests that “in certain situations, a toxicology report can safeguard against potential health hazards from previous tenants.”

    Weather tightness reports

    This clause is particularly important for homes built from 1980 onwards till 2004. This was the era when complex roofs, plastered exterior walls, internal decks and small or no eaves were the trend which led to what many refer to as the New Zealand leaky homes disaster. So, if you’re eyeing a plaster property, the bank may well insist on a weather tightness report.

    A moisture detection test will search for excess moisture in your home and can identify potential issues and determine the risk of leaks. “For plaster properties, a weather tightness report is a must to assure the bank of the property’s integrity.”

    As a homebuyer, the SPA is your tool for negotiation and protection

    A well-drafted SPA provides essential protection for homebuyers. With the right conditions in place, your home purchase can be a smooth and successful process.
    Do not underestimate the importance of the various clauses we have highlighted in this blog when entering into a property agreement. The team at Global Finance believe that including them will ensure you have the flexibility to address issues discovered after signing an SPA.

    So, reach out either to a solicitor for any legal advice before signing sale and purchase agreement or to an experienced team at Global Finance. They understand the challenges of buying a home and can guide you through the process and ensure you get the right legal support from your solicitor and the right clauses in place in your sale and purchase agreement. That way you can make a confident and informed home buying decision. For more information please contact Global finance team at 09 255 5500 or info@globalfinance.co.nz

    The information and articles published are true to the best of the Global Finance Services Ltd knowledge. Since the information provided in this blog is of general nature and is not intended to be personalized financial advice. We encourage you to seek Financial advice which is personalized depending on your needs, goals, and circumstances before making any financial decision. No person or persons who rely directly or indirectly upon information contained in this article may hold Global Financial Services Ltd or its employees liable.