Buying a home doesn’t begin and end with just dreaming up the right property. There is a lot to think about. As with everything, you will need to research the market carefully before you dive in. Get it wrong and it could set you back years.
The process of buying a property in NZ
Although not necessarily complicated, the process of buying a property in New Zealand is involved. It does take time and there are steps you would be very unwise to leave out. Once you have found a property you wish to purchase, it’s important to understand what needs to happen and when. During this due diligence phase, there should be no stone left unturned, because only then can you be confident about proceeding with buying the property.
Due diligence matters
Caveat emptor – “Let the buyer beware”. As a buyer, the buck stops with you. The responsibility for checking that the property you’re looking to buy isn’t going to throw up piles of problems down the line is all yours.
It all comes down to due diligence. This involves a mixture of informal and formal digging so that you know exactly what you’re buying before you sign a contract. Forewarned is forearmed and if you’re informed about the area, know of any issues with the house, and understand the title and any restrictions on it, you’ll be better informed to deal with costs and issues that may arise.
Do the research you can do
We refer to this as the informal part of your due diligence. There are important considerations that don’t cost anything and that you can research prior to making an offer on a house
1. Do you like the area?
Does the suburb or town have everything you value? Are there certain streets you would not want to live in? What about the position: are you near cafés, supermarkets, schools or parks? Think about commute times and access to cycleways and public transport.
2. Check out the local community
Consider visiting the property at different times of day, or night. Talking to neighbours can be a good way of learning about any issues, who has lived in the property before, or if there are any neighbours to be wary of.
3. Is the property suitable? Will it work for you?
What about your vehicles: can they fit on the property, in the garage, or down the driveway? Can you turn around or will you be backing out onto a busy road? What about visitors: can they park on the road or is the property corralled by yellow lines? If you’re thinking of starting a family, will there be available space outside for you all?
4. What are council rates like?
Don’t forget about the ongoing costs of home ownership, including insurance.
Research with the experts
The next steps in the due diligence journey come once you’re zeroed in on a specific property. Some (remorseful) buyers have opted to miss out on some of these due to cost or time frames, but we don’t recommend you do that.
1. Negotiation stage
This is the stage where a property goes under ‘under contract’. You can sign a purchase and sales agreement giving you first rights to buy the property, PROVIDED it has been viewed by your lawyer. The contract is legally binding unless there are clauses that will allow you to carry out due diligence. The key is having your solicitor draft up a due diligence clause that gives you the right to cancel the contract. The contract should be subject to a LIM, building report, finance, or any other conditions you think are required or advised. This might cost you a little bit, but it could save you so much more. Due diligence ultimately keeps you safe.
2. Conditional contract and more due diligence
You now have the right to buy the property if you are happy with your investigations. These take some time to do, and experience to fully interpret the results. For example, a LIM needs to be ordered as soon as a sale and purchase agreement has been signed and councils legally have up to 10 working days to provide it. Your lawyer then needs to interpret it. To get a valuation or building report you will need to liaise with the vendor for an appropriate time for the appraisals to take place. You will then have to ensure the professionals you hire can do it in that time frame.
What is a LIM (Land Information Memorandum)?
This is a report from the relevant city council that has information on the building (s), land and its use. It tells you about flood zones, any drains running through the property or hazards. It lists resource and subdivision consents, including resource consents for the neighbourhood. It tells you if there are any current requisitions issued by the council – notices to fix land or building-related issues. You can see if the buildings on the property have the necessary building permits or consents and if they have been signed off or a code compliance certificate issued (CCC). It will also note District Plan information: protected buildings, trees and zoning. You can also see if the title is ‘clear’, that there are no holds over the property due to the current owner owing money. Your solicitor should read the LIM to clarify some of its more formal aspects.
Building inspections for answers you can live with
Pre-purchase building inspections are your protection against the unknown. They also provide valuable information – a negotiator’s greatest weapon. Get a building report from your registered building inspector, not the real estate agent’s. It identifies issues and helps you understand the budget needed for repairs and maintenance. You can then either negotiate with the vendor to rectify the defects, accept the property with the known defects, or cancel the agreement.
For example, “Sally” got a building inspection of a house she wanted to buy. The building inspector discovered that while the ‘fix’ on the new deck was great, the old beams were in terrible condition. She was able to negotiate $7,000 off the purchase price. Granted, that’s not a large sum, but paying interest on $7,000 over 25 years is. In another instance, it was noted that the guttering needed repair, so the purchasers negotiated a $15,000 price reduction. A building inspection report may also highlight non-compliance issues that are not on the LIM. A LIM is only limited only to those things that council knows about, so a building report gives you an opportunity to investigate any potential non-compliance issues thereby giving negotiation room. Given a home will cost hundreds of thousands to buy, the cost of building reports is a very small price to pay.
Registered Valuation
Get a valuation from a registered valuer to ensure you are satisfied with the price of the property. Remember, sale prices are subjective. A valuation can reassure you are not paying too much and indicate what the rental or resale potentials are of the property. Your bank may also require this.
The right advice on hand
During the due diligence process is when the mortgage broking team at Global Finance can be invaluable. They are seasoned, skilled experts. They can coordinate and help you interpret various reports, saving you time, and hassle, and potentially preventing you from making costly mistakes. From showing you what to look for and include in sale and purchase agreements to sourcing LIM reports, arranging valuations, and building inspections, our team can guide you through the whole home-buying process. We can even connect you with proven lawyers, registered valuers, building inspectors and builders to make your life even easier.
Ready to secure your future? Get in touch with Global Finance today.
The information and articles published on this website are true and accurate to the best of the Global Finance Services Ltd knowledge. The information given in articles on this website should not be substituted for financial advice. Financial advice should always be sought. No person or persons who rely directly or indirectly upon information contained in this article may hold Global Financial Services Ltd or their employees liable.