What Does The Process Of Buying A Property in New Zealand Actually Look Like?
The process of buying a property in New Zealand is not complicated, but it is involved. There are several steps and it’s important to know what happens and when so you can be confident and get it right.
Plan & Negotiation Phase
This Phase is about getting a property ‘under contract’. Under contract means you have signed a sale and purchase agreement and have agreed the price and the terms of the contract. At this point you are not committed to buying the property, or hopefully not as the contract should at least be subject to a LIM. You simply have the right to buy the property if you are happy with your due diligence, that is your investigations in to the property. See our separate articles on LIM’s and filling out sale and purchase agreements.
Conditional Contract & Due Diligence
So now you have a property under contract. That means you contractually have the right to buy the property, providing that you are satisfied with the conditions negotiated in the contract, namely due diligence.
Unless you are an extremely experienced investor it always pays to fully investigate a property. It might cost you a little bit to do this, but in the long run it could save you thousands. As a minimum we suggest the following:
Building inspection by a qualified builder
A registered valuation by a valuer that is an expert in the area
A rental appraisal by a property manager experienced in the area
Unconditional offer of finance
If you are satisfied with your due diligence, you instruct your solicitor to declare the contract unconditional by confirming that all conditions have been met (there are sometimes conditions put upon the vendor that also have to be met – e.g repairing the building or obtaining consent for an unpermitted structure). You are now legally obligated to purchase the property.
You will need to now pay the deposit. Note that most sales agents will try and get you pay the deposit when you sign the contract. For obvious reasons we prefer to pay the deposit at unconditional date. The deposit is usually paid to the agent’s trust account, unless it is a private transaction and then the deposit is paid to the solicitor’s trust account. You should always get a receipt for the deposit.
Loan Documentation Signing
You now enter the period between unconditional date and settlement. This is the period where you are legally committed to owning the property, and legally entitled to own the property, but you don’t actually own it yet. Usually you will have at least 10 working days between ‘going unconditional’ and settlement date so that the settlement process is not stressful.
You inform your bank or broker that you have gone unconditional. They will then prepare the loan documents in your name/s or the name of the entity you specify. If it is a company or LAQC they will require a copy of the certificate of incorporation. If it is a trust they will need a signed and dated copy of the trust deed.
The loan documents are sent to the solicitor. The solicitor checks them and gets you to sign them. You will also need to sign mortgage related documents. The solicitor registers the mortgage with LINZ (Land Information New Zealand) who are responsible for keeping the title up to date. Recently this has become an electronic process.
Final Check of Property
The day before settlement date you or your agent completes a final check of the property and makes sure the property and its condition is not significantly different from when you bought it and the chattels included in the sale (as per the sale and purchase agreement) are still with the property.
Settlement – Money Changes Hands
You tell your solicitor you are happy with the property. The bank pays any borrowed money in to your solicitors trust account. You pay any further deposit to your solicitor’s trust account. Your solicitor receives a settlement statement from the vendor’s solicitor that confirms the amount that is to be paid at settlement. This will include the balance of the purchase price owing, any prepaid land or water rates that are your responsibility and any penalty interest (see legal section).
If there is an existing tenant you are taking over you should ensure that a bond transfer is signed at this point to ensure the vendor signs the form before they get their money and forget about the property.
Your solicitor will then prepare a settlement statement for you, based on the vendor’s solicitor statement and probably including their fees as well. You check and approve this.
Your solicitor will then deposit the money due to the vendor, into the vendor’s solicitor’s trust account. The vendor’s solicitor will then acknowledge to your solicitor that settlement is complete. Your solicitor will then inform you of the same.
You now legally own the property and can pick up the keys.
Expect to see a copy of the new title showing your name on it to come in the post from your solicitor.
Tips During This Process
Before you launch yourself at the sales agent – do a little research so that you don’t waste your time:
Buying Power. Know exactly what you can afford. No point going to battle without knowing your firepower. You could get blown out of the water!
Value. How could you possibly know what to offer on a property unless you know what it’s worth? What it is worth to the open market, what it is worth to you the home buyer/ investor/ business owner, and what it is worth in a quick sale scenario. What methods are you using to determine its value? How familiar are you with past sales in the area?
Speed. Know how quickly you can act. How fast could you settle a property? How fast can you get your deposit paid across? These things help you to know what concessions you can make to the vendor.
Time Frames. Be realistic about how much time you have. Do you need a house now for school reasons? Is a baby due soon? Are you about to retire and need somewhere on one level urgently. Or perhaps you are an investor and have time on your side.
Know the Vendor and/or Agent
The more you know about the vendor or agent, the more you can present offers that are attractive to them, without compromising your wants.
Research the vendor. Why is the vendor selling, how long has the property been on the market, have there been any offers, what price was rejected? Is the vendor feeling depressed because a contract has just fallen over? Use this knowledge to construct an offer that still achieves what you want but becomes more attractive to the vendor. For example, settlement date might not worry you, but the vendor might want an early settlement. What could you get from the vendor in return for offering an early settlement?
Research the agent. Did you know that agents are more motivated by a cash unconditional deal at some times of the year more than others? Have they sold much recently – are they hurting for a commission? Be very aware that a sales agent is paid by the vendor to work for the vendor – they are not working for you. They are getting paid to get the best possible price for the vendor. The sales agent is not your friend, but they will want you to feel they are.
Ask lots of open ended what, where, how questions. Avoid too many why questions.
Know the Property
What are the defects of the property? What is there about the property that will help you build a case for a lower price and/or better terms? Requisitions on the LIM? Building defects? Unpermitted works? Flood zone? Tired paint job? Bad neighbors? Bad tenant? For example, you might know that the unpermitted window will take you 2 hours to fix, but you ask for $5k reduction, and they may give it because who else will buy a house with unpermitted works?
Research the property value. One of the first questions we ask people is how do you determine what you will pay for a property? 9 times out of 10 the response is a bit ‘wooly’. People will often say they look at what other properties are being marketed for, and perhaps ‘offer $30k less’. Yet knowing the value of the property is vital to your negotiation strategy. If the list price is below the value – doesn’t that change what you offer compared to a property listed way above value? Just offering a certain amount below the list price is not a great approach.
Research the Market in General. What’s happening in the market? Is the market flat? Are there too many listings and not enough buyers or vice versa? Is Christmas approaching and are vendors looking to settle quickly?
Know the Sale & Purchase Agreement
The Sale & Purchase Agreement is really your guideline for negotiation. You need to know it so you know what can and will require negotiation.
Deposit: Can you pay a large deposit, and will that be attractive to the vendor? Tip – agents will want nothing less than 5% as that covers their commission
Deposit Date: Usually paid at unconditional date. Don’t let an agent coerce you in to paying a deposit upon acceptance of the offer – unless this will win you other things that are important to you.
Settlement date: What can you work with, what does the vendor want?
LIM: We always recommend you get this. Understand the timeframe for satisfying the LIM condition. Sales agents will try to get you to agree to reducing the time frame. What are the implications of agreeing to a shorter time frame to satisfy the LIM condition? Tip – some councils take longer to produce them than others.
Know Your Competition
Are you searching in an area that has more home buyers or investors? If first time home buyers are attending open homes in their droves you may have to be prepared to act hard and fast. If there are more investors, depending on the type of property the competition may not be as tough.
Know the Form of Sale
Auction: Great for the sales agent as it gets them a good amount of marketing for their brand. In reality many properties don’t sell under the hammer and you can negotiate afterwards. If you really want the property, then consider the ‘King Hit’ or ‘Rapid Fire’ approach. ‘King Hit’ you go in with your top dollar as the opening bid. It can deflate other bidders. This is best used only in a hot market where you are certain there will be a lot of competition. The ‘rapid fire’ is a less aggressive approach where you bid immediately after another bid. This gives control over the bidding. Don’t let anybody else control the bid.
Negotiation: The preferred form of sale as it gives the most room to explore options with the vendor.
Tender: If you really want the property you must go in with your best offer. If you are an investor you can offer lower, so you have registered your interest in the property and then see what happens after the closing date. There may be an occasion where you are the only one tendering and get to buy it.
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