Buying A House

Bagong bansa, bagong buhay, bagong bahay

Photo of Tara Fontanilla
By Tara Fontanilla


Buying your first house can be made a less stressful experience if you know what to expect. In this article, some things you need to bear in mind will be highlighted when buying your own piece of New Zealand.


Picture this...our fictional couple, Juan and Maria Santos, immigrated to New Zealand. After renting a house for several months, they decided to use their earnings and part of their nest egg to find a place they could call home. Juan and Maria will need to decide how they are going to buy a property. There are four main ways of buying property in New Zealand. You can purchase a property through an auction, by tender, by private sale, or through a real estate agent.


If Juan and Maria decide to buy by auction, they need to do some homework before deciding to place any bids on auction day. Why? This is because when their bid is accepted on auction day, they enter into an unconditional agreement to buy on the day with a 10% deposit to be paid on the day of the auction. An unconditional agreement means that they need to buy the property and cannot change their mind about the purchase without receiving penalties for trying to exit the agreement. Since the agreement is unconditional on the day, they don't have the usual lead up time that is available during a routine sale and purchase through a real estate agent i.e. they don't have the luxury of setting convenient dates in the future for obtaining finance, getting a property report, doing council searches, obtaining valuations etc.


By the day of the auction, Juan and Maria should have already investigated the suitability and viability of the property and its purchase by doing the following:


    They should have toured the property at least once to make sure that it is suitable to their needs.


    They should have obtained a LIM (Land Information Memorandum) report. A LIM report provides a partial snapshot of the council's file on the property. It contains rates information, drainage plans, any correspondence to the past or current owners regarding any works to be carried out or illegal works on the property, any hazardous substances on the property that have come to the council’s notice, and final code compliance certificates which have been issued etc.


    They should have also conducted a Property Bag search. They can do this search at the council office which has coverage over the property. This should be carried out as well as obtaining a LIM report to obtain a full picture of the property. Contained in the property bag will be house plans which they can view to compare to the actual physical layout of the property as it stands today. By looking at the house plans they can determine if any illegal or unauthorized works, such as decks over one metre or unfenced swimming pools have been built on the property. It is only when they know that such things exist can they demand that the vendor fix such matters so that they are compliant and/or use this information to determine the maximum auction bid they are prepared to make (or purchase price they are prepared to offer).


    They should obtain a copy of the Certificate of Title which is the "ownership paper" for the property. Land Information New Zealand (LINZ) keeps copies of these in its office. It provides details of the current registered proprietor i.e. owner of the property along with other details including any mortgages that apply to the property and any caveats (warnings) or encumbrances on the property.


    If they have concerns over the weather-tightness of the property, they might ask that a pre-purchase inspection be done by a builder who is looking specifically for signs of a leaky building. It pays to make sure that when you are commissioning someone to do a building report for you that it is clear that you will be relying on their report when purchasing.


    If they want to know the value of the property, they can commission that a valuer's report be done.


    They should have also approached their bank and/or their mortgage broker about the availability of financial help towards the purchase of the property. Sometimes approaching a mortgage broker may be more advantageous than approaching their bank directly because the broker can compare the "deals" that are available at different banks. In some cases, the broker can negotiate a better deal with Juan and Maria's bank than Juan and Maria can negotiate on their own with their own bank.


    Closer to the date of the actual auction, they should have decided what chattels they want to purchase as part of the property purchase price. Chattels include things like the curtains, the stove, carpet etc. They should discuss with the real estate agent in charge of the auction the availability of keys, garage door openers, and/or alarms, where applicable


    They should investigate whether they will be getting vacant possession i.e. there will be no tenants when they buy or whether the property will be tenanted. In some cases, Juan and Maria may decide to buy a tenanted property if the property they are buying is for rental purposes.


    Before auction day, they should ask for a tour of the property again to refresh their memory about the property and what things they may wish to negotiate on. In an auction agreement there is generally no provision for the purchasers to be able to do a pre-settlement inspection to check that the property is in the same condition as when they signed the auction agreement and to check that the chattels are being sold with the property are intact. Therefore it is especially important that the purchasers are entirely satisfied with the property before they sign the auction agreement as they are purchasing the property "as is where is". From this point of view the inspections prior to buying at the auction should be very comprehensive and thorough such as turning on the stove and lights to make sure they are in working order to checking under rugs, furniture etc to check for damage, stains on the carpets etc.


If Juan and Maria see an advertisement regarding a property sale via tender, they need to know that the property is being offered to anyone interested. If they are interested in the property, they need to take note of when they need to have their offer submitted by. The vendor then decides which offer he or she considers most favourable and accepts that offer. The same investigations that Juan and Maria carried out for buying by auction are the same investigations that they need to conduct when buying through the tender process. They should be aware that the offer with the least conditions and for a good price is more likely to be accepted.


Although the offer with the least amount of conditions will probably be the most attractive to the vendor, Juan and Maria should note that it is advantageous to have the following conditions to be met by prescribed dates:


    Deposit component of the purchase price to be paid to the vendor when the agreement goes unconditional (unless they decide they can pay the deposit immediately)


    Conditional on finance


    Conditional on a LIM report (unless they already obtained a LIM report)


    Conditional on a valuation report


    Conditional on a builder's / engineer's report When in doubt, it is advisable that Juan and Maria put a condition in which makes the agreement conditional on their solicitor's approval.


If Juan and Maria decide to buy through a private sale, they are buying direct from the vendor i.e. the vendor is selling the property without a land agent. If buying this way, Juan and Maria need to be aware that they should discuss the Agreement for Sale and Purchase with their solicitor before signing. There may be changes or conditions to the Agreement that need to be made that the purchaser may not be aware of.


If they decide to purchase through a real estate agent, they will be relying on information provided by the real estate agent about the property. They need to go over the promotional material provided and be very clear on particular aspects of the property that they are buying. Again the purchaser must seek legal advice before signing the Agreement for Sale and Purchase.


Their solicitor can provide them advice about the conditions that should be placed in the Agreement and can help them negotiate with the vendor about the purchase price along with other matters. They need to note that there can be legal issues about the purchase that the agent may not fully understand. Remember also that the agent is working for the vendor.


Once Juan and Maria decide on a property that they wish to buy, the best thing for them to do is to initially discuss the prospective purchase with their solicitor. By doing so, their solicitor can provide them guidance as to what it will actually mean and / or cost to buy the property. Knowing about the different ways in which a property can be bought is just the start of their education about buying a property. Their solicitor is equipped to explain to them the different titles or ways of owning property in New Zealand. They can discuss with them the differences between estates in fee simple, leasehold, cross leases, and unit titles. They can discuss with them the differences in being joint tenants and tenants in common. They can highlight the differences between ownership in their own names as individuals, ownership through a trust, and/or ownership via a company. Since each individuals requirement differs, it is best to meet and discuss these matters with your solicitor before signing on the dotted line.


Tara Fontanilla is a Filipina lawyer working in Auckland.

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