What Does Buying A Home Involve?
Each purchase of a home has its own unique features and peculiarities such as the parties, the purchase price, the chosen home, and any special purchase terms.
The processes
(1) Choosing the type and location of your home
You should select the type or style of house in a location that will best:
- Suit the requirements of you and your family.
- Fit within your budget - affordability both as to the cash you have available and the finance you require to make up the house purchase price, as well as your ability to meet the loan payments, and pay the outgoings on the house (e.g., rates, water charges, and other utilities such as electricity and gas), maintenance, and general living expenses from your income after tax has been deducted from it.
- This exercise will include enquiries and investigations concerning the condition of the house you choose for your home, and the relevant Council building, resource management or planning, and related requirements.
(2) Negotiating to purchase your home
This stage involves:
- The preparation by your lawyer (or with your lawyer’s assistance and approval, by the real estate agent concerned) of your written offer (contracts for selling and buying land must be in writing) to purchase on the standard agreement for sale and purchase published jointly by the Auckland District Law Society Inc. and the Real Estate Institute of New Zealand (‘ADLSi/REINZ’) including conditions for your benefit.
- Any subsequent negotiations with the vendor - these are usually conducted through the vendor’s agent and the parties’ lawyers.
- Assuming the negotiations are successful, the signature of the sale and purchase agreement by you and the vendor.
(3) Satisfying or fulfilling sale conditions, and settlement
The conditions for your benefit can include:
- Arranging finance.
- Having the home investigated and appraised by building experts who will report to you on the condition of the home and its services, particularly on structural and weather-tightness aspects. You may have already carried out these investigations before reaching agreement with the vendor on the purchase terms, and before a formal sale and purchase agreement is signed.
- Obtaining a Land Information Memorandum (‘LIM’), if not already obtained, in relation to the property from the Council. A LIM provides important information about the property held on the Council’s records, including resource and building consents applied for, any outstanding consent, compliance and enforcement matters, drainage plans, plus more useful information: s 44A Local Government Official Information and Meetings Act 1987.
- If necessary, the sale of your existing home.
Once all of the conditions are satisfied, preparation for settlement can proceed. The process of paying the balance of the purchase price to the vendor in exchange for the transfer of title, and the taking of possession by the purchaser, all handled by the parties’ lawyers.
Selecting your home
For most of us buying a home is a significant financial investment. Obtaining expert help before signing ‘a binding contract with only restricted rights of termination’ is essential to help us both make and protect that investment, and guard against any unwanted, and perhaps costly, surprises and heartache later.
Real estate agents
Most real estate agents you will encounter are likely to be agents for the vendors whose properties are on the market for sale and who will introduce you to the properties.
Architects, engineers and other building experts
Architects, engineers and other building experts have an important role to play in helping you to sort out and work through the particular building and resource management issues that may apply to the home of your choice. Enlist their help before you enter into a sale and purchase agreement.
Banks
Most purchasers apply for bank housing loans to make up the difference between the agreed purchase price, and their ‘cash’ contribution towards the purchase (this is sometimes called your ‘deposit or ‘equity’, but is not to be confused with the initial down-payment ‘deposit). The bank will require that you sign a loan agreement to record the terms of the loan, and a mortgage to be registered against the title to your home as security for the loan. The bank usually prepares the loan agreement, and requests your lawyer (or if your bank so requires, or your lawyer recommends, to the bank’s lawyer) to prepare the mortgage.
Your lawyer
The role of your lawyer as a member of your home buying team includes:
Explaining the title to the home, and advising on any related issues.
- Obtaining a LIM report from the Council, explaining the contents, and advising on any legal issues raised in the report.
- Advising you on any other legal issues.
- Advising and assisting you in the preparation of, or preparing the sale and purchase agreement.
- Advising and assisting you in the choice of ownership options (see below).
- Assisting you with regard to any conditions in the agreement.
- Guiding you through and handling your bank’s loan requirements.
- Completion of settlement and attending to the registration of the transfer of title of the home to you, and the mortgage to the bank.
A registered valuer
It is sensible that you obtain valuation advice before you sign an agreement for sale and purchase which contractually binds and commits you to a purchase. The registered valuer needs to be one who specialises in residential valuations in the locality of the house you have chosen. Details of the current Council valuation (CV) can also be obtained, as well as other valuation information from Quotable Value Limited (QV). Your bank will almost certainly require a formal valuation of the house.
Local authority check (includes a LIM)
You should make enquiries of the Council about building, planning and related issues concerning the property. These issues include the present and any proposed zoning of the property and surrounding properties, permitted uses, available services, the house and drainage plans, building permits, consents, and Building Code compliance certificates issued, resource consents applied for and obtained, and any related demands, requisitions or outstanding matters, plus more important information.
Property titles
Your lawyer will take care to fully explain to you the nature of the title to the property you choose for your future home.
The titles of a significant number of standalone houses sited on separate sections have what is commonly known as a freehold title. However, be aware that there are some properties where the land is leasehold, in which case, unlike freehold properties, ground rent is payable to the owner of the freehold. The ground rent is in addition to mortgage payments, rates, etc., and reviewable at regular intervals - for these reasons a lower value can be expected than if a freehold property.
For separate apartments collectively comprising an apartment building, or houses built in groups or clusters, the titles are most likely to be either unit titles, or cross lease titles. In general terms, associated with the apartment title are ownership rights and responsibilities including entitlement to and the use of access ways, driveways, leisure areas and other common facilities with other owners.
Negotiating to purchase your home
Your offer / vendor’s method of sale – negotiation
Negotiation usually commences with a purchaser’s offer being prepared by your lawyer on the ADLSi/REINZ agreement for presentation to the vendor. This often results in a counter-offer from the vendor as to the purchase price, the terms of sale or both.
In addition to sale by negotiation, also known as a private treaty or contract, the other usual methods vendors use to sell properties are by auction or by tender which often lead to negotiations between the vendor and the highest (or preferred) bidder or tenderer.
In addition to the names of the parties, the address and legal description of the property, the purchase price, the deposit, the settlement and possession dates, and the conditions and condition dates, the ADLSi/REINZ agreement contains many general terms applicable to all sales and purchases. These include the mechanics of possession and settlement, the passing of risk and insurance, queries about the title, the vendor’s warranties and undertakings, and clauses relating to the satisfaction of conditions and mortgage terms. Also included are provisions relating to claims for compensation, unit titles and cross leases, default, GST and related issues.
On the back page of the ADLSi/REINZ agreement are a number of warnings particularly of the need to obtain professional (including legal) advice before signing, and against entering into ‘a binding contract with only restricted rights of termination’ without appreciating and understanding the ramifications of doing so. These warnings emphasise that entering into an agreement to buy land is a serious business.
Settlement and possession dates
The settlement and possession dates are usually the same date, commonly between 20 and 30 working days from the date of the agreement, and if there are conditions, then approximately 2 weeks after the last of the condition dates.
Vendor warranties and undertakings
The sale and purchase agreement also contains important standard vendor warranties and undertakings. In general terms, these contain vendor assurances on matters including that there are no outstanding building or planning issues, the chattels will be handed over in the same condition existing as at the date of the agreement, and that rates and water charges will be paid up to date on settlement.
Satisfying or fulfilling sale conditions, and settlement
Conditions
Each condition (e.g., the finance condition, or a building appraisal (or a general due diligence) condition, a LIM condition etc) must specify a date by which it must be satisfied. If not satisfied by the stated condition date, the ADLSi/REINZ agreement terms enable either party to end the agreement, or in the case of a LIM condition trigger another process.
Funding
Obtain your lawyer’s requirements to have your cash contribution towards the purchase price paid into your lawyer’s trust account in good time before settlement. Your lawyer will obtain your loan funds direct from your bank.
Your ‘Authority and Instruction’ (to take title to, and mortgage the property)
Importantly, before settlement can take place, you must authorise your lawyer to attend, on your behalf, to the transfer of title to you, and to mortgage the property in favour of your bank as security for your loan. This requires you to sign a form called an ‘authority and instruction’ (“A&I”), which your lawyer will prepare, in favour of your lawyer. Your lawyer must be licensed under the Land Transfer Act 1952 to effect registration of the transfer and mortgage electronically - e-dealings - and hold a digital certificate for that purpose.
House insurance
Your bank will require that the house insurance be arranged, your payment of the insurance premium, and your lawyer to have provided confirmation with details to the bank before your lawyer can uplift your loan funds for settlement.
Utilities
You will be expected to make your own arrangements with the electricity, gas (if applicable) and telecommunications providers of your choice. Usual practice is for the vendor’s lawyer to send a notice of change of ownership (usually prepared by the purchaser’s lawyer) to the relevant authorities so that from the date of settlement rates and water invoices will be sent to you.
Keys, and moving in
The keys are usually collected from the vendor’s real estate agent as soon as the vendor’s lawyer has notified the agent that settlement has taken place. Alternative arrangements may be required if the sale to you is a private sale (ie, direct between vendor and purchaser, and not through a real estate agent).
Ownership
Whether you purchase in your own name, or together with your spouse or partner, or with family or friends, you must first obtain advice from your lawyer on the different options for ownership.
Joint tenants / tenants in common
With a joint tenancy, if one of the joint tenants dies, the survivor automatically takes ownership of the property, irrespective of any directions in a joint tenant’s will.
With a tenancy-in-common, each owner holds a specified (this share can be specified to be an equal or unequal share) but undivided share in the property, which does not automatically pass to the survivor, but instead passes as directed in the deceased co-owner’ will. If the co-owner does not leave a will then the tenancy in common will be dealt with under the Administration Act 1969
Property relationship agreement / trusts
Before you make your offer to purchase, let your lawyer know if you are contemplating marriage or a civil union, or are in (or proposing to enter into) a long-term relationship. If so, your lawyer will recommend that you consider whether it is appropriate for you to enter into a property relationship agreement (sometimes called a pre-nuptial agreement) - or form a trust, or both.
Property sharing agreement
You may be proposing to purchase with family or friends. If so your lawyer will recommend that you consider whether a property sharing agreement is appropriate for you. This kind of agreement can for example, specify the respective contributions of the parties towards the purchase price, allocating each party’s responsibility for mortgage payments, outgoings and maintenance, including rights of pre-emption which enable one or more of the parties to purchase the share of the party wishing to sell.
Conclusion
Buying a home involves carrying out an orderly series of processes commencing from the time you begin your homework in preparation to purchase a home. Unless difficulties arise, these processes usually conclude at settlement when you pay the balance of the purchase price in exchange for title and possession to your new home.
This introduction is neither legal advice nor a substitute for advice you must obtain from the professionals and experts who will guide you through these processes outlined below. It is intended for readers purchasing a property for their home, and not for letting or development purposes in respect of which different considerations apply. Readers should see a conveyancing lawyer to get expert guidance and advice on any of the issues covered in this article.
