1. Get the most from your property experience
New Zealanders are fond of owning property and for most of us it’ll be our biggest investment. Whether you’re a first home buyer or an experienced property buyer or seller you’ll want the process to be positive and rewarding. It should not be stressful, a hassle, costly and frustrating.
The chances of your experience being positive are greatly enhanced if you follow some basic steps from the start.
This article sets out those steps, highlights some of the issues and potential pitfalls, and gives guidance on how you can keep control of the process all the way through.
If you’re planning to sell or purchase a property you need to see your lawyer first. Your lawyer is independent and works for you and your interests.
We are trained to anticipate and recognise the pitfalls, to resolve the problems before you know you’ve got them. Our knowledge and expertise means we can look at every aspect of a property transaction, and protect your total interests. Their help can range from early advice on the agreement or contract to guidance on the best form of ownership or property relationship issues.
Never sign anything before contacting your lawyer!
2. Where do you start?
• Contact your lawyer.
• If you are selling, we can help you select a real estate agent, decide your price range and the ideal selling method, while having in mind a settlement date to suit you.
• If you are buying, consider the ideal features of the property you wish to buy – see the checklist below.
• If you are buying, ask about real estate agents in the area where you wish to buy to see who has the best range of property. Your lawyer can help you with this.
3. Stay in control
Whether you are buying or selling a property, you are the one who must be satisfied with the outcome – not the agent, not your family or friends. Stay in control of the process and let your lawyer help you to:
• understand the buying and selling process and your lawyer’s role in that;
• work out your financial limitations – how much you can borrow, how much you can afford;
• find out the other costs of buying and selling a property;
• work out any other legal issues that you might have to address as part of the overall transaction such as making a will, preparing enduring powers of attorney, setting up a trust, taxation, or property relationships issues – your lawyer will advise you;
• understand the agent’s role, who the agent works for, how they are paid and how you can get best value from the agent.
4. What is the process?
Talk to your lawyer about your options and the outcomes you want, including choice of agent, selling methods and price range.
Select a real estate agent and confirm sale method (multiple listing, sole agency/auction/ tender) and price range.
Decide what you should do to make the house more saleable and get on with those jobs.
Talk to your lawyer. Consider the price range for the type of property you want and how much you can afford to borrow.
Complete the checklist below to identify the things you are looking for in a property.
Identify key real estate agents; check out their listings in publications and web-sites.
You’ve found that dream home!
Do not sign the agreement before your lawyer has had a chance to see it first and give you advice!
The middle stage
Your lawyer can help you negotiate the price, settlement date and conditions to achieve the best outcome for you.
You sign a final agreed offer – after talking with your lawyer.
Resolve any problems with the title and Land Information Memorandum (LIM) report with the buyer. (Yes, problems do happen!)
Confirm that all conditions have been met.
The contract is confirmed.
Your lawyer will help you negotiate price and conditions suitable to you and advise you of any research you should do on the property.
You sign a final agreed offer – after talking with your lawyer.
Consider your loan options – your lawyer can help you apply for the finance.
Get the title checked.
Get a Land Information Memorandum (LIM), a valuation and if required a builder’s or engineer’s report.
Resolve any title or LIM matters with the vendor.
Check that all conditions have been met.
The contract is confirmed.
You sign the transfer.
Your lawyer will organise repayment of any mortgage.
Organise the keys for handing over.
Organise your move and change of address. Advise phone, power and other utility companies of your moving out date and have meters read.
Allow the buyer to re-inspect the property before settlement.
Move out on settlement/possession date.
You sign the mortgage documents and loan agreements for the mortgage.
Your lawyer will confirm the amount required on settlement and assist you to arrange payment.
Organise your move, change of address and phone, power, gas and other utility connections.
Carry out the final inspection of the property you are buying.
Move in on settlement/possession date.
A property transaction is like an iceberg. You, as the client, will see only a small bit of the work that needs to be done to complete the deal. Behind the scenes, unseen by you, your lawyer will be ensuring that it goes through with the minimum of fuss and hassle, looking after your interests every step of the way.
5. Your lawyer’s role
Your lawyer’s task is to give trusted advice, to protect your interests and ensure the smoothest, simplest, most efficient transaction for you, whether you are buying or selling.
Unlike others involved at various stages of a property transaction, your lawyer:
• acts to protect your interests by providing independent advice;
• has done it many times before and understands the process well;
• has experience in negotiating for buyers and sellers;
• knows well the traps in the process;
• knows you and your personal circumstances (or is prepared to find out);
• is up to date with the law and property related issues; and
• understands that buying and selling can be an emotional and stressful time and tries to steer around that!
It pays to see your lawyer first and get advice early – don’t sign anything beforehand.
A contract is binding when you sign it. Don’t be misled into thinking it is simply an “offer”. Before you sign, check with your lawyer what you are signing, what your obligations are and what your rights are – even if it means faxing your lawyer a copy of the agreement and getting advice over the telephone.
6. Checks – what needs to be done and who will do it for you?
There are many checks you can undertake to make sure that what you are buying is really what you want. Your lawyer will know what checks to make and who can make them for you.
For example, you’ll want to know:
• Does the vendor own the property? – Get a title search.
• Are there any problems with the property? – Get a builder’s (and /or engineer’s) report.
• Is the property prone to flooding? – Get a LIM report from the council.
• Is the price good value for this property? – Get a report from Quotable Value or a registered valuer.
• Does that new conservatory really meet the requirements of the building code? – Get your lawyer to recommend a building consultant to inspect the property.
Your lawyer can assist with any research required about the property, including advising you on any reports you obtain. This work is insurance against disappointment and perhaps substantial additional costs if you have to fix something later.
7. Finances – so many choices!
Today there are many choices of sources of finance to buy property and we can help you. Your lawyer can provide unbiased advice about the best source of finance for you, given your particular circumstances, and related matters, including:
• how long the term of your loan should be;
• the interest rate – whether floating or fixed. If fixed, for how long;
• whether you pay interest only for a period or principal and interest together;
• whether you should make your repayments fortnightly, monthly, quarterly or annually;
• whether to take out mortgage repayment insurance;
• whether to take out redundancy insurance;
• what home insurance you should take – full replacement or indemnity, and with whom (the cheapest is not always the best).
Some of these decisions affect how long it will take to pay off your loan and how much interest you will pay overall.
8. What are the issues when buying a property?
You’ll need to consider a number of issues whether you are buying a home to live in or as an investment property, which can have an effect on the tax you pay or have ownership implications.
With investment properties, your lawyer will be able to advise you on issues such as:
• Should you own it in your own name?
• Should you own it in the name of a trust?
• Should you borrow the funds against your existing home or against the new investment property?
Other issues will arise depending on whether you are buying a property as a single person, as a married couple, as a de facto couple, with a friend or in a business partnership. Your lawyer can advise you on each of these situations, including:
• Should you buy the property in joint names?
• Should you buy the property in equal shares or unequal shares?
• What does buying the property as tenants in common mean?
• Do you need a property ownership agreement?
• Does a will make any difference to the form of ownership?
• How do wills and trusts work together?
• What is the Property (Relationships) Act 1976 and how does it affect you or anyone you buy a property with? The law particularly affects people in de facto relationships – it is most important that they get proper legal advice.
Take another scenario – where your family is prepared to help you financially. This raises issues such as:
• Should your family lend or give you the money?
• If it is a gift, will your family have to pay gift duty?
• If it is a loan, how will it be protected and how will you pay it back?
• What are the implications of a guarantee?
It is important that you consider and make decisions about these issues and how they affect you not only at the time of purchasing a property but also when you come to sell or if you need to divide up property when a relationship ends. Your lawyer will be able to explain these issues so that you can make those decisions. To get the best use out of your lawyer’s time and to make sure you cover everything, have a list of the questions you want to ask, and be prepared to ask them and other questions that might arise from the answers.
9. Your property checklist
Here are some of the questions you should consider when deciding what property to buy, what area to buy in and how much you should pay, as well as questions relating to more personal issues. Add your own points to the checklist and rank them in order of importance to you.
• Joint tenancy or tenancy in common?
• For your own occupation or as an investment?
• Finance – what source?
• Should you own it in your own name(s) or through a trust or company?
• Property insurance – should it be full replacement value or just indemnity value?
• Location (consider your objectives and possible capital gains)
• Standard and condition of nearby houses, neighbourhood generally
• Proximity to schools
• Closeness to shops, church, parks, transport
• Sun and shade, general weather patterns
• Access – steps, paths, driveway
• Trees, hedges, gardens, lawns, secure fencing
• Outlook, view
• Number of bedrooms, bathrooms/toilets (showers or baths),
• Laundry or laundrette?
• Separate living areas?
• Carport, garage (door opener?), off-street parking
• Mains power, water, gas
• Mains sewer/stormwater
• Rubbish collection, mail/paper delivery
• Telephones, TV/Sky aerial/digital dish
• Chattels – curtains, carpets, shelving
• Insulation, heating
• Décor, maintenance
10. How much can you afford to pay for a home?
When you are planning to buy a home, you think first of what you would like and then it comes down to what you can actually afford. To judge that, you need to think about what you earn, what you have saved, other debts and commitments you have (such as hire purchase) and what you can afford to pay back on a loan. You also need to take account of the other costs involved in purchasing and owning a home, such as rates, insurance and maintenance.
11. Other sale and purchase costs
Agent’s commission $__________
Rates instalments due $__________
Mortgage discharge registration fees $__________
Legal fees $__________
Moving costs $__________
Loan application fee $__________
Mortgage repayment insurance premium $__________
Title search fees $__________
Valuation fee $__________
Builder’s report fee $__________
LIM fee to local council $__________
Transfer and mortgage registration fees $__________
Legal fees $__________
Moving costs $__________
Share of Rates $__________
Property insurance $__________
12. Frequently asked questions
Do I need a Land Information Memorandum (LIM)?
It is not essential but advisable. The standard Agreement for Sale and Purchase has a LIM condition inserted as a standard term. A LIM provides information held by the local authority on the property. A LIM report can be particularly important if the purchaser is looking to carry out alterations and additions to the property or to subdivide the property. A LIM report might also show, for example, that a log burner has not been legally installed. This is important to find out as it could invalidate insurance on the property should the burner cause fire damage. If the purchaser is dissatisfied with any aspects of the property discovered through the LIM, the clause in the agreement allows the purchaser to request the seller to fix the unsatisfactory aspect or face possible cancellation of the contract.
Should the seller or the buyer always search the Certificate of Title to the property?
Both sellers and buyers should ask their lawyers to search the title. For sellers it may be simply a matter of verifying the information that the seller has given their lawyer about the title. For the purchaser it will identify all features of the title to the property such as easements, rights of way or the like. If it is a cross-lease or unit title property a plan must be obtained so that the purchaser can verify that the plan of the building is identical to the actual building. If the purchaser is not happy that the title reflects this, they can ask their lawyer to get it put right.
Should the purchaser obtain the survey plan for the land being purchased?
This is essential for a cross-lease or unit title property. While it will not identify the building for a freehold or leasehold title, it will help locate boundaries so you can check for encroachments on a boundary. If in doubt the purchaser should get a surveyor to identify the exact position of any boundaries in question and the survey pegs which mark out the boundary of the land.
Should I get a builder’s (or engineer’s) report on the property?
It is quite common in New Zealand these days for purchasers to request a builder’s and/or engineer’s report on a property. If the purchaser wishes to do this, a condition should be inserted in the agreement. This condition should enable the purchaser to request the vendor to put right any unsatisfactory features that the report identifies. If the vendor is unwilling to do this the condition should allow the purchaser to elect whether or not to proceed with the purchase.
What particular pitfalls are there in buying a property by auction?
The process of selling a property by auction is carried out by specific auction form. One of the pitfalls of the process is that the normal vendor warranties (promises) about features of the property and the purchaser’s right to requisition the title are removed from the agreement. (The requisition process allows purchasers to identify aspects of the title they are not happy with so they can require them to be removed.) This means that purchasers must carry out all their inquiries before the auction, without any guarantee that they will be able to buy the property at the auction if they are outbid. Another feature of auctions is that an auction agreement will normally specify a minimum 10% deposit and a settlement date of between 30 and 90 days. This leaves little room for negotiation between the seller and the buyer.
From the seller’s point of view, unless they put a realistic reserve on the property they may find themselves selling the property for less than its real value. On the other hand if the property is sought after, competitive bidding may well achieve more than it would otherwise have done.
What are council rates?
The local council (sometimes called the local authority) charges an annual rate on each property for the services it provides such as rubbish collection, stormwater, sewage, water, street maintenance and the like. This rate is set annually but is collected throughout the year in instalments – two-monthly, quarterly, six-monthly or five instalments a year, depending on the council concerned. On settlement the vendor usually will have paid the rates up to that date and through to the next instalment. The purchaser will reimburse the vendor for the period from settlement date to the next instalment. After that the council will bill the purchaser for the rates.
Are there legal issues arising from buying a property with my de facto partner?
The law in this area changed significantly from 1 February 2002 with the passing of the Property (Relationships) Act 1976 and, there are major implications for de facto couples buying or owning property – and even for those who live in the property that just one of them owns. You should get legal advice about this.
It is imperative that you also seek legal advice before deciding to enter into a property sharing arrangement with a de facto partner. Such an agreement might need to cover such matters as co-ownership of the property, on-going costs, responsibility for paying for improvements and obligations to meet the mortgage repayments, and what will happen on any break-up or death. You should have a lawyer prepare this sort of agreement.
13. Commonly used terms
Agreement (also called the Agreement for Sale and Purchase)
This is the written contract for the sale and purchase of the property between the vendor (seller) and the purchaser (buyer). Never sign this without discussing it with your lawyer.
These are the movable objects found in a house or elsewhere on the property that are included in the sale. Most often they include the stove, television aerial, carpets, blinds, curtains, drapes and light fittings. However, they may also include dishwashers, refrigerators, heaters and so on. These should be specifically listed in the Agreement for Sale and Purchase.
This is a legally binding agreement but it is subject to certain conditions being satisfied. These might relate to: the purchaser arranging suitable finance to complete the purchase, receipt of a satisfactory builder’s report or valuer’s report; receipt of a satisfactory LIM or the purchaser’s solicitor approving the title to the property. They may also require the seller to do something by a certain date. Once the conditions are satisfied the contract is confirmed. Whether you are a buyer or seller, it is important to get legal advice to ensure that the conditions are expressed clearly in the agreement.
This type of ownership is common where there is more than one property (often called flats) on a single title. The owners of each property co-own the land and each leases their own property, which together form the cross-lease title.
Part of the purchase price (usually 10%) paid by the purchaser when the agreement is signed or conditions are met.
This is the amount of the property that the purchaser actually owns – rather than owes! Initially, it will be the amount of “cash” the purchaser contributes towards the purchase price for the property – not counting any amount borrowed against the property (mortgage). Over time the amount of equity increases if the value of the property increases, provided the mortgage isn’t increased. In shared property arrangements, where co-owners contribute in unequal shares to the property, the amount of equity each has provided should be recorded. Co-owners should seek legal advice on these issues, in the light of the potential impacts of the new Property (Relationships) Act.
This form of title means that you own the land and the buildings on the property, with few restrictions (although the buildings are not shown on the title documents). It is the most common form of title in New Zealand.
This is the sum charged by the lender to the borrower over the term of the loan. It will be expressed as a percentage of the loan and collected at intervals such as fortnightly, monthly, quarterly or sometimes six monthly from the borrower.
Under this form of title, someone other than the occupier of the property owns the land and charges rent for a specific term to the lessee. Sometimes buildings on the land belong to the lessee, subject to the terms of the lease. The lessee may have an option to purchase the freehold, giving them unrestricted title to the land in addition to the buildings. Your lawyer will advise whether you are buying freehold, leasehold or other form of property ownership as this will determine what you can do with the property and will affect the amount you pay.
This is the security the borrower gives the lender and which is registered against the title to the property being purchased. Except in rare cases the property cannot be sold without the loan being repaid and the mortgage removed from the title (discharged). If the borrower fails to meet obligations under the loan, the lender can, after giving notice to the borrower and following legal procedures, take steps to sell the mortgaged property to recover the loan. The obligations of parties under a mortgage – especially an all obligations mortgage – and their on-gong liabilities need to be fully understood.
This is the date on which the buyer takes physical possession of the property.
This is the total amount of the loan borrowed.
This is the person buying the property.
This is the date on which you pay for the property. Usually it is the same as the date you take possession but that is not always the case.
This is the period of time over which the loan is to be repaid. The longer the term, the more interest the borrower will pay overall.
The Certificate of Title is the document that describes the property and gives legal right of ownership to the property. In New Zealand it can be a freehold, leasehold, cross-lease or unit title.
This form of agreement is not dependent on any conditions. You need to ensure that you have the full purchase price arranged and have carried out your checks on the property before signing such an agreement. You should never sign an agreement, conditional or unconditional, without taking advice from your lawyer.
A form of ownership of apartments and units where each owner has freehold title to his/her individual unit and any garage/parking space or similar area attached to it, as set out on a unit plan. Owners of units have common legal areas and share duties for any common property, such as driveways.
Your local authority uses a valuation for rating purposes (previously the Government Valuation). This provides a guide only to the market value of the property. A private valuation, carried out by a professional valuer or Quotable Value New Zealand, will reflect the market conditions at the date of valuation.
This is the person selling the property. The vendor pays the commission to the real estate agent who arranges the sale of the property.
14. See your lawyer first and save money, save worry
No one else has the training and experience that a lawyer has to advise you on matters relating to the law.
What will it cost?
Probably less than you expect. Like other professional people, your lawyer charges for time, experience and skill in looking after your affairs. But ask at the beginning about the likely cost – or tell your lawyer that you don’t want to spend more than a certain sum without the lawyer checking back with you.
The New Zealand Law Society (NZLS) has further information which can be accessed at www.nz-lawsoc.org.nz.
For other information on property law related issues check out the Property Law Section website at www.propertylawyers.org.nz.