Buyer Beware: 8 Areas To Investigate Before Purchasing Your First Home

Yolande Snetler of McVeagh Fleming highlights 8 key areas to investigate before making an offer on your first home.

Existing trends in the property market mean that some buyers purchase properties either unconditionally at auction, or without any conditions attached to the sale and purchase agreement they enter into. Purchasers often seem to buy these properties without carrying out proper due diligence investigations, including not consulting their solicitors.

These purchasers then end up in a situation where they hold an unconditional agreement and have no choice other than to settle the purchase – regardless of whether or not they subsequently become aware of any matters that might have persuaded them in the first instance not to buy the property.

Historical statistics indicate the housing market will continue its relentless upward climb. At present there is on-going growth in both house prices and the number of sales in most parts of the country.

There also seems to be a shortage of new listings in many areas, and this could put further pressure on prices and potential purchasers to buy a property they would not have previously considered. Even in the areas where the cost of housing has become a major issue, the number of sales still seem to outpace the increases in prices. A lot of purchasers seem willing to pay more for properties and this might also be because such purchases are partly fuelled by the lowest average mortgage interest rates New Zealand has seen since 1964.

Obviously there are a range of legal procedures and checks that will need to be completed when purchasing a property and your solicitor will be able to assist you and ultimately ensure that the conveyancing process of transferring legal ownership of the property from the vendor to the purchaser is completed on settlement.

As purchaser you should therefore ask yourself:

“What matters should be investigated?”

1. Review the sale and purchase agreement and decide on the condition(s) of your offer

A sale and purchase agreement (S&P) is a legal document and should therefore be thoroughly understood before signing.

As purchaser we would normally recommend that you insert at the very least the following conditions:  finance, LIM Report, Building Report or a due diligence condition which would cover all matters you would wish to investigate.

Yolande has kindly provided 3 S&P templates with the above conditions inserted here.

2. Search and review the title including any encumbrances

An encumbrance is a restriction on the title that can impact the transfer of a property.  A property’s title can have restrictions on it relating to its use and the interests held over it, for example a right of way or mortgage. 

It is especially important to check the flats plan very thoroughly when purchasing a cross lease title.  If the flats plan does not match the physical outline of the dwelling then the vendor should rectify same and a purchaser would have a right to request same (ie title to be requisitioned).

3. Secure finance to purchase the property by ensuring you have pre-approved finance in place

Obtain pre-approval before you decide that you would like to purchase a property.  This will ensure are able to make an offer with a budget in mind. 

It would be prudent to liaise with your solicitor and broker/lender to discuss and ensure you understand what would be required to obtain finance.  Your solicitor would be able to also give you a summary of the sale/purchase process and what you can expect to take place.

For help with Pre-Approval request Home Planning Assistance when signing up as FHBC member here

4. Obtain a LIM/Ensure the property has a Code Compliance Certificate

A Land Information Memorandum (LIM) is a summary of information held on a property.  It  may include characteristics of the land (such as potential flooding zones), rates owed on the land, and information relating to the building and resource consents.

Obtaining a LIM is highly recommended as it can flag possible issues with the property.

The LIM report would also confirm whether a property holds a Code Compliance Certificate (“CCC”) which would confirm that the dwelling (and any other alterations or building works that were carried out at the property) complies with the Building Act.  It is therefore important to establish whether works were carried out or the dwelling erected after the Building Act 1991 coming into force.  If works were carried out after this date it should also hold a CCC.

5. Obtain a Building Inspection Report

A detailed building inspection by a registered building inspector is highly recommended.  For most the purchase of their first home is their single biggest investment, it pays to do the necessary checks to avoid potential costs to remedy issues with a defective house.

6. Perhaps obtain a Valuation

A lender may require a registered valuation to support your home loan application.  In any case having a firm idea of the value of your purchase is a wise idea and as stated above you will know what your lender requires by having a discussion with the lender to establish the process.

7. Check and clarify any tax implications

Vendors and purchasers alike have to hold a NZ IRD number – if they don’t they won’t be able to purchase or sell their property.  Most people hold a NZ IRD number or would be able to obtain one prior to settlement. 

If you are an overseas purchaser, and you wish to purchase a property in New Zealand you will need to apply for a NZ IRD number which would involve you having a NZ bank account – there is a specific application that you need to file with IRD and this should be done in advance of you entering into any agreement to purchase a property. 

This area is complex and requires a lot of thought and for this reason we would suggest that this is something you discuss with your solicitor or accountant.

8. Sort or have an understanding of what is required in terms of any KiwiSaver Withdrawals you will be applying for

If you are looking to use your KiwiSaver towards either your deposit or ultimate purchase of your first home you should get in touch with your provider to organise what the process involves and the time required. 

As purchaser, you will need to ensure that:

• you have been a member of the KiwiSaver Scheme (“the Scheme”) for a period of three (3) years or more;

•  you have not made a withdrawal from the Scheme previously;

• funds are utilised to assist with completion of the purchase and can also be used as a deposit payment in certain circumstances;

• the property will be your principal place of residence;

• you do not nominate a family trust or company to settle the purchase; and

• you do not sell or transfer the property within six (6) months from settlement date.

Once you (and your solicitor) have completed a proper due diligence exercise by investigating all aspects of the property you are proposing to purchase, you will be in a position to decide whether you wish to make an offer.

Solicitor fees vary so you should always ask for an estimate on fees and ensure that you select a firm or solicitor you feel comfortable with prior to starting the purchase process.

If you have any queries or are interested in purchasing a property in the current market, Yolande would love to help.

As a special offer for First Home Buyer Club members, McVeagh Fleming will provide an initial consult for $90 that is only payable if you don’t end up using them for your home purchase.

Please contact Yolande Snetler on (09) 966 3605 / Email: ysnetler@mcveaghfleming.co.nz

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