Showhomes & Tools

Making A Purchase

Making A Purchase

Once you have worked out why you want to buy and found the right neighborhood, you can buy your house.

Working with a Real Estate Agent

A real estate agent is your expert in the process of buying and selling property. Agents will know the district and its zonings intimately. They must be familiar with changes in land-use including probable future changes based on apparent trends, and the laws and bylaws relating to property. Agents help you with the complexities of the negotiation process. There are a variety of negotiation factors in a Sale and Purchase Agreement, price is certainly one of but not the only factor. Others include financing, terms, date of possession, chattels and inclusion or exclusion of repairs. Remember the agent is contracted to the seller, they have a legal obligation to act in the seller’s best interest, so if you are the buyer they can not give you impartial advice on a property. When selling, costs can vary depending on your location and the value of your property. However, it appears that the typical range is from 2% to 4% of the sale price, plus GST. In addition, the agent may ask you to pay extra for advertising, although this is often highly negotiable depending on market conditions, and how marketable the agent feels your property is. For an overview of what’s on the market, check out: http://www.trademe.co.nz, http://www.open2view.co.nz/ and http://www.realenz.co.nz/.

 

Purchasing a Property

There are 3 ways to purchase a property:

1. By negotiation

This transaction is done either using an agent or privately directly with the vendor. You make an offer to the vendor using a standard Sales and Purchase Agreement, which includes your price and any other conditions you may have, for example it could be subject to the LIM report. In the negotiation of this contract any changes to price and conditions are then counter-signed by both parties until you reach an agreement. If there are still conditions to be satisfied the contract is ‘conditional’ until a set date. The deposit is paid into the agents trust account or you may use a lawyer’s trust account if it is a private sale. Once the conditional date is reached and all conditions are met, the agreement becomes ‘unconditional’ and the deposit is paid, with the balance being paid on settlement day.

2. At auction

When you buy at auction it is unconditional so you need to have done your valuation, title search, LIM report and have pre-approved finance. Also if you are successful you need to pay a deposit at the time. If the vendor has a reserve price and if the winning bid does not meet this price the property is not sold but quite often the vendor goes onto negotiate with the highest bidder. A tip is to decide your top price before you go and stick to it – it is easy to get carried away with the excitement of an auction.

3. By tender

A tender is run with a final date and time for all offers to be handed in, then the vendor looks at them together and chooses one (or one to negotiate with) that they like the best. You can have conditions in your offer but you will be in a stronger position if you make an unconditional offer, so make sure you have done your research and have organised finance prior to the tender closing.

 

Finance

You can apply for a mortgage directly at your bank or you can use a mortgage broker. Mortgage brokers have specialist knowledge of the lending market and act as an intermediary between you and the borrower, and the bank or lending institution. A broker can save you a lot of time hunting for the right mortgage. A mortgage broker’s service normally costs you nothing. They make their money by charging the chosen lending institution. To find a mortgage broker and information on using a broker go to the NZ Mortgage Brokers Association.

Money Monkey is NZ’s finance directory offering national listings for banks, building societies, lenders, investment advisors, plus financial advice and information to help you make your money work for you. Visit: http://www.moneymonkey.co.nz/.

Lending criteria/applying for your mortgage

Picking the loan that suits your lifestyle can be complicated. Your bank or financial advisor will be able to assist with setting up a structure to suit your needs. Most lending institutes will lend up to 80% of the total cost for your section and building your home. A construction based loan allows you to draw down the money at agreed stages of building, so you are not paying for the money until it is needed. When you meet with your bank, financial advisor or mortgage broker you will need the following to get started:

  • Evidence of your income(s) by way of payslips, a letter from your employer, a copy of your employment contract or in the case of self employed people, ideally 2 years full financial accounts prepared by an accountant or taxation professional
  • Evidence of your initial deposit. This could be in the form of an investment certificate, term deposit, a gift or funds saved in an account
  • Bank statements for 3 to 6 months consecutively
  • Photo identification such as a passport or drivers license

Finance should be arranged prior to making an offer. Particulary if you are purchasing at an auction as once you make a bid you are committed to the purchase and can be sued for damages.

Valuations

You may wish to have the property valued by a Registered Valuer. Your lender may require a valuation as a condition of your mortgage.

Legal Considerations

Certificate of Title
It is essential to do a title search before you purchase any property. The title will show you the ownership of the property, the size and general shape of the land, if there are any mortgages, leases or other interests registered against the property, and whether there are any restrictions on the usage of the land such as a fencing covenant or building restrictions. Your lawyer can obtain a copy of the Certificate of Title for you or you can order one yourself at Land Information New Zealand. To obtain a copy yourself you will need the land district (region), title number and legal description.

Land Covenants/Easements
Land covenants and easements registered on the Certificate of Title are restrictions and obligations on the use of the section. They are usually put on the title when the land is subdivided.

Examples of covenants/easements:

  • Protecting the integrity of a development by placing controls over the materials used and the size and type of house built
  • Restrictions on the type of fencing permitted
  • Restrictions on the height of buildings to protect view, bush and trees
  • An easement might be a right of way giving access to the back section, or a right to pipe water across one section to the other

It is important to know that you can’t usually build over whatever the easement is protecting. This could limit your use of the section. If buying a section in a new subdivision, be aware that many sites will include restrictive covenants on the new titles. These are designed to ensure that all of the houses in the subdivision are built to an equally high standard and a specific design using specific materials. These covenants are often very strict, and you should ask your lawyer to examine them carefully.

Sale & Purchase Agreement
This is the standard contract form used for real estate transactions; it is approved by the Law Society and also the Real Estate Institute of New Zealand. The form contains:

  • Address and legal description of the property
  • Size of the property
  • List of chattels
  • Vendors details and their solicitors details
  • Your full name and contact information
  • Your solicitors details
  • Deposit amount – usually 10%
  • Unconditional date
  • Possession/settlement date
  • Special conditions (there is no limit on these) such as:
    • Finance
    • Buidling Inspection
    • LIM Report
    • The seller can insert a clause that states if they receive another offer more suitable they can give you x (agreed number) of days to confirm your purchase of the property.

When all terms and conditions have been satisfied the contract is deemed ‘unconditional’ and you are committed to purchasing the property.

Types of Property Ownership

There are varying types of property ownership available. Below is an outline of the various options:

  • Company title – Buying a flat with a company title means you buy ‘shares’ that give you the right to live there. The company acts like a body corporate in a way, running and maintaining the block of flats.
  • Cross-lease – When there are several homes on one section and all the owners own the land together. Consents must be obtained from the other owners for any exterior alterations and a new ‘flat plan’ (showing boundaries of the houses) might need to be drawn up.
  • Freehold – The land and house are owned with virtually no restrictions. Most New Zealand homes are freehold.
  • Leasehold – The house is owned but there are often restrictions on how you can use the land. And if you want to sell the lease you might have to clear it with the landowner first.
  • License to occupy – The most common form of ownership in retirement villages, a license to occupy gives you the right to live in the home and use the land without owning them.
  • Unit title: If you buy an apartment you’ll most likely have one of these. Common areas like stairways and parking are managed by the body corporate (a group all the owners belong to) and maintenance/operating costs are covered by their fees, which all owners contribute to.

Trusts

People set up trusts for all sorts of reasons. The main reason to set up a trust is to protect assets for the future. Assets held in a trust may not be affected by matrimonial property disputes.

  • For some, a trust may offer tax savings because of the different ways income can be distributed.
  • You can set up a trust for a specific purpose, such as education, and the money can’t be used for any other purpose.
  • A trust can give you a degree of control over what happens to your assets, even after you pass away.
  • There are costs involved in setting up a trust and ongoing fees as well. It’s not always possible to change a Trust Deed later, and with some types of trusts such as a funeral trust, the money is locked away and can’t be used for any other purpose.
  • For more information on understanding trusts go to: http://www.howtolaw.co.nz/html/ml025.asp

 

Relationships

When buying your house it is wise to ensure that you share legal title to the house by having it under both your names. The Property (Relationships) Act 1976 has a strong presumption that the family home will be divided equally if your marriage or defacto relationship ends – this usually doesn’t apply to marriages and relationships of less than three years. For more information on the services lawyers can provide, go to the property law section of the NZ Law Society. You can also download their Buying or Selling a Property brochure outlining the legal steps involved.

 

Purchasing Costs

Costs

Once you have an unconditional contract there are a few more things you need to finalise prior to settlement:

  • Your lawyer will need to arrange the documentation
  • Your lender will need to arrange your loan documentation
  • You are entitled to inspect your new home before settlement date to check that nothing has changed since your original offer
  • On settlement day, your laywer/agent will be in touch to confirm the settlement process is on track and once it is complete the keys will be given to you and it is all yours

Other costs when purchasing

When purchasing a house or section you need to budget for additional costs above the actual purchase price, such as:

  • Solicitors fees, including disbursements (these are payments made on your behalf by the solicitor for search fees, registration costs and photocopying): $600 – $1,500
  • Bank fees: Up to $500
  • Valuers fees: $400 – $600
  • Building Inspection Report (if used): $300 – $1,000
  • LIM Report from council: minimum $250
  • Your share of property rates and water rates: $100 – $1,000
  • Home insurance premium (amount depends on your policy)
  • You may need Borrowers Protection Plan Insurance
  • Moving costs

Additional ongoing costs

When choosing your site there may be on going additional costs that you have not considered like:

  • Shared costs with upkeep of private right of ways/shared driveways
  • Body corporate fees
  • Rates and cost share schemes (look into this with new developments as they may have covenants on the title which require you to contribute towards the upkeep of communal areas)
COST GUIDE IN PURCHASING YOUR PROPERTY LOW END HIGH END
LIM

$250

$350

Building Surveyor

$400

$1150

Engineers Report

$1500

$4000

PIM report

$150

$1000

Registered Valuation

$500

$800

QV quick valuation report

$40

$40

Loan Application Fees

Free

$500

Solicitors Costs

$700

$1800

Land Transfer fees

$200

$300

PROTECTING YOUR INVESTMENT (fortnightly payments)
Property insurance
(based on replacement of 150m2 home)

$25/month

$35/month

Mortgage Protection Insurance

$21/month

$58/month

View more guides

Selecting A Site

Once you have decided on the prefered neighbourhood, research the site itself. Consider these issues... Read more.

Where to Buy?

When it comes to deciding where you should buy, a number of factors become important. Consider... Read more.

Making A Purchase

Once you have worked out why you want to buy and found the right neighborhood,... Read more.

Should I Buy?

Why Do You Want To Buy A House? Buying a house is, for most people,... Read more.

FPB - Future Proof Building Principals
Energy Smart Health & Safety Life Cycle Quality Smart & Secure Sound Control Spatial Design Sustainability