I see a lot of Sale and Purchase Agreements! My firm has 3 Auckland branches and a mobile legal service – this means we get a constant flow of contracts from buyers …some of whom get advice from us before entering into an agreement but alarmingly many who don’t. There are numerous purchaser mistakes that we come across all too often. Taking the time to talk to us before you sign a Sale and Purchase Agreement can alert to these and dramatically reduce the risk of your making a mistake.
5 of the common and easily avoidable mistakes purchasers make are:
1. Not thoroughly checking the property.
I find it quite alarming that there are many people out there who check a car much more thoroughly than they would a property before buying . It never ceases to amaze me how little investigation some people do into the property they are buying, I come across many people who think its a waster of money to get a LIM report or building inspection done. The common kiwi saying “She’ll be right” does not apply when buying a house… “hello people??? – this is the biggest investment you will make in your life time!! … its costing you hundreds of thousands of dollars!” …. At the very least you should get a LIM report and building inspection report done on the property before you commit to buying !
2. Relying on funds from KiwiSaver to use as a deposit
The terminology used by banks and information KiwiSaver providers is very misleading to buyers. Banks say you can use KiwiSaver funds towards your “deposit” and Housing New Zealand even offer a “deposit subsidy” to qualifying KiwiSaver members. What nobody tells you though is that you can only access this money on settlement day when it is deposited into your lawyers trust account to go towards the settlement of your purchase. You cannot use this money as a deposit to pay to the agent when signing a sale and purchase agreement or bidding at auction.
3. Thinking pre-approval is the same as finance approval
When you apply for finance from a bank or broker they will give you an official looking letter saying you have been pre-approved to borrow a certain amount. This does not mean that you can go and bid at auction or sign a sale and purchase agreement without a finance condition. Although you have been approved for a loan the lender still needs to approve the property you are buying (they may ask for a valuation or builders report) and they have different lending criteria for different types of properties. Even if you are eligible for a loan the bank can decline your finance if they do not approve the property and they may require a higher deposit for certain types of properties.
4. Failing to budget for unexpected costs:
There are many costs associated with a purchase like people expect to pay like the cost of a LIM or Builders Report and of course legal fees. But there are also others less obvious costs that can blow your budget. Banks often demand a registered valuation as a condition of the finance approval particularly when there is a low LVR and will also require you to take out an insurance policy over the house before drawing down your loan. On settlement day the purchaser is required to refund the Vendor for rates, body corporate and ground rent (if applicable) that the Vendor has paid in advance. There are also moving costs and could be connection fees for electricity sky etc. It pays to budget for these additional costs so you are not caught short when settling your purchase.
5 Leaving the final inspection until Settlement Day
Many purchasers don’t realise that they are only entitled to one pre-settlement inspection, and that this inspection must be before the settlement date. Leaving it until the day of settlement runs the risk that the Vendor will not agree to let you do the inspection and you will not be able to claim compensation for any issues found during the inspection. It is best to contact your real state agent well in advance and set up time to do your final inspection at least the day before settlement.
If you would like to discuss you offer before you enter into an Agreement for Sale and Purchase of Real Estate give us a call on 0800 SOLICITOR and one of our Auckland lawyers will happily assist you.