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7 areas to investigate before purchasing your first home
Current trends in the property market mean that some buyers are purchasing properties either unconditionally, or without any conditions attached to the sale and purchase agreement they enter into. Due to the competitive nature of the market, purchasers often seem to bypass proper due diligence investigations, including not consulting their lawyers or having a building inspection carried out.
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.
Past trends indicate the housing market will continue its relentless upward climb. At present, While Auckland has seen a drop in demand and prices, there is on-going growth in both house prices and the number of sales in the rest of the country.
There also seems to be a shortage of new listings in many areas and this could put further pressure on prices - potential purchasers seem more willing to buy a property they would not have previously considered and to pay more for those properties.
Obviously there are a range of legal procedures and checks that will need to be completed when purchasing a property and your lawyer will make sure these are followed. As the purchaser, you should then ask yourself –what other matters should be addressed?
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.
Common conditions include: finance, LIM Report, Building Report or a due diligence condition which would cover all matters you would wish to investigate. Another important clause is ‘Meth testing’ – if this is something you are wanting to carry out make sure this is explicitly mentioned as some vendors will refuse testing if this isn’t in the agreement.
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 where a property is accessed through a right of way, owners may be responsible to contribute to its upkeep and maintenance. It is especially important to check the flats plan very thoroughly when purchasing a cross lease title.
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 you are able to make an offer with a budget in mind.
It’s wise to speak with your lawyer and broker/lender to discuss what would be required to obtain finance. Your lawyer would be able to also give you a summary of the sale/purchase process and what you can expect to take place.
4. Obtain a LIM/property records
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.
Check the property records for permits/consents for the original dwelling and any alterations/changes that have taken place over the years. Things such as the installation of a fire, additional plumbing fixtures, removal of walls, and construction of retaining walls may have required a consent so it can be advisable to have a building inspector check these as well.
5. Obtain a Building Inspection Report
A detailed building inspection by a professional 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. Look for a company who offers a free follow up service to answer any and all questions that you may have.
At NZ House Surveys, we have professional inspectors across NZ who offer this service. Phone 0800 487 884
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.
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 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 complete the purchase.