Buying your first home
Buying your first home is a very exciting time and a major milestone in most peoples' lives. Unfortunately, it can also be a very stressful time with a minefield of potential problems.
How many horror stories have you heard? How about the young couple who bought a property close to the city boundary only to find out that their neighbours can run pigs on the paddock next door. Or the purchasers who bought a property with a great expansive deck but no code compliance certificate from the local council.
Don't be put off, as with careful planning and good, practical legal advice you can avoid such disasters. Sound legal advice is one of the most important measures you can take to protect yourself when buying your first home.
Let's now work though the transaction:
- You have found the house you like and you have had discussions with the vendor through the real estate agent as to the price and other terms such as the amount of the deposit you must pay and settlement dates. Now is the time for the agreement to be recorded in writing. It is at this time that you should involve your lawyer.
- A contract for the sale and purchase of land is one of the few contracts that is required by law to be in writing before it is enforceable. The standard Real Estate Institute of New Zealand agreement is in wide use and will be the agreement that you will most likely be asked to sign.
- This agreement sets out the important terms including:
- the parties to the contract, that is, details of the vendor and the purchaser
- details of the property - address and legal description
- purchase price
- amount of the deposit
- settlement date
- any conditions that have to be satisfied before the agreement becomes unconditional.
You should, under no circumstances, sign any agreement until you have had the opportunity to show it to your lawyer. You may be under pressure from the real estate agent to sign, however it is important that you resist this pressure. Most real estate agents agree with this and will usually fax a copy of the proposed agreement to your lawyer for him/her to review. Remember, if you sign the agreement you are bound by its terms and conditions. After signing there is not much that your lawyer can do for you except to explain what the agreement means.
There may be a need for the agreement to be subject to a number of conditions. The most common conditions are as follows:
- finance - to enable you to have time to approach a lender to arrange finance
- a check of the Certificate of Title by your solicitor
- a Land Information Memorandum - this is a check of the local authority's records
- a tradesman's report (Builder, Electrician, Engineer)
Most agreements are conditional upon various conditions being satisfied. Your lawyer's role is to explain these conditions to you, what they mean and your obligations. Your lawyer will also keep track of the various condition dates to ensure that they are satisfied within the required timeframes.
When all of the conditions are satisfied, the agreement becomes unconditional and you are heading towards settlement.
Your lawyer will then prepare the Transfer and sale notices ready for settlement:
- The Transfer is the document that is required to transfer ownership from the vendor to the purchaser.
- The sales notices are required to advise the local authority that the property has been transferred to you so that it can then amend its records accordingly. When these documents have been prepared, they are sent to the vendor's lawyer.
Generally a loan is required to purchase your first home which will be secured by a mortgage over the property. If you are getting a loan, your lender will send your lawyer instructions which your lawyer will be required to satisfy. Prior to settlement day your lawyer will meet with you to sign all of the loan documentation. They will then send all of the documentation back to your lender in time for settlement.
Your lawyer will also discuss insurance with you as you will be required to insure the property from the date of settlement.
Prior to settlement, your lawyer will arrange to receive your loan funds from your lender. They will also have advised you whether there are any additional funds required and will ask you for a bank cheque for that amount (usually required on the morning of settlement).
The standard REINZ agreement allows for a pre-settlement inspection arranged through the real estate agent. This allows you, prior to settlement, to visit the property with the agent to have another look around and make sure that the property, chattels and fixtures are in the same condition as when you first saw them. You can also check to see if any work that was required to be completed prior to settlement has been completed. This inspection is usually a day or so before settlement and is important for your peace of mind.
Your lawyer will ensure that all documentation required is completed and in place, ready for settlement on the settlement day. Your lawyer will check to make sure there are no issues from you regarding the pre-settlement inspection.
On settlement day, your lawyer will:
- Receive the loan funds from your lender combining this with any funds that you have provided
- Arrange for a bank cheque to be prepared and taken to the vendor's lawyer
- Hand over the bank cheque to the vendor's lawyer. The vendor's lawyer will then hand to your lawyer the signed Transfer and any Discharges of Mortgage (if applicable) (being the security given by the vendor)
- The vendor's lawyer will also either hand the keys to your lawyer or contact the real estate agent to authorise the release of the keys to you
- Importantly, your lawyer will advise you as soon as settlement has been completed so that you can move in.
Following settlement, your lawyer will send any Discharges of Mortgages, the Transfer and new Mortgages to Land Information New Zealand for registration.
When registration has been completed, your lawyer will obtain a copy of the title showing the new registrations and will send a copy of it to you and to your lender.
Your lawyer will also comprehensively report to you on all aspects of the transaction including detail of the financing and title. Your lawyer will provide you with a statement showing how they have dealt with your money and will provide details of any loan funds.
The purchase of a property is a very involved and complex transaction. It is very fertile ground for error. The golden rule is see your lawyer before you sign any agreement. If in any doubt, just pick up the telephone and call.