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Buying By Negotiation

The Mortgage Warehouse step by step guide to the process of buying a house by offer and negotiation in New Zealand.

The Process

There are many things think about and to check or organise when buying a house. Often these things can be done after you have reached a conditional agreement to buy the house - but the agreements you reach when you discuss this must be recorded in your contract. This process is commonly used in New Zealand when buying a house and it is wise to include your lawyer in the process. 

Decide what kind of offer to make

You can choose to make either an unconditional or conditional offer on the property.

An unconditional offer means that you have no conditions on the price you offer. Unconditional offers are generally favoured by the seller, especially if there are competing offers.

A conditional offer means you have conditions that you want met before you agree to complete the purchase of the property. Conditions could include getting a building inspection or valuation, confirming your financial arrangements or selling your own property.

The seller can also attach conditions to the sale such as stating the settlement date or listing the details of the chattels (for example, stove, fixed floor coverings, blinds, curtains and light fittings) that come with the house.

Unconditional Offer  Conditional Offer

Making a Conditional Offer

If your offer has conditions that allow you to arrange finance, sell another property, or engage a property valuer or building inspection before you are committed to buying the property, then you have made a conditional offer

The seller may decide to accept the conditions of your offer or may continue to negotiate.  The seller may also chose not to accept or negotiate a conditional offer.

There are several good reasons for making conditional offer

  • It gives you time to check that everything is okay with the property before you are committed to buying it.  If you find something is not right you won't have to go ahead with the purchase or you may be able to renegotiate your offer.
  • It allows time to arrange suitable finance to complete the purchase.
  • Even preapproved finance may be subject to certain conditions and it may be important to allow time to satisfy those conditions by making them part of your offer when buying the house.
  • You may want to have a pre-purchase building inspection done on the property or you may want to tie the purchase of one house to the sale of another one.  These things can be accommodated in a conditional offer.
  • It is common to allow at least 5 business days to satisfy the conditions recorded in a conditional offer. Depending upon the nature of the conditions, it may be better to allow 10 business days or if the sale of another property is part of your offer you may need more time. 

Common conditions in an agreement for sale and purchase

A finance condition, a building inspection, a valuation report, a title search, a LIM report and the sale of other property are common conditions in sale and purchase agreements.

Consult a lawyer before you sign a contract
  • The conditions you put in any contract to buy real estate will depend on your circumstances and the property.
  • It is best to discuss this with your lawyer before you enter a contract. 
  • Most lawyers will gladly review or prepare the conditions you need.

Below are some typical items that are conditioned for.  You should consult your lawyer for his or her preferred wording.

  • Finance.  This gives you time to arrange a suitable loan. Make sure the condition stipulates that the finance must be satisfactory to you in all respects. 
  • Valuation report. This is an independent professional assessment of the market value of the property and if worded properly in your contract it can provide you an opportunity to renegotiate or withdraw your offer if you have offered more than the property is worth. This may be a condition of your finance anyway, so it is a wise condition to include. 
  • Building inspection. This is similar to an AA check on a car. A good building consultant's report will state whether the building is sound and will identify any problems that might cost money to fix. A report of this nature is a wise and increasingly common precaution. 
  • Title search. Your lawyer should check that there are no problems with the title or restrictions, covenants or easements that you need to know about. 
  • LIM report. This report will tell you what the council knows about the property and help you to understand if there are any problems with things like building consents or flooding. 
  • Sale of property. You may need to sell your property before you are committed to buying another property. This can be accommodated in your offer. 
  • Other conditions.  You might want to make other conditions to cover things like repairs that the seller must complete before you take ownership.
Example wording for a generic due diligence clause

The following is an example of the kind of wording which is common in a due diligence condition. 

"This agreement is, in all respects, conditional upon the purchaser being satisfied that the property is suitable for the purchaser's requirements following the purchaser carrying out a due diligence verification of the property, including by way of example and without limitation...

  • The value and condition of the property including compliance with building and local authority regulations.

  • The terms of all encumbrances, rights and interests registered against or in respect of the title.

  • The overall financial suitability of the purchaser's proposed purchase of the property.

The date for fulfillment of this due diligence condition is that date being (__) working days (recommend 10 working days) after the date of this agreement. The parties acknowledge that this due diligence condition is inserted for the sole benefit of the purchaser and may at any time prior to this agreement being voided be waived by the purchaser giving written notice of waiver to the vendor."

Recording your conditions

If you reach an agreement on a price for the house but you need to arrange finance or there are other things that you need to be satisfied about before you are committed to buying the house, then these conditions will form part of your conditional offer to buy the house.  And if accepted you will have a conditional agreement.

Although your conditions will often be discussed or agreed verbally, it is most common to record any conditions in the contract.  Often the vendor's real estate agent will do this for you.  However, it is sensible to have your lawyer review the wording and the appropriateness of the conditions and the contract overall.

Making An Unconditional Offer

As the title suggests, there are no conditions to be satisfied before the contract becomes binding.

Take care
  • Although the physical aspects of the property may be okay, there are legal aspects relating to its title that you should understand, and a lawyer can help with this.
  • Take care also if your preapproved finance has some conditions which may restrict your ability to settle the contract. 
  • If you are confident that you know all about the property and you can pay for it then you could make an unconditional offer to buy it. However, we recommend that you consult your lawyer before making an unconditional offer.

If you make an unconditional offer and it is accepted, you must complete the purchase.  If you break the contract, you could be sued.

Settlement and Possession - the big day

On settlement date you pay for your house and title is transferred from the vendor to you. If you have borrowed money to buy the house, the lender will need to know that the house is insured when it transfers to your ownership.

It's time to pay

Regardless of how you purchased the house, you will have probably paid a deposit. 

On settlement day you will need to pay the rest of the purchase price.  In most cases, some or all of this money will be coming from a mortgage lender.

Drawing down your loan is taken care of by your lawyer. 

Insure the house

The house must be insured if a mortgage is registered against it because it is a significant part of the mortgagee's security for their loan. 

Your lawyer will need confirmation from an insurance company that the house is adequately insured.

Drawing down the loan

Your lawyer does several things before and after settlement but on settlement day these are the key things that are done for you.

  • When your lawyer is satisfied that title will be transferred to you, he/she will draw down your loan and pay the vendor and ensure that the legal title to the property (i.e. ownership) transfers from the vendor to you. 
  • Your lawyer will register the change of ownership (from the vendor to you) and register the lender's mortgage on the title.  The process of changing ownership of the property from the vendor to you is called the conveyance. 

Congratulations! The house is yours

Home ownership comes with many pleasures and some unavoidable costs.  The main cost will probably be your loan repayments.  Other costs could include rates and insurance.  Some properties may have costs like body corporate levies or lease payments.

Property is a great asset to own and we hope that your purchase is very rewarding. 

If it's time to do some numbers

This simple calculator might be helpful.

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