Buying a house? What should I do?

Buying a property can, for many, be one of the largest single transactions they will be involved in.  When you are looking at buying a property, it is vital to do your homework (due diligence).  But what due diligence should you be thinking about doing?

Due Diligence

Either before making an unconditional offer, or as part of a conditional offer, it is extremely important that you know all there is to know about the property.  This will include:

• Reviewing the agreement for sale and purchase documents and considering any required conditions or obligations you would like to impose on the seller;

• Reviewing the title.  Often the title will restrict the way in which you can use the property, or you could even find out that you do not have legal access to the property;

• Obtaining a building inspection report.  Often a seller will provide you with a building inspection report.  If so, you should consider whether you are comfortable with relying on this report.  If you choose to do so, it is important to note that the contract is between the vendor and the builder.  This means that you will have no enforceable right against the builder in the event that the builder has made a mistake in the inspection or the report.  Some buyers choose to obtain their own builder’s report, regardless of whether one has been provided by the seller;

• Consider whether it is appropriate to obtain a methamphetamine ('P') or other drug report to see if the property has been contaminated.  This is becoming more prevalent in New Zealand and is even more important if the property has ever been tenanted;

• Obtaining a LIM report.   It is important that you ensure that the property (and any renovations like removal of walls, or a change of layout in a bathroom) have Council consent.  If not, this can cause problems with your ability to obtain finance and insurance and when you come to sell the property (as above).  Again, often a seller will provide you with a LIM report from the Council.  It is also important to know that you will have no enforceable right against the Council if the LIM report is incorrect or inaccurate, if it has been issued to the seller.  Some buyers choose to obtain their own LIM report, regardless of whether one has been provided by the seller;

• Having your finance in place.  Your finance needs to be an unconditional offer of finance, not just a pre-approval.  This is because a pre-approval is still subject to the bank approving the house you are purchasing; 

• Having your insurance in place.  An insurance company will usually have additional requirements if the property you are looking to buy was built prior to 1920-1930.  No insurance = no finance from the bank;

• Find out if there has been any insurance or EQC claims for the property.  If so, it is possible to assign the benefit of claim to you; and

• If you are purchasing a unit title property, obtaining and reviewing body corporate documents.  You would also need to receive a “pre-contract disclosure statement” before signing any agreement for sale and purchase.

Don’t get caught out

Doing your due diligence will involve some cost.  When you compare that initial cost of thoroughly checking things out with the overall investment and risks involved in buying a property, then the initial cost can easily be put into context.

Doing your homework and getting the right advice will help you in making informed decisions.  This will go a long way to ensuring that you protect yourself in this current “hot” market.