As interest rates are nudging down and it is forecast house prices will begin to rise again in the coming year, a young couple felt this is the right time to be purchasing their first property. 

The real estate agent asked them what deposit they wanted to pay on the property, and what conditions they wanted to include in the Agreement.

They didn’t know much about what was ‘usual’ to include, or where to begin.  They contacted their lawyer for advice.

When completing an Agreement for Sale and Purchase to buy a property there are a number of things you should consider, including:

1. Are you using your KiwiSaver funds? If so, is it for the payment of your deposit or for settlement?

If you are obtaining KiwiSaver funds for the deposit due under the Agreement, a specific further term of sale is required in the Agreement.  This clause needs to record that funds will be held in the vendor’s solicitor’s Trust account until settlement. This ensures that your lawyer complies with their undertakings required by your KiwiSaver provider.

A note about the “deposit”

When looking to purchase a home with the assistance of bank loan funds, there are two completely separate “deposits” that you will encounter.   The same terminology is used for both, so it can be quite confusing.  Below are the different types of deposit.

a.    Your Bank’s requirements for a deposit…

Banks require their customers to contribute cash to a certain level for a property purchase before they will commit to lending their customers money, secured by a mortgage. 

Banks call their client’s own fund their “deposit” which is simply that part of your cash savings that you will be putting towards the property purchase.  Currently, banks generally require you to have saved at least 20% of the total purchase price of the property you are looking to purchase.  The bank will allow this 20% “savings” to be made up of available funds in your bank accounts plus the amount you are able to access from your KiwiSaver account.

b.    Agreement deposit…

The 5-10% deposit in the Agreement for Sale and Purchase is a part payment of the total purchase price for the property. This deposit is what you give the Vendor as a consideration for entering into the Agreement until it progresses to settlement date, when the balance of the purchase price is paid (plus any apportionments of rates and levies). 

On the settlement date you are paying the purchase price less the deposit already paid to the Vendor, as is recorded in the Agreement.

 

2. When is the proposed settlement date?

The proposed settlement date must allow sufficient time after confirmation of conditions being met, for mortgage and transfer documents to be prepared and signed.

It is also important to bear in mind that if you are using KiwiSaver funds or obtaining a Kāinga Ora grant then the settlement date must accommodate their required time frames.  KiwiSaver providers need at least 15 working days after an Agreement is unconditional in order to process your application, and Kainga Ora have a 20 working day processing timeframe.

3. Have you confirmed your finance arrangements?

If you are pre-approved for a bank loan (mortgage), then you need to be sure that it is unconditional approval. Otherwise, if the pre-approval is conditional, then a robust “subject to finance” condition should be inserted into the Agreement. 

Following your offer being accepted, you will need obtain an unconditional letter of offer of finance from your bank that records the address of the property you are purchasing and your full legal name(s).

4. What conditions do you want in the Agreement for Sale and Purchase?

You may want to have Land Information Memorandum (LIM) report and builder’s report conditions in your Agreement. Additionally, you may want to include clauses such a title approval and/or a methamphetamine test. These conditions will mean you need to allow sufficient time for these conditions to be satisfied before settlement.

It is very important that you undertake a full investigation of the property you are looking to purchase. 

You need to be assured that the building and retaining walls are structurally sound and weather-tight, and that building permits and/or consents are in place and the work has been signed-off by the Council, where applicable, by way of a Code Compliance Certificate (“CCC”). 

If it transpires that there are issues at the property such as a missing CCC this needs to be disclosed to your insurer and your bank.

There are a number of potentially stressful and expensive issues that can arise if Agreements are not properly drafted. We recommend obtaining experienced legal advice prior to signing an Agreement to avoid such issues arising.  

We offer Free 30 Minute Property Consultations for those looking to buy their first home.  If you would like to book such a consultation please contact Gillian Scanlon on 04 4736 850  or gscanlon@raineycollins.co.nz and she will schedule an appointment with one of our experienced property team.

Thérèse Greenlees

Registered Legal Executive

Rainey Collins