Spring, at last, has sprung and with it has come the lambs, the blooms, the longer days – and, of course, the seasonal warming up of the property market.
As happens at this time of year, my desk has seen a marked increase in conveyancing files adorning it of late. As the market picks up, I’m seeing many of the “usual suspects” in terms of problems, risks, misconceptions and misunderstandings that arise, a few of which I’ll visit in this column. These are just indicative, though, and not, by any means, exhaustive, serving largely as a reminder of the nature and breadth of potential pitfalls, and the importance of getting all those ducks in a row.
Janice’s Lesson Number 1: Due diligence. Due diligence. Due diligence. Anyone who reads Hard Case for any length of time will know I’m pretty big - okay, beyond passionate – about education, sensible risk management and informed choice for both my clients and the wider community.
For starters, if you have any doubts at all that the property you’re signing up for might not be your cuppa tea, don’t for a nano-second presume signing a conditional sale and purchase agreement is some dinky way to buy time and cleverly have your decision-making cake and eat it too. Couching an offer as “conditional” does not necessarily give you carte blanche to pull out of the deal as the whim may take you.
Tread warily
Nowadays, it’s fairly standard for sale and purchase agreements to include conditions relating to the potential buyer obtaining a builder’s report and Land Information Memorandum (LIM) report. These reports are hugely helpful to check that the right consents are all present and ticked off. But make sure you are using the conditions correctly – a builder’s report that raises some issues, for example, doesn’t necessarily mean you can just wave a quick “sayanara” to the deal. The threshold to back out using the standard condition requires you to look at the report based on an “objective assessment”, and that may be quite a different angle to consider things from than you think.
Janice’s Lesson Number 2: Signing a conditional contract signals your genuine intent to purchase. Therefore, you need to ensure, before committing to anything, you have done all of your fundamental research on a property and identified the potential considerations and risks, so the conditions in the sale and purchase agreement are appropriately tailored and worded to best protect your interests and your options.
A shock for would-be buyers can also come around bank pre-approval for finance. What is very often overlooked is that there are always riders attached to pre-approved lending. Hence, finance isn’t an absolute given until the bank’s done its own due diligence on your intended property, and you will need to consider whether that needs to be reflected in the agreement. A pretty standard, over-arching condition for pre-approved finance, for example, is that the lender actually has to approve the property. Many buyers assume this is just a wee formality, only to discover, just by way of one example, their dream property is flagged in the bank’s system as having a “leaky home” profile.
Ouch
Janice’s Lesson Number 3: Another far too common snag has come with the advent of Kiwisaver. In the heat of the moment, some eager buyers are committing to a quick-fire settlement date, only to find getting their hands on their desperately-needed nest egg isn’t exactly the speedy process they assumed. In most cases I’ve seen, about three weeks is needed to allow sufficient time for preparing and sending the forms, and for processing at the Kiwisaver provider’s end. Fail to accurately factor your provider’s specific timelines into the contract, and you could find yourself whacked with costly penalties for late settlement.
In terms of insurance, if you’ve missed the memo: the days of automatic “full replacement value” insurance for homes are largely finito. “Agreed value” is the new norm. An alarming number of homeowners – gasp – are leaving it to the last minute to organise cover, or rather randomly picking the initial agreed value to insure a property for. Be pro-active – it now takes more time to put cover in place on properties, and you’ll need to demonstrate to your bank you have insurance before they’ll hand over the loan monies for settlement.
Also, remember that the insured value really needs to be revisited and, where necessary, adjusted annually when you renew your policy. Banks and insurance companies have online calculators to help, and, to be even more accurate, you can call in a registered valuer. It’s too late, and potentially devastating, if the worst happens, to discover you’ll be paid out not on your need to replace your home, but on a lesser value set years back.
What’s in a title?
Property buying in our area can come with its own, often unexpected, quirks and differences, especially around the various title interests, easements and covenants. These little legalities can have a major bearing on what you can and can’t do – to the extent they can kill your plans dead in the water. For people who have previously bought in cities, where there isn’t anywhere near the prevalence of interests and conditions, this can prove quite an education, and it’s not the type of revelation you want to be landed with when you’re already committed. You absolutely need to, firstly, know what’s on the title of any property you’re looking at, and, secondly, fully understand the rules, restrictions and ramifications of every aspect.
Janice’s Lesson Number 4: Frustratingly, the vast, vast majority of hiccups, disappointments and disasters around property are either completely avoidable or easily mitigated with a combination of planning, research, tailored checklists and seeking timely, quality advice and support from the get-go of the buying process. Ideally, touch base with your property lawyer and establish with them a checklist of considerations, questions to ask and risks to watch out for. And, no matter how inviting, perfect and sensationally amazing a property appears, steer well clear of attaching your signature to anything without running it by your legal adviser first.