New Zealand: Purchase Procedure

Overview

Here we detail the purchase procedures for buying a home in New Zealand. They are generally straightforward, although (as in all countries) there are possible pitfalls for the unwary. It’s wise to employ a lawyer before paying any money or signing a contract and, if necessary, have him check anything you’re concerned about regarding a property that you’re planning to buy.

When you find a house you wish to buy, you need to make a formal offer in writing, and most estate agents have a standard form for this purpose. A formal offer has to be made even if you wish to pay the advertised price. The offer is conditional and conditions may include the approval of finance (e.g. a mortgage), a satisfactory independent valuation, a satisfactory title search, the sale of another home, etc. Unless you’ve agreed to pay the asking price, there then follows a bargaining process which concludes when both parties have agreed a price for the property. As soon as you agree the price, you must sign a sales contract, which commits you to go through with the purchase. There are usually exclusions to this commitment (e.g. you aren’t obliged to go ahead with the purchase if you find out that a new road is about to be built through the living room), but you cannot back out because you decide that you don’t like the house or cannot afford it, unless you pay compensation. You also cannot subsequently reduce the price you’ve agreed to pay.

Many estate agents try to insist that purchasers sign a contract as soon as a sale is agreed, i.e. the day you view the property and say that you want it. However, you shouldn’t sign a contract before taking legal advice and confirming that the title is clear. If you feel obliged to sign a contract before the conveyance checks are complete, you should ask your lawyer to insert a clause in the contract to the effect that the contract is null and void if any problems arise. However, there’s no legal requirement to sign a contract immediately, provided it’s done within a reasonable time, so don’t allow yourself to be pressured into signing. It’s usually better to pass up a property if, for example, the agent says that another party is keen to sign (which may in any case be a bluff), rather than buy a property that you aren’t really sure about. The advantage of this system is that the seller cannot accept a higher offer after he has signed a contract with you, although most estate agents will try to push up the price to the highest possible level before pressing the highest bidder to sign a contract.
A deposit of 10 per cent is required when a sales contract is signed. This is usually non-refundable, but most contracts include a clause requiring its return if the title to the property isn’t clear or the land is subject to government requisition (compulsory purchase). When buying a property in New Zealand, it’s the exception rather than the rule to have a structural survey carried out. The main exception is if you’re borrowing more than 80 per cent of the value of the property, when the lender usually insists that a survey and valuation is carried out to protect their interests.

Because the time between viewing a property and being required to sign a contract can be short, you should have your finances arranged before you start looking. Most banks will give you an ‘in principle’ decision on a mortgage before you’ve found a suitable property and issue you with a mortgage guarantee certificate. This allows you to make an offer in the knowledge that, assuming the property is in order and your financial circumstances haven’t changed, you will be lent the money to buy the property.

Conveyance

Transferring the ownership of property (conveyance) is relatively straightforward in New Zealand, as it’s easy to establish whether the title to a property is clear. As a result, it isn’t mandatory to use a lawyer to do your conveyance, although given the thousand-and-one other things to be done when buying a house it’s unlikely you would want to do it yourself. Conveyance by a lawyer, who’s the only professional permitted to charge for conveyance, normally costs between $600 and $2,000. The fee may include the land transfer registration fee of $128. There’s no fixed scale of conveyance charges, as this was abolished in 1984, so it’s worth shopping around and haggling over the cost. It’s possible to find a lawyer who will do the job for as little as $400.

Once you’ve instructed your solicitor to act on your behalf in a property purchase, his main task will be to conduct a title search, i.e. to establish that the person selling the property is in fact entitled to sell it. This is usually carried out swiftly (Land Information New Zealand is efficient) and it’s rare to discover hidden horrors in New Zealand, such as dozens of relatives laying claim to a property. One peculiarly local concept in property purchase is cross leasing (also known as X-leasing). This usually applies in a situation where the previous owner of a section has leased part of it for the construction of another home (e.g. the one you’re planning to buy). In this case your ownership of the land is leasehold rather than freehold, usually for the balance of a period such as 100 years, at a nominal rent. To all intents and purposes your title to an X-leased section is as secure as freehold. Your lawyer will explain if there are any particular conditions that you need to be aware of.

You should also ask your lawyer to obtain a Land Information Memorandum (LIM) report from the local council, which describes the title of the land, outlines the official boundaries and buildings, the changes allowed to these buildings and flood risks. This useful document (particularly for future reference) can cost anything from $2 to $1,500 depending on the property and the details included, therefore you should check the cost in advance. Application for a LIM must be made in writing to the local council and is usually issued within ten working days.

© Survival Books Limited 2006

“Buying a Home in Australia & New Zealand” 1st Edition, Graeme Chesters.
Reproduced with the permission of Survival Books Limited.

Further information on this topic can be found in “Buying a Home in Australia & New Zealand” 1st edition, by Graeme Chesters.

For extensive information about buying a property in Australia & New Zealand, you can purchase this book at www.survivalbooks.net