One of the aspects of any property purchase that causes confusion for many people – including those who have been through the process previously, not just first home buyers – is the meaning of conditions on the Sale & Purchase contract. Whether it be the terminology used on the contract or what needs to happen at different stages of the transaction, there is a lot of uncertainty. Hopefully in this week’s article we can help demystify the process for you.
So what is the purpose of the Sale & Purchase contract? It is a legal document recording the details of the sale between a purchaser and seller. It is this document that will specify any requirements of the transaction, and will need to be signed by all parties to the transaction. That means that it’s important to decide whether you are purchasing in your personal name or in a different entity such as a trust or company. It should also be noted that any home loan borrowing will usually need to be in the same entity as the purchase, and that if you are purchasing in a Trust, company or partnership, then the bank providing finance will require details of all those with a financial interest in the purchase.
The contract will also list several dates which need to be noted. The signing date at the top of the contract should be the date that the contract has been signed by all parties, and is important if any conditions stipulate a number of days from the date of contract. Attention also needs to be paid to whether the date stipulated mentions a number of days or “working days”. When calculating working days, weekends and public holidays are taken out of the calendar. i.e. 15 working days is in essence three weeks from the date of signing.
Finance Date – This is the date by which all arrangements for finance to purchase the property have been sorted. A loan approval needs to be unconditional by this date, so it is important to leave enough time between signing and the finance date to meet any requirements that the bank may need. This is especially important if you are requesting details of Kiwisaver if you are a first home buyer, or require a registered valuation to be carried out on the property. Once the finance is in place, then your lawyer will make sure that there are no other areas of concern before declaring the contract and purchase “Unconditional. Other checks such as a building inspection and inspection of council files and LIM reports will determine whether there may be any issues with the property or its location which may need attending ahead of the transfer of ownership. We have had instances where an inspection has shown problems that need to be addressed before the sale can take place, and on one occasion, a difference of opinion between vendor and buyer over the cost of essential roof repairs led to the cancellation of the contract. If the purchase had gone ahead without such a check, then the new owner would have had a significant expense to fix the home before they could even move into it.
Once the contract is declared unconditional then the purchase will be going ahead on the day scheduled for settlement of the loan. Settlement day is the date that you get the keys for your new property and can move in any time after this. Once the contract is declared unconditional you will usually be required to pay a small holding deposit to the vendors, either directly or via a solicitor or real estate agents account. If you are using Kiwisaver for your deposit, funds will not be available until settlement and your home loan adviser will need to make arrangements for a temporary overdraft unless your lawyer or the real estate agent can arrange for the deposit requirement to be waived.
Buying at Auction. Any offer needs to be unconditional if you are buying at an auction with deposit available on the day of the sale. Consequently it is vital to discuss options with your home loan adviser if you wish to have an approval in place for such an occasion.
Of course, you don’t need to go through the process alone. Your lawyer will be able to help explain anything that you are unsure about on the contract and your Registered Home Loan adviser will be able to help you through the whole process to make everything clear and stress free to allow you to enjoy the experience of buying your next home.
