It recently came to our attention that while many people understand the basics of what’s involved at each stage of signing a Sale & Purchase contract to buy or sell property, there are still some grey areas regarding some of the terminology and when certain requirements of the contract need to be met.
Whenever a Sale & Purchase contract is signed either for a private purchase or more usually with the help of a Real Estate agent, there are several important inclusions that need to be addressed and we will go through the main points.
Purchase Price
This is the figure that will be paid to the seller on settlement day in order to take over ownership of the property. Sometimes the first figure on the contract is not the final agreed price and it is important that any changes are clearly marked and initialled by both purchaser and seller. The price should also be written in words as well as figures so that there is no confusion when arranging finance.
Finance Date
For most people, some funds towards the final purchase price need to be organised by way of securing a mortgage from a bank or lending institution. The finance date specified on the contract is the date when the purchaser needs to have an unconditional loan approval in place. This means that the bank has agreed to advance funds to complete the purchase and that all conditions of the approval - such as requirements for confirmation of any deposit or registered valuations of the property - have been met. As long as the offer is unconditional, then the purchaser’s solicitor will be able to confirm that the finance condition has been met.
One area of confusion regarding the Finance date is that some people think that everything needs to be signed at the bank and loan documents issued by this date. This is not the case and recently we were able to get a loan offer from a client’s existing lender ahead of the finance date, so that the purchase could go unconditional, only to arrange finance through a different provider who was able to provide a better loan offer.
Unconditional Date
There are often other conditions on a contract which need to be met before a purchaser agrees that they will buy a property. These can be separate to the finance condition and are for the peace of mind of either the purchaser or seller. Common conditions found on most contracts require the approval of the solicitor regarding the title of the property, but should also allow for approval from both parties legal representatives regarding the content of the contract. This will allow your lawyer to pick up anything that may need to be changed before the contract becomes a legally binding document.
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 all the conditions on the contract have been met, the solicitors will agree for the contract to go unconditional, at which stage according to NZ real estate law, the purchase will be going ahead on the settlement date agreed.
Deposit
This is another area that often causes confusion as the definition of deposit varies between different parties involved in the purchase. As far as banks are concerned the deposit is the amount of funds being put in by the purchaser either as cash or equity from another property to meet the shortfall between the home loan and purchase price. However, the deposit in relation to the clause on the contract is an amount that is required to be paid by the purchaser once the contract has been declared unconditional by the solicitors. The deposit amount which is often between 5 and 10 % of the final purchase price and is required to be paid upon the contract becoming unconditional. For those people who may not have access to the funds immediately, their adviser will be able to make the necessary arrangements for the deposit amount to be available from the lender with the amount being reduced from the final loan amount.
Whenever considering the purchase of a new property it is a great idea to work with advisers who can 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.
