Making an Offer
So you’ve found the perfect home and you plan to make an offer – this is both an exciting and nerve raking time! How much should you offer? Are you offering too much or not enough? What conditions should you include? Who does what and who should you engage to help?
You are about to sign a Sale and Purchase Agreement which is a legal document, so it pays to make sure that you are fully informed about your legal obligations and at the same time ensure that you include all the conditions necessary to allow you to undertake the right checks to satisfy yourself and the bank about the property you wish to purchase!
First Things First!
Engage a Solicitor
Before you sign a Sale and Purchase Agreement – you should seek independent legal advice
– once an offer has been signed by you and accepted by the vendor it is very difficult to alter the agreement.
Your solicitor will play a pivotal role in arranging your property purchase and acts as a conductor pulling all aspects of the transaction together for you.
Your Solicitor will :
- Give you advice on your Sale and Purchase agreement before you sign it
- Arrange LIM report and title search
- Give you advice regarding issues identified within the LIM and certificate of title
- Liaise between yourself and the vendors solicitor in the event of any issues
- Confirm with the vendors solicitor when conditions have been met
- Review mortgage documents
- Witness signing of mortgage documents
- Manage payment of funds on settlement day
Sale and Purchase Agreements
The Sale and Purchase Agreement is a legal document which has been prepared by theAuckland District Law Society and the Real Estate Institute of New Zealand.
To ensure that you have a good understanding of the document you are about to sign check out this Guide to Sales and Purchase Agreements
Before you sign the agreement it is strongly recommended that you ask your solicitor to review the purchase agreement – that way you ensure that all the conditions you require are included in the agreement as well as the correct timeframes.
Conditions for Sale and Purchase Agreements
Remember that you will need to condition for Finance (even if you have a pre-approval) as the bank needs to approve the property and sight the signed Sale and Purchase Agreement. You may also need to condition for a Registered Valuation, Builders Report and LIM report. There may be other conditions you wish to also include such as an engineer’s report.
Builders Report Conditions
We recommend when adding a Builders report clause that you leave yourself the option of walking away from the offer in the event that the report reveals problems that you are unhappy with. Sometimes the clause that is added with respect to the builders report gives the vendor the first right to remedy the problems. In this case if problems are found the vendor can choose to fix the problems, you then must proceed with the purchase if the problems are fixed satisfactorily. Again we strongly recommend that before signing the Sale and purchase agreement that you seek legal advice!
What is a LIM report?
A LIM report (Land Information Memorandum) report is a summary of information that the relevant district council holds on a property.
When you apply for a LIM, the council will prepare a report that may include the following property information:
- special land features or characteristics (including potential erosion, slippage or subsidence)
- private and public storm water and sewerage drains
- any rates that may be owing in relation to the land
- information concerning building, plumbing/drainage, and resource planning consents (including notice, order or requisition affecting the land or any building)
- special conditions including NZ Historic Places Trust listings
- any information which has been notified to the council by any statutory organisation in terms of any other act
- network utility in relation to the Building Act 1991 or 2004 and much more.
LIM reports typically cost between $200 -$300 some councils charge an additional fee for an urgent request. Check out the relevant council’s website for exact costs and timeframes, or alternatively check with your solicitor who will know the exact costs and turnaround times for arranging a LIM report.
Do I have to get a LIM Report?
No – there is no legal or bank requirement to obtain a LIM report, however it is strongly recommended that you do. Better to spend $200-$300 for a LIM report and be fully informed about the property (and biggest purchase of your life) than to find out about issues once you are the owner!
Certificate of Title & Property Bag Search
Your solicitor will do a title search on the property. A title search confirms:
- the type of property you are buying
- who currently owns it
- list of current interests on the property
You can also order your own certificate of title at Land Information New Zealand
A property bag search is a physical search of the council’s records regarding the property. It is recommended that this be undertaken along with the LIM report to provide you with a complete picture of the property. If the LIM report does not include house plans you will not be able to tell if any work has been carried out illegally or was authorised.
Property Files for each property are also held by councils and can usually be viewed at council offices. Contact your relevant council for further details.
Sale and Purchase Agreement – Conditions
Schnauer and Co have partnered with The First Home Buyers Club to provide some information around what you need to know about Sale & Purchase agreements.
The Sale And Purchase Agreement can be a daunting document for first home buyers. As a legal document, it is important that you make sure that you are fully informed about your legal obligations. It is also the opportunity to ensure that you include all the conditions needed to be able to check out the property to satisfy yourself and the bank that it is a solid purchase.
The Sale and Purchase Agreement can be a daunting document for first home buyers. That is why we always strongly recommend first home buyers seek independent legal advice from a lawyer before making an offer.
Here, Schnauer & Co. has provided seven tips that can help ensure you’re sorted before signing an agreement to buy a property.
So how much should you offer?
This is always a tricky question – some say you should start really low as you can always go higher! However vendors can be offended if you make an offer too low. If it is a sellers’ market, making an offer too low could result in the vendor selling to another buyer.
If you are dealing with a Real Estate Agent, they will very likely give you feedback if they think the offer is too low.
Do some research – check out recent house sales in the area with comparable properties.
Obviously if you are obtaining a Registered Valuation you will then have a good gauge of its value however, a Registered Valuation is not generally sought until after the offer has been made. In the interim you may like to consider obtaining what is referred to as a ‘Desktop Valuation’. Desk top valuations are available online and compare the property with other like properties that have recently sold in the area. The Report will offer a price range for the property. Click here for an Online Valuation.
Other tools for getting an idea of property values:
So what is a GV or RV?
GVs and RVs are one in the same (GV being Government Valuation & RV being Rating Value)
A Rating Value (RV) is an indicative market value at the date of valuation. It is undertaken on behalf of your council around every three years and is established using a mass appraisal process. It is mainly used to apportion rates within your area. Every property in New Zealand has an RV. This can be useful to know as it gives a guide to the price when buying and selling, but because it is only updated around every three years and the market may have moved, it might not give a true indication of the current market value of a property.
What happens once an offer is made?
This depends on the vendor – if the vendor simply accepts your offer then congratulations you have a binding agreement!
If the vendor is unhappy with the offer, they may make a counter offer and will amend the sale and purchase agreement to reflect this – they may alter the price and/or conditions and timeframes. You then have the option of agreeing to the counter offer, making another counter offer yourself or simply walking away.
You will be required in the Sale and Purchase Agreement to nominate the amount of deposit you wish to put down on the property.
Make sure you allow yourself sufficient time to enable you to undertake all the required due diligence items you have conditioned for – ie obtaining an unconditional offer of finance from your lender, completion of a Registered Valuation, Building Report and review of the LIM report. If you have tight timeframes this can become a stressful time.