What is the current legislation on buying property?
What is the current legislation on buying property?
The following information has been sourced from the Real Estate Agents Authority, a crown entity established by the Real Estate Agents Act 2008. It can be found in a booklet entitled “New Zealand Residential Property Sale and Purchase Agreement Guide. You can find more information about the the Real Estate Agents Authority at www.reaa.govt.nz or by calling 0800forREAA (0800 367 7322).
In New Zealand there are several ways to sell and buy a home, including:
- Advertising/Fixed Price or
- By Negotiation
Regardless of the method used, you should always have a written Sale and Purchase Agreement.
Why do I need a Sale and Purchase Agreement?
A Sale and Purchase Agreement provides certainty to both the buyer and the seller as it sets out in writing all the agreed terms and conditions. It is a legally binding agreement.
What is negotiation?
Put simply, the process of negotiation starts when a buyer asks the real estate agent selling the property to take an offer to the seller. The agent prepares a Sale and Purchase Agreement that includes the price and any conditions that the buyer wants to include. The agent takes the Sale and Purchase Agreement to the seller and, if it’s accepted, the seller signs it and the agreement becomes binding. If necessary, the seller and buyer can negotiate, through the agent, until the buyer and seller agree on a price and any conditions.
- You should have a written Sale and Purchase Agreement.
- Have your lawyer check the Sale and Purchase Agreement before you sign it.
- The buyer and seller can make changes to the price and conditions during the negotiation process.
The Sale and Purchase Agreement
A real estate agent will probably use one of two forms of Sale and Purchase Agreements:
- Auckland District Law Society and Real Estate Institute of New Zealand form (the ADLS form).
- Real Estate Institute of New Zealand form (the REINZ form).
Your Sale and Purchase Agreement should include the following:
- The name(s) of the seller(s) and buyer(s).
- The address of the property.
- The type of title (freehold, leasehold etc).
- The chattels that are to be sold with the property (e.g. Whiteware,drapes, television aerial).
- The price.
- The rate of interest that the buyer must pay on any overdue payments.
- The deposit that the buyer must pay.
- The date on which the agreement will become unconditional if there are conditions.
- The settlement date (the date the buyer pays the remainder of the amount for the property, usually the day when the buyer can move into the property).
- Any conditions the buyer wants fulfilled before the contract is agreed.
Conditions in the document
The buyer will usually want to have some or all of the following conditions fulfilled before the contract is agreed.
- Title search — this is usually done by the buyer’s lawyer to check who the legal owner of the property is and to see if anyone else has any claim over the property.
- Finance — this refers to the buyer arranging payment, normally a loan, by a specified date.
- Valuation report — normally required by a lender, this report is an estimate of the property’s worth on the current market.
- Land Information Memorandum (LIM) report — provided by the local council, this report provides information on things such as rates, building permits and consents, drainage and planning.
- Building Inspection report — these are becoming more common and help determine how sound the building is and what might need to be repaired.
- Engineer’s report — similar to the above but more focused on the section and structure of the property.
- Sale of another home — the buyer may need to sell their home in order to buy another.
General or standard clauses
A Sale and Purchase Agreement also includes clauses that set out general obligations and conditions. It helps to understand what these mean as you will need to comply with them. Examples may include:
- Access rights — what access the buyer can have to inspect the property before settlement.
- Default by buyer — the buyer may have to compensate the seller e.g. interest payments.
- Default by the seller — the seller may have to compensate the buyer e.g. accommodation costs.
- Insurance — ensuring the property remains insured until the settlement date and outlining what will happen if any damage does occur.
Your lawyer should explain these clauses. If you want to make changes to any of these clauses, you should ask your lawyer to do this before you sign the agreement.
When does the buyer pay the deposit and the full amount?
When the seller and buyer have agreed on all aspects of the Sale and Purchase Agreement, a deposit (usually of 5-10% of the sale price) is paid to the real estate agent by the buyer. This money is initially held in the agent’s trust account.
The agent usually takes their commission from the deposit when the contract becomes unconditional. This is agreed between the seller and the agent as set out in the Agency Agreement. The seller should make sure that the deposit is large enough to cover the agent’s commission.
The buyer pays the remainder of the amount for the property on the day of settlement, usually through their lawyer. The settlement day is usually the date when the buyer can move into the property.
Before the Sale and Purchase Agreement becomes unconditional and if the sale doesn’t go ahead because some of the conditions haven’t been met, the buyer may be entitled to have the deposit refunded in full.
However, once the offer becomes unconditional you won’t be able to get your deposit back if you change your mind for any reason.
- Conditional refers to the Sale and Purchase Agreement having a set of conditions that are to be met, such as the buyer’s current house being sold, a building inspection being carried out, or finance being secured.
- Unconditional refers to when all conditions in the Sale and Purchase Agreement have been met. It’s important to understand that when a Sale and Purchase Agreement becomes unconditional it is legally binding and the transfer of ownership must take place.
Can I cancel the agreement if I change my mind?
You cannot cancel a Sale and Purchase Agreement just because you have had second thoughts about buying or selling the property concerned.
In general, once you have signed a Sale and Purchase Agreement and the conditions set out in it have been met, you will have to go ahead with the sale/purchase of the property.
What if my agent or someone related to them wants to buy the property?
If your agent, or anyone related to them, wants to buy your property, by law, they must get your written consent to do this as well as pay for the property to be valued by an independent valuer.
What can I expect from an agent?
The agent works for and is paid by the seller. The agent must therefore carry out the seller’s instructions (as set out in the Agency Agreement) and act in the interests of the seller. Agents also have clear responsibilities to buyers even though they are representing the seller.
When you are buying a property, ask the agent questions. Be specific about what you want to know.
All agents are bound by the Code of Professional Conduct and Client Care, issued by the Real Estate Agents Authority. Under the Code, agents have to deal fairly and honestly with all parties.
Who pays the agent?
Real estate agents in New Zealand work on behalf of sellers and it is the sellers who pay the agents. An agent who is marketing a property on behalf of a seller cannot ask a buyer to pay for their services.
What if there’s a problem?
If you are concerned about the conduct of a real estate agent, you should in the first instance discuss any concerns you have with the agent or their manager. Agents are required to have In-House Complaints Procedure resolution procedures.
If this does not work or if you do not wish to go through this channel, you can complain directly to the Real Estate Agents Authority.