First Homebuyers - The agreement for sale and purchase

In this series of articles guiding the path to home ownership for first-home buyers, we look at the agreement for sale and purchase.

Conditions

You can review what should be included in an agreement for sale and purchase in the following article: https://www.dtilawyers.co.nz/news-item/conditions-what-should-my-purchase-be-conditional-on

You do not want to sign an agreement with no conditions therein only to find you cannot get sufficient finance or there are major structural issues with the house. Your agreement therefore needs to be conditional on these things. At a minimum, the conditions you need are:

• Finance – due 15 working days after the date of the agreement (to provide for Kiwisaver and HomeStart grant applications as above).
• Building report – usually due 10 working days after the date of the agreement – for which you must engage a qualified building inspector.
• LIM report – usually due 15 working days after the date of the agreement – to allow processing time by the Council.

It is imperative that you pay for and obtain your own Builders and LIM reports, as you will have little avenue for recourse in the event of errors/mis-descriptions in vendor obtained reports. You will need to provide these to your solicitor, who will review these and the title to the property to ensure there are no issues in the documents. On their advice, you may elect to satisfy the conditions or not to satisfy, and either negotiate to vary the agreement or end the agreement and walk away with impunity.

The deposit (again?!)

Your Bank finance is approved, you have been approved for drawdown of your Kiwisaver and HomeStart Grant, your solicitor has discussed the builders report, LIM report and features of the Title and you are happy with these. You are now ready to satisfy the conditions for your benefit in the agreement (often referred to as ‘going unconditional’). A deposit is now payable.

Under an agreement for sale and purchase, it is usual for a deposit to be paid by the purchaser to the vendor in contemplation of settlement. This is usually paid at the stage that all of the conditions in the agreement for the benefit of the purchaser are satisfied (i.e. Finance, LIM report, Builders report).

The deposit is often 10% of the purchase price of the property, which is usually payable to the real estate agent, who will then take their commission before releasing the funds to the vendor (after 10 working days). You must pay this deposit is due for payment, otherwise the vendor could become entitled to cancel the agreement.

You cannot use HomeStart grant money towards this deposit, because Housing New Zealand requires that all HomeStart grants may only be used toward settlement.

You can however use your Kiwisaver funds toward the deposit. However, the use of Kiwisaver comes with its own strings. In order to effect draw-down, the Kiwisaver provider requires an undertaking (enforceable promise) from your solicitor that the funds will be held by a stakeholder until settlement and returned to the provider in the event that settlement does not proceed – in the absence of purchaser default. This undertaking means that your solicitor will have to negotiate a variation of the agreement so that the Kiwisaver funds being used as part of the deposit are paid to the vendors solicitor directly, and your solicitor will need to extract a similar undertaking from the vendor’s solicitor that the funds will be held by them as stakeholder in their trust account un-disbursed and returned in the event that settlement does not proceed – in the absence of purchaser default.

If the vendor won’t agree to the holding of the Kiwisaver funds, then you may need to secure alternative funding – i.e. an overdraft from your Bank or other alternative lending. Possible solutions to this include negotiating a lower deposit prior to signing an agreement for sale and purchase which you can pay in cash, or to advise of the Kiwisaver element being used and negotiate the payment of these funds to the stakeholder at this stage, rather than at ‘unconditional’.

Our next article examines the process of settlement, the last hurdle in the home-buying process.