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When it comes to buying real estate in New Zealand, making sure you fully grasp the property sales contract is essential.
Indeed, not fully understanding the document you will sign can lead to financial losses, including the forfeiture of deposits, payment of penalties, unexpected costs, legal expenses, and potential poor investment decisions.
We've heard countless stories of people making costly mistakes when signing their property agreement in New Zealand. We want to help you avoid the same experience.
We'll give here a very brief overview regarding the property sales contract in New Zealand ; if you want a full checklist, please check our property pack for New Zealand.
What is the Sale and Purchase Agreement in New Zealand?
In New Zealand, the property purchase agreement, commonly known as a Sale and Purchase Agreement, is a crucial document in real estate transactions.
It's a legally binding contract between the buyer and the seller that outlines the terms and conditions of the property sale. This agreement ensures that both parties are clear about their obligations and protects their interests.
The Sale and Purchase Agreement becomes legally binding once both parties have signed it. It details everything from the sale price, any conditions to be met, the settlement date, and any chattels (like fixtures and fittings) that are included with the property.
One of the key features of this agreement is the inclusion of conditions. These conditions might be for the buyer to secure financing, sell their existing home, or obtain a satisfactory building inspection report.
Once all conditions are met, the agreement becomes unconditional, committing both the buyer and the seller to the transaction.
For international buyers or non-residents, there are additional considerations. The Overseas Investment Act may require them to obtain consent from the Overseas Investment Office before purchasing certain types of property, particularly if it's classified as sensitive land.
The signing of the Sale and Purchase Agreement usually occurs after the buyer has viewed the property and wishes to make an offer.
At this point, a deposit is often required, typically around 10% of the purchase price, though this can vary. The deposit is held in a trust account and is released to the seller on settlement day.
Comparatively, the property purchasing process in New Zealand can differ from other countries.
For example, in some countries, a verbal agreement can initiate the buying process, whereas in New Zealand, the Sale and Purchase Agreement must be in writing.
Additionally, the role of conditions, such as the need for a building inspection report, can vary.
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What should be included in the property purchase agreement in New Zealand?
In New Zealand, the property purchase agreement, also known as the Sale and Purchase Agreement, is guided by the Real Estate Agents Act 2008 and the accompanying regulations.
This document should contain specific information to ensure a legally valid and enforceable agreement.
Firstly, the agreement must clearly identify the involved parties, the buyer and the seller. It should also provide a precise description of the property being sold, including the address and legal description (e.g., lot number on a registered plan).
The sale price and any terms related to the payment, including the deposit amount and when it is due, are mandatory details.
The Sale and Purchase Agreement must also outline any conditions of the sale. These conditions can include (but aren’t limited to) the buyer securing financing, obtaining a satisfactory building inspection report, or selling an existing property.
The agreement must state the settlement date, which is when the ownership will transfer and the balance of the purchase price is paid.
Additional clauses can be included to address specific needs or concerns of the buyer or seller. For instance, there might be clauses related to the property's current tenancy, fixtures and fittings included in the sale, or specific repairs that need to be made before settlement.
In terms of contingencies, buyers often include conditions for their own protection. Common ones are a finance clause (the buyer needs to secure a mortgage), a LIM report (Land Information Memorandum from the local council detailing property information), and a building inspection report.
Regarding authentication, the Sale and Purchase Agreement in New Zealand doesn't typically require notarization.
However, it's highly recommended that both parties seek legal advice, and a lawyer is usually involved in preparing the agreement and the conveyancing process.
Real estate agents play a significant role in the process. If involved, they usually prepare the Sale and Purchase Agreement and act as intermediaries during negotiations.
The agreement they use is often a standard form, compliant with the Real Estate Institute of New Zealand (REINZ) guidelines, ensuring that it meets all legal requirements.
What's the signing process like?
In New Zealand, the signing process for a property purchase agreement, or Sale and Purchase Agreement, is quite structured.
Both the buyer and the seller are required to sign the agreement. It is indeed bilateral, meaning it involves and binds both parties.
Either side can consist of multiple people, for instance, a couple or a group of investors as the buyers, or joint owners selling a property.
The agreement must have the legal names of all parties involved. It should include the details of the property, the agreed-upon price, deposit amount, and settlement date. Both parties typically need to provide proof of identity and, in the case of the seller, proof of ownership.
Here are the signing steps and timeline:
- The buyer usually initiates the process by making an offer through the agreement, which they sign.
- The seller reviews the offer. They can accept it by signing the agreement, reject it, or make a counteroffer.
- If there's a counteroffer, the buyer needs to respond. This back-and-forth can continue until both parties reach an agreement.
- Once both parties agree on all terms and sign the document, it becomes legally binding.
The agreement can be signed remotely. Electronic signatures are commonly used and legally accepted in New Zealand. This means physical presence isn't necessary.
There's no set deadline for signing the Sale and Purchase Agreement. It depends on the agreement between the buyer and seller.
However, once an offer is made, it typically has an expiry date, often 24 to 48 hours.
The contract remains valid until the conditions are met and the sale is concluded, or if either party legally withdraws in accordance with the terms of the agreement.
The Sale and Purchase Agreement itself isn’t registered with local authorities. However, the change of ownership, which occurs at the end of the transaction, must be registered with Land Information New Zealand (LINZ).
Amendments can be made after signing, but they must be agreed upon by both parties. Any change should be in writing and duly signed.
After signing, the timeframe for completing all necessary paperwork and approvals depends on the conditions set in the agreement. For instance, if there are financial or inspection conditions, the timeframe will align with those.
Typically, the process can take several weeks to a few months from signing to settlement.
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How is the payment handled when signing a property purchase contract in New Zealand?
In New Zealand, the financial aspects of a property purchase agreement involve several key components.
When you sign the Sale and Purchase Agreement as a buyer, you're typically required to pay a deposit. This isn't the full down payment but rather a part of it, showing your commitment to the transaction.
The standard down payment for a property in New Zealand is about 20% of the purchase price for most buyers.
However, this can vary, especially with first-time homebuyers who may be eligible for lower down payment requirements through various lending programs.
There are no specific fees for signing the sales agreement itself, but you should be prepared for related costs such as legal fees, property inspection fees, and application fees if you're securing a mortgage.
The deposit is typically paid into a trust account held by the real estate agency or the seller's lawyer, not directly to the seller. This ensures the money is securely held until the transaction is completed or the agreement is lawfully terminated.
The deposit is usually due upon the agreement becoming unconditional, meaning all conditions set out in the contract (like finance approval or a satisfactory property inspection) have been met. The exact timing can vary based on what is negotiated in the agreement.
In New Zealand, there is no stamp duty or property transfer tax payable by the buyer.
However, buyers should be aware of the potential for capital gains tax implications if the property is sold within a certain period, which primarily affects investment properties.
The amount of the deposit can sometimes be negotiated with the seller. This is part of the overall negotiation process when making an offer on a property.
If the sale falls through due to a condition in the agreement not being met (like a failed inspection or financing contingency), the deposit is usually refundable. The specific terms of the refund should be clearly outlined in the agreement.
While the down payment typically comes from personal funds, it can also include funds from a mortgage loan. Some buyers use a combination of savings and loaned funds for their down payment.
Real estate agents or attorneys usually handle the payment process, ensuring that funds are correctly processed and held in trust. They also help with ensuring compliance with legal requirements and offer guidance on the financial aspects of the transaction.
You should absolutely request a receipt or confirmation when you make the down payment. This is a standard practice and serves as proof of your transaction.
For the seller, they may be subject to capital gains tax if the property is sold within a certain time frame of purchase, especially if it's not their primary home.
For the buyer, while there are no immediate tax implications on the purchase, future property taxes and potential capital gains should be considered for long-term financial planning.
What are the potentials risks and pitfalls?
You might be interested in reading our article about the common risks and pitfalls surrounding a property transaction in New Zealand.
In New Zealand, the property purchase agreement, or Sale and Purchase Agreement, is a legally binding contract, and both buyers and sellers should be aware of the risks and pitfalls associated with it.
Both the buyer and the seller can potentially withdraw from the agreement, but this is typically contingent upon the conditions outlined in the contract.
For example, a buyer can withdraw if they include a condition for financing and are unable to secure a loan.
Similarly, if there’s a clause for a satisfactory building inspection and significant issues are found, the buyer may have the option to pull out.
New Zealand does not have a statutory cooling-off period for private real estate sales. Once the Sale and Purchase Agreement is signed by both parties, it becomes legally binding unless there are conditions that allow withdrawal.
If a party withdraws from the agreement without a valid reason as outlined in the contract, they could face legal consequences. The reasons for withdrawal must be based on the conditions stipulated in the agreement.
If one party fails to meet their obligations under the agreement, they could be in breach of contract. This could lead to penalties, which might include forfeiture of the deposit or potential legal action for damages.
If a buyer legally withdraws from the agreement due to a condition not being met (like financing or inspection issues), their deposit is typically refunded.
However, if they back out without a contractual basis, they may lose their deposit.
The process in New Zealand is different from many other countries. For example, in some countries, there is a legally mandated cooling-off period, allowing buyers to withdraw from a sale with no penalty.
In New Zealand, the emphasis is on meeting the conditions of the contract for a withdrawal to be valid.
Buyers should be cautious about overcommitting financially. Securing financing should be a condition of the agreement if they are not certain about their mortgage approval.
Sellers, on the other hand, face the risk of a sale falling through due to the buyer’s conditions not being met. Both parties should ensure they understand all conditions and obligations in the agreement.
Disputes during the signing period are typically resolved through negotiation, and legal advice may be sought. If a dispute cannot be resolved directly between the parties, mediation or legal action might be necessary.
If defects are discovered after signing but before settlement, the course of action depends on the terms of the agreement. If the contract includes a building inspection condition, this may allow for renegotiation or withdrawal.
Post-settlement, any discovered issues are generally the buyer's responsibility, highlighting the importance of thorough inspections before purchase.
Disputes are not exceedingly common, but they do occur.
Real-life examples include issues arising from unsatisfactory pre-purchase inspections or buyers unable to secure financing.
These are typically resolved either through negotiation (leading to either the fulfillment, amendment, or dissolution of the agreement) or, in more complex cases, through legal proceedings.
This article is for informational purposes only and should not be considered financial advice. Readers are advised to consult with a qualified professional before making any investment decisions. We do not assume any liability for actions taken based on the information provided.