for Purchasing Property

You wouldn’t join a gym without checking the place out first would you? Or buy a car without getting it checked out first? By the same token, you shouldn’t buy a house without first making some vital checks.

Buying a property is probably the biggest financial transaction most people will ever enter into. But how do you ensure that the property is safe to buy? A recent example shows what not to do.

Sarah and Andrew had been going to open homes for months. Finally, one day they found a property with which they instantly fell in love. As they had been looking for so long, they were worried that someone else would buy it and so they put in an unconditional offer on the spot. Unfortunately, the property had been renovated by a prior owner who had not obtained the required building consent for the addition of an en suite to the master bedroom. This work involved plumbing, electrical work for the fan and heater and construction of the en suite itself. If only Sarah and Andrew had been more careful and had the property thoroughly checked out before signing an unconditional contract, they would likely have discovered this. That way they would have been able to make their offer conditional on the seller taking the necessary steps to get all this building work signed off before being bound to settle. Because they didn’t do this, their options to require the seller to fix things up were limited and there is a chance they will have to spend a lot themselves to get things right.

This type of issue can also affect their ability to insure the property and will definitely be a potential headache when it comes to selling.

There are many ways you can check out a property before you are locked into the deal. Where appropriate, you should seriously consider including these as conditions in your Agreement for Sale and Purchase to ensure you do not agree to buy until you are completely satisfied with those conditions:

1. Get a builder’s report
These come in all varieties, but most commonly involve a builder going through the property to check its structural integrity and the quality of construction. These reports can also cover wiring, internal moisture levels, plumbing and roofing.

2. Obtain a Land Information Memorandum report from the Council
A LIM is a report on the property from the Council compiled from Council records. This will tell you whether consents have been granted for any building work done and also whether that work was signed off with final compliance. It will also provide useful information as to where the underground services are located, an aerial photograph of the property and details as to any historical hazards that may have affected the property in the past, i.e. flooding or subsidence.

3. Have your solicitor search the title to the property
The lawyer will look for things like restrictions and other impediments (called encumbrances) on the title. Of particular importance are the contents of rights, called easements, where there are shared services and rights of way for access. Often, there are financial obligations to share in the cost of maintaining multi-use easements.

4. Obtain a valuation
You may wish to make your purchase conditional on receiving a satisfactory market valuation report as it is better to know the value of what you intend to buy before being locked in. This is carried out by a registered valuer and uses comparative values of surrounding properties to find the market value. If you are borrowing mortgage money, the lender will often require this report as a condition of approving finance.

5. Make sure you have arranged finance to buy the property
No matter how perfect the property is, in most situations you will most likely not be able to follow through with the purchase without some borrowing. You should shop around and find the lender that best suits your needs, or get a mortgage broker to do this for you. Make sure you ask things like what the interest rate is, how long the term of the loan is and whether there is a term of fixed interest. Ensure that the finance you decide on is satisfactory to you in all respects. A condition of the bank granting mortgage finance to you is that the property is insurable. You should make sure insurance companies will be prepared to insure the property, as certain houses built before 1930 do not qualify for replacement cover,

Following these golden rules will give you some peace of mind and allow you to rest assured that you have done what you can to ensure the house you are about to purchase does not contain any nasty surprises.

By Claire Coe
www.raineycollins.co.nz