Take care before you sign on the dotted line

The Sale & Purchase Contract required to buy a house is a pretty comprehensive document. There are traps for the unwary, as illustrated by this story.

Clients, Jill and John Smith*, had been looking at many homes to purchase for themselves and their four children. They had unconditionally sold their first home and settlement date was fast approaching with them wondering, would they have somewhere to move to? Could they even get better than what they had?

A bank pre-approved their finance, which always has a condition that the property must be suitable as bank security or fit for purpose. Earlier property agreements had been passed through us, as the organising broker, to ensure they would be OK to bid on, as most were for auctions. They missed out on three auctions. These properties demanded more dollars than what they were prepared to pay.

Out of the blue they sent me a Sale and Purchase Agreement with absolutely no ‘subject to’ conditions. In other words, they had gone unconditional, without having their agreement or the property pre- vetted. It turned out there would be ongoing maintenance issues with the property, which we pointed out to them. Because of the issues, a bank might refuse finance, although this property was well within their affordability range.

Although they hadn’t paid any deposit on signing, Jill and John were liable for the $95,000 deposit as per the contract, regardless of the fact they now didn’t want to proceed. They had signed a binding contract. Luckily for our clients, there was a defect with the title that needed remedying by the vendor prior to settlement. The vendor couldn’t comply.

So what can be learned from this?

Auction buying is inevitably always unconditional. In these instances, you need to have cleared with the lender or your broker, that the property is fit for the lender. Top class real estate agents will have LIM reports and a copy of the Auction Agreement. In some cases, they may also have a Building Report for you.

Ensure you read all of the information and agreements provided. Will you have the 10 per cent deposit required?

Don’t bid without at least passing the detail through your bank or broker.

Never hesitate to get your solicitor to vet any agreement. Sale & Purchase Agreements, LIM reports, Titles etc are all part of their bread and butter. Your solicitor will protect you from losing money you don’t have.

Similarly, with a Sale & Purchase Agreement not under an auction arrangement. Understand these important points.

A Sale & Purchase Agreement is a legally binding contract – think of your solicitor as your best friend.

The Real Estate Agent is working for the seller of the property, but must treat the buyer fairly.

Understand the difference between a conditional and unconditional contract. We advise clients to sign ‘subject to suitable finance’ or ‘subject to your solicitor’s approval.’ This gives the purchaser an out, if after the initial excitement, there is something they didn’t realise when signing the purchase agreement.

There may be other conditions you can negotiate in the contract, as part of achieving your desired result.

Read and understand the Sale & Purchase contract before signing – we make copies available to clients, with notes on completion to help avoid problems as above.

Get your solicitor to check the agreement before you sign.

Utilise the services of a good broker, who can help you through each step of the process (like checking properties) and will in many cases help you avoid making mistakes.

You do have to listen though.

You can’t cancel a Sale & Purchase Agreement just because you have had second thoughts. Generally, once you have signed, you’re committed. Any conditions set out in it, only need to be met, for the agreement to proceed.

Use expert help and understand Sale & Purchase Agreements and the property market before you dish out your hard earned gold. A broker acts for you the buyer, and will liaise with your solicitor to ensure you are protected.

* Names changed

Care has been taken to ensure that any information is accurate. No liability is accepted for its use.

Allistar Walker is a Registered Financial Adviser, Senior Fellow of Financial Services Institute of Australasia and director of IFL Associates Limited. His full disclosure is available free at www.mortgagehelp.co.nz. Email: enquiry@mortgagehelp.co.nz.