BUYING RESIDENTIAL PROPERTY
DUE DILIGENCE
BY SIMON PIGOU
Simon is an Associate at Gault
Mitchell Law specialising in property,
trust and business matters
Home Buyers are often cautioned to
do your homework when they set
out to purchase a residential property
in this competitive market.
Homework, or in other words, Due
Diligence, essentially amounts to
checking that the quality and suitabil-
ity of the property is satisfactory to
you and your arrangements are in
order to be able to commit to the
purchase.
Purchasing a residential property is a
significant investment and can be a
challenging process for any Home
Buyer in the current market.
Speaking with your Lawyer and
completing thorough Due Diligence
at an early stage will put you in the
best position to be ready to bid at
auction or to make a competitive
Offer.
PURCHASER CONDITIONS
Where the property is being sold by
way of tender or by negotiation there
is an opportunity to include
Purchaser Conditions in your Offer.
In simple terms, Purchaser
Conditions allow you to satisfy items
of Due Diligence that you select
(such as obtaining a satisfactory
Building Report) following
acceptance of your Offer but prior to
you committing to the purchase.
Purchaser Conditions can be helpful
when there is some time pressure
and it is not possible to complete
Due Diligence ahead of submitting
your Offer. Another benefit is that
you would not incur the full costs of
Due Diligence unless your Offer,
including your purchase price, is first
accepted by the Vendor.
However, few or no Purchaser
Conditions can be more appealing to
a Vendor and given the current
market you may wish to limit any
Purchaser Conditions where possible
so your Offer is competitive.
Auctions are a popular sale method
in a sellers market and generally
there is no scope to include any Pur-
chaser Conditions. The successful
bidder becomes committed to the
purchase on completion of the auc-
tion so it is important that Due
Diligence is carried out beforehand.
DUE DILIGENCE
We consider below some of the key
Due Diligence items that are relevant
for the purchase of any residential
property and provide some practical
tips under heading.
FINANCE ARRANGEMENT
Approaching your Bank or Mortgage
Broker and obtaining a Finance Offer
will provide you with a clear under-
standing of what your Bank is
prepared to lend to you and will
assist you to determine what you can
afford to offer as your purchase
price.
It is important to keep in mind that a
Finance Offer generally is not an
unconditional commitment from your
Bank. A Finance Offer will likely KIWISAVER AND HOMESTART GRANT
contain various requirements and
It is common for First Home Buyers to apply for
limitations depending on your finan-
a Kiwisaver First-Home Withdrawal and the
cial position and your Banks
Home Start Grant.
particular policies.
The eligibility requirements are strict and the
A common requirement (particularly
application process can be time consuming.
for First-Home Buyers with limited
equity) is to provide a satisfactory We recommend that you approach your
registered valuation so your Bank Kiwisaver Provider and apply for pre-approval
can be sure that your purchase price from Housing New Zealand at an early stage.
and level of equity measures up
against an independent assessment Previous Home Owners may also be eligible in
certain circumstances and are required to firstly
of the value of the property.
obtain a determination from Housing New Zea-
Another common requirement is to land.
provide a satisfactory report to your
Bank where the property was con- There are important timeframes that must be
structed during a certain era or complied with to ensure your Kiwisaver Funds
contains materials known to be and the Home Start Grant are available when
susceptible to watertightness issues. required. Your Lawyer can assist you to com-
ply with the timeframes and recommend a suit-
A lesser limit may be placed on the able settlement date.
amount your Bank is prepared to
lend to you for certain properties, TITLE TO THE PROPERTY
particularly apartments. Your Lawyer is the best person to advise you
Overall, it is important that you care- on important matters relating to the Title of the
property, including the sort of Title (whether
fully assess the terms of any Finance
Offer and obtain your Banks written Fee-Simple, Cross-Lease, Unit Title, Company
Share or otherwise) and whether there are any
approval before bidding at auction or
making an Offer that does not in- encumbrances registered that may adversely
affect your use and enjoyment of the property.
clude a suitable Purchaser Finance
Condition. It is important that you notify your Lawyer and
allow time for the Title to be properly examined
prior to attending an auction or before making
Due Diligence, an Offer that does not include a suitable Pur-
chaser Title Condition.
essentially amounts to
checking that the quality INSURANCE
and suitability of the Putting in place an Insurance Policy for the
property is satisfactory property forms part of your Banks require-
to you and your ments and must be arranged prior to the
arrangements are in order settlement date.
to be able to commit to the
purchase
Insurance Providers can be reluctant to offer 1. Whether any particular charac- THE AGREEMENT AND OTHER
insurance in certain circumstances, for example teristics relating to the land are DOCUMENTS
where the property has dated electrical wiring or known by the Council (such as
there are issues with outstanding Building subsidence or likely contamina- The Land Agent will normally provide
Consents. You should notify your Insurance tion). you with the form of the Agreement
Provider when you have identified a property that and the particular terms and condi-
you are interested in and confirm that a suitable 2. Whether any public mains run tions of sale together with disclosure
Insurance Policy will be available if you are through the property and the loca- statements and other relevant docu-
successful. tion of the services to the ments relating to the property.
property.
You should also ask the Land Agent whether any Where the property is sold by tender
private insurance claims or EQC claims have 3. Information on what the rates or negotiation, the Land Agent will
been made for damage to the property from the for the property are and whether often assist with preparing your Offer
recent earthquakes. A provision can be included there are any rates arrears. but keep in mind that the primary
in your Offer to ensure that the benefit of any responsibility of the Land Agent is to
claim will be assigned to you on settlement. 4. Information on Building Per- act in the best interests of the Vendor.
mits, Building Consents and Code You should ask your Lawyer to review
CONDITION OF THE DWELLING
of Compliance Certifications. this documentation before you attend
An independent qualified Building Inspector is an auction or sign an Offer to ensure
the best person to advise you on the condition Obtaining a LIM Report is an
important item of Due Diligence that you have covered all items of Due
and quality of a dwelling. Diligence and your interests are
and your Lawyer can assist you to
Some Vendors make available their own Building assess the key information. protected.
Report, which can provide a useful guide but
keep in mind that as you did not engage the
Building Inspector, you may have limited re- GAULT MITCHELL LAW
course if the Vendors Building Report is lacking.
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LIM REPORT Title of the t. 04 472 5074
A Land Information Memorandum is a substantial
Contact
report produced by the Council containing property f. 04 471 0835
information about the property and the surround- e. info@gaultmitchell.co.nz
ing area, including: w. www.gaultmitchell.co.nz

Disclaimer: The information contained in this article is in general terms only and should not be relied upon as legal advice.