Sale and purchase agreement process
Apartment Specialists Podcast No: 128
What is your next step after putting in an offer for an apartment? Do you know what you are dealing with once presented with a sale and purchase agreement? In this video, you will know the next steps to take including what the content of the sale and purchase agreement should be after putting in an offer.
You want to make an offer on an apartment, what happens next? Obviously, you have done your due diligence. You have spoken to your lawyer, and you have got advice. You have spoken to your broker, or your bank, and you have got your finance organised. The next thing is, you have got to sign a sale and purchase agreement, which can be quite scary. You are dealing with numbers that will be large, and you are coming across a piece of paper or a document that you do not see very often.
What I'm going to do is go through the first page of a sale and purchase agreement today. In the next podcast, I will go through the rest of the agreement. That means, when you come to making an offer, you feel comfortable, and you know what you are dealing with.
The first thing we see here is, obviously, an agreement for sale and purchase of real estate. This is standard for any piece of land throughout New Zealand. Now, obviously, I will be talking about putting an offer on an apartment.
The first you hit here is date. That is probably the first mistake people do. They go putting a date on it. The date is the last thing that you put on the agreement. The date is put on the agreement once both parties i.e. the vendor and the purchaser, have both agreed on terms, price, and the dates - all that kind of thing. Then, the date is put on. So, it is basically the last person who touches the agreement, or writes on the agreement. The reason why that is, is because if you have a condition like finance, which is five working days, it has to be from a particular date. And if your negotiation takes a couple of days, that is always changing. So that is the last thing. Obviously, vendor - now that has got to be the vendor's name or what instrument i.e. company or trust, the property or the apartment is under. Then, you are going to have purchaser. Now, purchaser - this is going to be your names, because you cannot put a trust in there. It has to someone accountable, when you actually going to sale and purchase agreement.
Remember, you have got this and/or nominee here. You think, "I want to purchase underneath my trust." Well, what happens is, you purchase it. Then, when you're going through what's called the conveyance of the property - or this is what a lawyer will look after for you - they will change it, and put it underneath the trust, when you settle it. Or under the company, or even nominate it to someone else. For example, I could purchase a property underneath Andrew Murray, and will nominate my sister. I am buying it for her, but I am just doing the sale and purchase agreement for her.
Then, you have got the vendor as registered under the GST Act, "In respect of the transaction evidenced by this agreement and/or will be registered at settlement." Now, if this is a yes, you are definitely wanting to be getting your accountant's approval on this agreement. Not because a real estate cannot explain to you, but GST gets very, very complicated. It means you are dealing with somebody who either has GST owed on the property, and is registered, or a hotel lease, or there is something to do with the property, where there is some commercial activity. That can get very confusing. And yes, you can have a real estate agent explain it to you. But I have seen a lot of real estate agents get this wrong. So, you want to make sure that if that is a yes, you are also seeking advice from your accountant, which you can put in conditions later, which I will explain in other podcasts.
Next, is your property address. Obviously, that is if you are buying, say for example, 4D, 71 Lorne Street, and Regency Apartments, that address would have been it. The next is obviously, the type it is. Now, we are buying an apartment here, which means it is strata. It is either going to be a freehold apartment or a leasehold apartment. It is either going to be set one of these. That is why these ones are crossed out, because, obviously, I specialise in apartments, so we are not dealing with this.
Now, there are some objections to the rule. That's when you have an [?]. There's only a few buildings in the city, and an agent will make you aware of that. That's when an apartment doesn't fall under the Unit Titles Act. That is little bit complicated. You do not really need to know that one at the moment. Anyway, the next one is area. You will never have an area of - say, you have an area of an apartment - how big it is - that would not be here. Because what you are dealing with, when you sell an apartment, is the area of - we are talking about land here, and your apartment is actually kind of in the sky in a way, so you are never going to have... here. The land is owned by all the apartment owners collectively, and that is called a body corporate.
Anyway, then, you are going to have basically, what is called the legal description. It will be a unit number and a DP number, and it will be a certain lot of numbers. It may not mean much. It will have things like AU, which means accessory unit, if it has storage space or a car park, and then your unique identifier or certificate of title. That is a number which is basically on the title, which is - if you have seen a title before, it will have a number, which is applied to every single piece of land. New Zealand has its own unique number. That means it can be found on what's called LINZ, the Land Information of New Zealand, and so it can be searched. That number will in there as well.
Next, you are coming to the all-important purchase price. No doubt you have a listing price. It can be by auction. But basically, that is the price you are going to be buying it from. You may be negotiating. You may be putting say, three - excuse my - I suppose it is not handwriting - mouse writing - $300,000, and the apartment may be listed at 320. You are trying to get it for less. Then, for example, the vendor will cross it out, and will initial it, and then put in another price. That part is probably quite obvious.
Again, there is another important part. You have got the GST element. Here, you have got plus GST is crossed out. It should always be inclusive of GST. That means the purchase price you are paying, does not involve any good and services tax over it. If it is inclusive of GST, it is the same with this line at the top here. "Make sure on the conditions you have. This is approved by your accountant," because it means, this transaction will involve some commission at some stage, and may have some GST owed on it. You have got to make sure, what you are buying, and you are very aware. Having said that, the real estate agent should explain it to you, but still make sure you get an accountant's advice, because GST can be very confusing.
Anyway, then you come down to your deposit clause. A lot of people ask me how much deposit should you put. A safe number is 10% of purchase price or less. At the end of the day, there is no rule when you come to deposit, but you have got to show the purchaser that you are serious. So, you put $1000, that does not mean much. You can walk away from $1000. Have a reasonable amount.
Then, what is going to happen here - that is our stuff here. Basically, it is going to be, you have a deposit, and it will be saying, "To be deposited into trust account." Generally, it will be the real estate agent's trust account. It will generally then say - you will want it to say then, "To be deposited not on the date of this agreement," because you may have conditions, but when it goes, this is important, conditional. Excuse my mouse writing again. The payment of the deposit is due upon this date going unconditional, not just the date.
Then, you have got your settlement date. That will be the date, that you want to settle the property. Let us say you are buying it, but you want to be moving in, in two months' time. Let us say it is February 19th. You put February 19th, 2015 or whatever. Then, you have got your - or by mutual agreement. That is something we can just put in. It is nice to put down, your flexibilities, if you have got to negotiate with a party. And here, you can see here, which has just missed out, is in the matter describing further terms of sale. Now, that's very, very, very, rarely reply, but if that is the case, that means the balance of the purchase should be done in a different way or form. It is something that is very specialised, and you do not come across very often.
Then, you have interest rate for late settlement. That is generally blank, but we have a standard. It is generally about 14%. It could be 16, 12 or 18. That means if you are purchasing the unit, and the owner cannot settle for a reason, maybe they cannot get the tenants out, or anything like that. That means you'll make 14% of the overall purchase price of that price a year divided by 365 or 364 if it's a leap year. There is a penalty, because otherwise, you want the best when you're purchasing it off the vendor, to be settling on the date. There has to be a penalty involved if they cannot, and the same applies for you if you are a purchaser.
Now, I want to go the second page. Here you can see that this is the, not the second page, the second half of the first page. So, already have done the purchase price, which I went over, and obviously, the settlement date, which is here, and the last thing I talked about, was interest rate for late settlement.
Now, we are going to talk about the conditions. This is your finance condition. For example, if you are going to have a finance condition, obviously, purchasing with cash, a condition is very powerful. But you have that finance condition where you may have, it is from a first-year lender, that means you can go to any major banks. That is a good thing, rather than them saying one bank or just finance, so first tier, oh, it's stopped writing. And then you add the amount required, so put in 80%, 60%, then the finance date. Generally, you will put in working days, so maybe five working days from the date of this agreement. So, it always the effective date, referring back to that date from the start. It could be ten working days, seven working days. The most common is five to seven. Ten can be a bit long. LIM required. Okay, you want to do a LIM report on the, say here. LIM report required? Okay, if you want that, yes there et cetera et cetera. It depends on what kind of due diligence you want to do there.
Then, you have got tenancies. That depends on if you may want it vacant, because you are moving in, right? So, you put Vacant here. If it is an investment, and you want - the tenants are paying a good rent. You want to keep the tenants. If they are good tenants, you will say Current Tenancy - as per current tenancy. The rest here is just basically office stuff by the real estate agent. That goes over the first page; bit of a long one.
In each next podcast, I will go over the whole sale and purchase agreement. Spend a little bit of time with me. It is worth it. So, when it comes in front of you, you will feel more comfortable, because it is a big deal, and it is important. I hope that helps.
Well talk soon. Cheers!