Kevin Lampen-Smith
Life can sometimes take an unexpected turn when you are buying a house.
Knowing what could happen to your deposit and sale and purchase agreement if your circumstances suddenly change and you are unable to complete the deal will leave you in a much stronger position.
There are many ‘what-ifs?’ to consider when buying a home and I urge you to talk through your concerns with your lawyer or conveyancer as soon as your circumstances change.
Binding Contract
“A sale and purchase agreement is a legally binding contract between you and the seller, which becomes unconditional once the allocated time for meeting your conditions has been reached.
Once the agreement for sale and purchase becomes unconditional, then, you not only don’t get your deposit back, but also face the likelihood of having to purchase the property – even if you can’t afford to – or having to cancel the agreement and be sued for any loss the seller suffers as a result of you failing to settle the sale. So, if your circumstances suddenly change, you’ll need to speak to your lawyer as soon as possible.
Getting finances sorted to buy a property isn’t easy, but understanding the different deposits when you buy a house can help. There are two different kinds of deposits – the deposit you pay when you make an offer and your bank deposit.
About Deposit Money
A buyer will usually be required to pay a deposit when the sale and purchase agreement is signed by both parties.
The deposit paid is often about 10% of the total price you are offering; you can negotiate a different rate if you need to do so, and is usually held in a trust account by the real estate agent. The real estate agent takes their commission fee out of this amount when the agreement becomes unconditional and the remaining balance goes to the seller.
When you arrange a home loan with a bank, you must have a certain amount of funds to use as a deposit – your bank deposit.
This deposit will more than likely be different from the amount your sale and purchase agreement states that you must pay the seller. For example, your bank may need you to have 20 per cent of the purchase price available as a bank deposit in order to secure your mortgage, even if you only have to pay the seller a 10% deposit.
Inclusions in Agreement
When drawing up a sale and purchase agreement, you can include conditions of the sale, such as a title search, valuation, LIM report, obtaining finance, obtaining insurance and builder’s inspection.
Including conditions can really help and you can even negotiate your sale and purchase deposit. If you need extra time to complete any conditions of the purchase, you must speak to your lawyer or conveyancer immediately. They will negotiate with the seller through their real estate agent or lawyer or conveyancer.
Any changes to the conditions will need to be added to the sale and purchase agreement and signed off by you and the seller. If your conditions are not able to be met, eg, the building fails the property inspection, then you may be able to cancel the agreement and then your deposit will be refunded to you.
Legal Counsel important
It is very important that you speak to a lawyer before finalising your offer conditions so that they adequately protect you if something that you find out about the property during the conditional period is not to your satisfaction.
There is potential that defaulting on a sale, because of finances, could affect future borrowing. Talk this through with your lawyer and it would also be wise to seek advice from a qualified financial adviser. A financial adviser may also be able to talk you through the pros and cons of income protection insurance for situations such as sickness, disability, unemployment and death.
In life, there are so many things we cannot be sure of, but it is always worth doing your homework and seeking solid professional advice when purchasing a home.
For independent guidance and information on buying or selling, check out settled.govt.nz.
Kevin Lampen-Smith is Chief Executive of the Wellington-based Real Estate Authority.
