Buyers should know their rights when buying a house

Andrea Warmington was disappointed when the development of an apartment she planned to buy did not go ahead.
CHRIS MCKEEN/FAIRFAX NZ

Andrea Warmington was disappointed when the development of an apartment she planned to buy did not go ahead.

When you are in the market for a house - especially for the first time - it can be easy to feel as though you are on the back foot.

You might be dealing with a smooth-talking real estate agent and a vendor who thinks the market is on their side.

But buyers have a number of rights to protect them. Knowing them will help you to avoid being burned.

First, get legal advice

Before you do anything, get in touch with a good lawyer you can trust.

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You are allowed to have them look over any sale and purchase agreement before you sign it, to flag potential concerns. They will also check the title for you.

Your offer

You can make an offer subject to as many conditions as you like. This might include things such as a building report, LIM, finance, sale of another property, or even just your solicitor's approval.

In a hot market, an offer with a lot of conditions may not be as appealing to a vendor. But the agent should not put pressure on you to leave out anything that is important to you.

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Once you've signed

When your signature is on the dotted line, the agreement is legally binding.

If a condition cannot be met, for example you get a building report that finds serious issues, you can pull out while your agreement is conditional, or renegotiate the price.

But once you have confirmed all the conditions are met, and the offer has become "unconditional", it is very hard to back out and you will not get your deposit back if you try.

Offers made at auction are almost always unconditional.

The purchaser may include a "cash out" or escape clause that enables them to take another offer while yours is conditional.

Usually you get a short period of time to make your own offer unconditional if they receive another, competing bid. You do not have to match the second offer's price, you just have to get rid of your conditions.

Your real estate agent and lawyer should point out this clause to you, if the purchaser has requested it.

Dealing with agents

Real estate agents act for the seller. But they must also ensure they treat buyers fairly and they cannot put either party under too much pressure.

They cannot withhold information about a property or give you inaccurate information. They also cannot make any claims they do not have evidence for.

They cannot try to draw you in with a price that is lower than the seller would accept. Any advertised price or price guide should be within the range of the seller's expectations.

If you are in a situation where a number of buyers are all making an offer at once, the agent must tell you so that you can make your best offer.

You do not have to deal with the agent who has their name on the listing. If you would rather deal with someone else from the same company, you can ask to work with them instead.

Before settlement

Once your offer has gone unconditional, but before it settles, you are entitled to conduct a pre-settlement inspection. You should check whether the chattels listed on your agreement are still there and whether anything has been damaged since you signed your offer. 

If you spot a problem, contact your lawyer immediately, who will deal with the vendor's solicitor to get it fixed. Just finding it is dirty is not enough - if you are really worried about getting a clean how you will need a condition in your sale and purchase agreement requiring a full commercial clean before settlement.

You often do not get the chance to do this inspection if you are buying a property in a mortgagee sale. 

Buying off the plans

If you buy a property that has not yet been built, the situation is a little trickier.

Most developers include sunset clauses in their contracts that allow them to back out if a property has not been built within a set period of time.

When prices are going up quickly, these are unpopular with buyers.

Andrea Warmington said she was crushed when she put a deposit down on a property that ended up not being built.

The clauses help developers if costs have blown out, construction has proved more difficult than expected, or there have not been enough sales.

But while buyers get their money back, the delay can leave some out of pocket. The sunset clause may not kick in for six months or a couple of years after an agreement was signed. 

During that time, house prices may increase, leaving the borrower scrambling to find more money if they have to buy another property instead.

The clauses can also be used in an unscrupulous way. In a hot market a developer who realises they could have sold properties for more might use the clause to cancel existing contracts and resell for a higher amount.

Many agreements also allow developers to make changes to the plans up to a certain level without consulting buyers. Your lawyer should point this out to you.

To avoid getting caught, do as much due diligence on the developer as you can and make sure you get constant updates through the development process.

If something goes wrong

Your first recourse is usually to your lawyer.

If you feel a real estate agent has let you down and not complied with the law, you can complain to the company they work for, or to the Real Estate Agents Authority.

 - Stuff

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