Schnauer & Co deal with many first home buyer enquiries. Often first home buyers don’t know where to start or when they are ready to make their first offer. As a first home buyer, there is often so much information to process, that it can feel overwhelming. Whether it’s in relation to the steps that need to be taken, legal terminology or understanding the different types of properties out there. Because first home buyers can incur substantial costs during this process, we often suggest that clients make an offer on a property only once they are truly ready and with a condition that allows them to undertake their due diligence (including legal advice) after any offer is accepted to avoid unnecessary costs.
Here's a step-by-step guide of how to approach making an offer on your first home:
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Seek legal advice:
Before you submit your offer to the vendor, consult your Legal Executive/Conveyancer/Solicitor (“Legal Adviser”).
The advice that they will provide will depend on your circumstances and the type of property you will be looking at. There are so many variables, and we can’t provide you general advice that will apply to all situations. The firm you instruct can provide you with an estimate about legal fees and a general understanding of the process. If you decide to proceed then terms of engagement will be sent to you, so that advice can be provided once you have secured a property or if you need conditions to be insert into an offer.
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Finance pre-approval:
Before you make an offer, you should, if possible, ensure you have finance approval or an idea of how much a lender is willing to lend you.
If you have finance approval in advance, we suggest that you familiarise yourself with any finance conditions that apply. Most pre-approvals will give your lender the discretion to assess if the property would be adequate security for the loan or not before the loan approval is confirmed. If you are unsure about your finance conditions, get clarity from your broker or the bank.
You can also speak to your broker/lender about whether a cash contribution will be offered to help reimburse you for some or all your legal fees (this is paid to you directly after settlement by the bank/lender). Please note conditions apply to these.
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KiwiSaver and other financial assistance arrangements
It will speed the process up if you have current/valid approval for a KiwiSaver First Home withdrawal in advance of making an offer. If you require any of these funds to pay your deposit, you will need to let your Legal Advisor know very early on, as this will change their advice about any terms of your offer.
We would normally refer to the Kāinga Ora First Home Grant but note that Kāinga Ora updated their website earlier this year to state that they would only assist applicants who submitted a First Home Grant application before 1pm, 22 May 2024 (with existing valid approval). They are unable to accept any new applications.
We also note that as of late last year, the First Home Partner Scheme via Kāinga Ora is fully subscribed and therefore will not be accepting any new applications. Although this is no longer an option for first home buyers, you can consider the Kāinga Ora First Home Loan for first home buyers that are able to service their desired loan amount but may not have quite enough saved for a deposit (e.g. only 5% deposit saved rather than 20%). First Home Loans are only available through certain banks/lenders and are underwritten by Kāinga Ora – Homes and Communities.
Otherwise, there are some co-ownership housing opportunities where another party would be a co-owner, and you would have the intention to buy them out when you have more equity in your home. However, you should seek legal advice in this regard even after receiving approval from your lender as there are usually associated upfront and monthly costs. Also, there are usually additional benefits to the other party involved when you are ready to buy them out.
First home buyers may be interested in our previous article, “Co-owning property with family or friends” as an option. Since the Brightline rules concerning the relevant timeframe changed from 1 July 2024, these options may be more desirable now if it’s mutually agreed in a Property Sharing Agreement to retain the property for at least 2 years.
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Your circumstances and timeframes:
Consider the timeframes you will require based on the due diligence you will undertake prior to confirming the agreement is unconditional. If applicable, check the turn-around for your KiwiSaver provider to drawdown your KiwiSaver funds (usually 10-15 working days) and consider when you will need to execute those documents.
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Once you are ready to make a conditional offer:
If there is an agent involved, you can ask the agent to prepare your offer based on terms suitable and you can seek legal advice to confirm that the agreement is fine for you to sign. Alternatively, you can ask for conditions to be provided to you which have accounted for your circumstances, and you can have these inserted into the agreement. Even though you will be able to seek legal advice after any offer is accepted, there is no guarantee that any amendments to the Sale and Purchase Agreement that your Legal Advisor recommends, will be agreed to by the other party.
Some purchasers prefer to use a well-worded due diligence condition instead of relying on the usual conditions of finance, LIM Report etc which are listed on the front page of the Sale and Purchase Agreement. However, due diligence conditions are not so appealing for vendors as it can be an easier way for the purchaser to back out of the agreement even simply due to changing their mind about the property.
If there are other interested parties, then you may want to make your offer more appealing by minimising your conditions where possible and keep the time periods to satisfy the conditions as short as possible. While you don’t want to rush yourself by providing unrealistic time frames for your conditions to be met, you don’t want to go too far the other way either. In this current market, vendors are more open to due diligence conditions. If there is competition with a property then you may want to narrow your conditions down to more standard and specific conditions (e.g. finance, builders report). That way, the vendors would be less concerned about you cancelling the agreement when comparing your offer to other offers made.
Depending on the conditions used and any future issues raised with the property, you can insist on a price reduction and/or variations to terms of the agreement before you will satisfy your condition/s. For example, if a purchaser used a well-worded due diligence condition. Since this condition easily lets a purchaser cancel an agreement, then a vendor will be more likely to consider negotiations so that the purchaser will declare the agreement unconditional on that basis of any agreed variation (e.g. price reduction due a low registered valuation or a roof that needs to be repaired).
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Offer is accepted – time to undertake your due diligence:
Once the offer is accepted by the vendor, you will need to:
- E-mail the agreement to your lender or broker;
- book relevant reports with building inspection companies, valuers etc); and
- seek advice on the title and agreement (if not done prior to making an offer).
Make sure that you read any disclosure provided by the vendor or agent and if there are defects, you will need to advise your broker and lender. Also, if there are any defects you will need to consider if you will have any issues obtaining insurance.
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If issues come up with the house during an inspection or through a review of a LIM Report:
Ask the vendor to pay for the issue to be fixed or you could renegotiate the house price depending on the condition used and the issue raised. In some instances when undisclosed unconsented works are discovered, your Legal Advisor can investigate whether they were undertaken by the vendor and therefore a breach of vendor warranties may have occurred. Your Legal Advisor can advise you about your options in this regard.
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What happens if you need more time to satisfy a condition?
A vendor does not have to agree to an extension of time to allow you to satisfy a particular condition, but your Legal Adviser can certainly try to obtain one. If you are not able to satisfy a condition by the time and date in the agreement, either the vendor or purchaser can cancel the agreement. However, as a purchaser, depending on the condition used you can be asked to prove you used your best endeavours to take all steps necessary to try and satisfy that condition (e.g. finance condition – an email from a bank or broker stating finance was declined).
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Written instruction to your Legal Advisor:
The Sale and Purchase Agreement is an important document that you need to understand. Refer to our latest article” Explanation of the Key Clauses in the ADLS/REINZ Agreement for Sale and Purchase of Real Estate” which explains the terms of the agreement. Each time you require an extension or variation to a condition or if you would like to satisfy or decline a condition, it is preferred that these instructions are provided to your Legal Advisor in writing.
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How to make a property offer more attractive:
If you find yourself in a multiple-offer situation, you’re going to want to find ways to make your offer the most attractive. However, don’t get carried away in the heat of the moment and agree to spend more than what your budget allows or insert unrealistic timeframes for the satisfaction of conditions. Some things which may make your offer more attractive to the vendor, would be:
- being flexible on the settlement date - flexibility about when you can settle could really appeal to a seller. It pays to check with the agent first to see if the vendor is under any time pressure;
- being organised with your finance approval– anything you can do to act faster than other buyers will help you;
- show you are serious and perhaps offer a portion of the deposit upfront on signing the agreement (this can’t be KiwiSaver funds due to the time it takes to drawdown funds), with the balance of the deposit to be paid on the unconditional date;
- agree to an early release of deposit clause in the further terms (you cannot do this if the deposit is being paid with Kiwisaver funds as this must be retained in the vendor’s solicitor’s trust account until settlement);
- show commitment to working through your conditions. When adding conditions that involve third parties, for example a buildings inspector or builder, let the seller (or their agent) know that you’re already in contact with a builder and talking with them about availability to complete the building inspection report;
- keep your timeframes to satisfy conditions as short as possible (enquire before hand with your broker how long to allow for finance); and
- instruct a Legal Advisor in advance so that you can be confident that they will be available to assist you promptly.
You can contact the team at Schnauer & Co. by getting in touch with Kim Hunt. And don't forget to take advantage of the below First Home Buyer's Club Member Offer.
Kim Hunt
Senior Registered Legal Executive
Email: Khunt@schnauer.com
DDI: 09 892 0351
