Mistake to avoid: Not including the right conditions in your property sale and purchase agreement?

Finding your dream home is your first challenge, but are you ready for the next one? If you’re buying a property by negotiation, you might be wondering what conditions you should put into the agreement.

Once all the conditions laid out on your signed sale and purchase agreement are met, your offer goes unconditional and you’re legally bound to purchase the property. If any of the conditions aren’t met, then you have the option to withdraw from the house purchase.

In this week’s blog, we draw on two case studies to show how crucial it is to set conditions that you have concern before signing a sale and purchase agreement. As you will see in the worst outcome of the two case studies, if you don’t state right conditions, you could lose your deposit if you change your mind and don’t want to purchase the house.

Video Timeline:

Case 1: Without Prosperity’s help, Client A had to go unconditional and pay the deposit. -- 00:15 

Case 2: Client B lost his $200k deposit after he signed an offer that didn’t include building report -- 00:52 

Case 1: Without Prosperity’s help, Client A had to go unconditional and pay the deposit

Client A had signed a conditional sale and purchase agreement, where the agreement was only subject to him securing finance to complete the purchase. But, after the bank had approved the client’s loan application, he changed his mind and didn’t like the house. In this case, he was legally bound to buy the house as the finance condition has been met.

In the past, sellers wouldn’t necessarily ask buyers for evidence to prove that their conditions weren’t met. However, in recent years, it’s becoming more common for sellers to ask for this proof to protect themselves, should buyers change their mind and decide not to buy the house.

Eventually, with the help of Prosperity Finance, client A was able to successfully cancel the agreement.

That’s why you need to take the signing of a property sale and purchase agreement very seriously. Make sure that you really want to buy the property before signing. 

Case 2: Client B lost his $200k deposit after he signed an offer that didn’t include building report

Similarly, Client B only included a finance condition in his sale and purchase agreement. After signing the purchase agreement, he found some serious issues in the property. Unfortunately, as the agreement had become unconditional, he couldn’t legally withdraw from his agreement. Finally, he might lose his deposit of $200k.

However, had the client added the building inspection report to his conditions, he could have provided a copy to the vendor - allowing him to cancel the agreement as he was dissatisfied with what the building inspection uncovered. 

What conditions should I put on a house offer? 

From a purchaser’s perspective, it's crucial for you to add right conditions that you want in your sale and purchase agreement, such as a finance condition, LIM (Land Information Memorandum) report, building inspection report and due diligence. This will allow to cancel the agreement easily if you find some issues with the property.

Plus, we are experiencing a flat housing market in New Zealand right now, so vendors are more likely to accept a conditional offer because they want to grab every opportunity they can to sell their properties.

Disclaimer: The content in this article are provided for general situation purpose only. To the extent that any such information, opinions, views and recommendations constitute advice, they do not take into account any person’s particular financial situation or goals and, accordingly, do not constitute personalised financial advice. We therefore recommend that you seek advice from your adviser before taking any action.

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