Property almost always costs more than the purchase price. Whether you’re purchasing a new or existing build, you’ll need to pay professionals to perform due diligence checks so you know exactly what you’re getting into.
These costs can vary from a couple thousand dollars to well over $10,000 if you miss out on a few homes at auction. With that in mind we thought we’d look at the total cost of due diligence and compare the costs for new builds vs existing properties.
Lawyers fees
$1,000 to $2,500+
Whenever you buy property it’s essential you engage a lawyer or property conveyancer in advance to help with the legal side of the purchase.
Typically your lawyer will check the land information memorandum (LIM), the sale and purchase agreement, the body corporate rules, if any, and then manage negotiations between parties. They’ll then finalise the settlement with the vendor’s lawyer and bank and register the details of your mortgage and change of title with Land Information New Zealand (LINZ).
This cost is usually relatively similar whether you’re purchasing a new build or an existing home.
Building inspections
$800 to $1,200+ (depending on the size and location of the home)
When you buy an existing home it’s often best to get a building report to avoid nasty surprises down the track. To create the report an inspector will look for problems with the property such as dampness, structural issues and the presence of problematic materials like asbestos – then summarise this in a written report for your bank.
Most new build properties have 10 year warranties and since they’re new it’s unlikely they’ll have any of the problems existing builds develop over time. For that reason there’s a chance your bank may not require a building report when buying a new build, if completed by a reputable developer (and it’ll obviously be impossible to get one if buying off the plans!) With that said pre-settlement inspections are a must once the property has been completed.
Property valuation
$800 to $1,000 (depending on the size and location of the home)
It’s often a condition of finance that you must get a property valuation prior to purchasing a home, whether it’s a new build or an existing property. To do this you’ll need to engage a registered valuer to determine a property’s market value by inspecting the property.
LIM report
$300 to $500
A LIM report or land information memorandum is a file that compiles all the information the council has on your property. This might include zoning, resource consents, how natural features and hazards may impact the property, rates and information on any heritage buildings or protected trees on the property.
While you can, and should have a good look over your property’s LIM, to make sure you understand it and don’t miss anything important, it’s usually best if your lawyer also scans the document.
A bit unnecessary with an off the plan property as the land contours and services will change as part of the construction
The problem with buying existing builds
Due diligence when buying a new build may be up to $1,200 cheaper than when buying an existing property, mainly due to the fact a building report may not be required. However, there’s another reason that new build due diligence is often cheaper.
When you buy an existing property you’ll often be buying by price by negotiation or auction. This means you’ll need to complete all your due diligence in advance, then risk losing the auction anyway. After that you’ll need to move onto the next house and go through the same due diligence process again and again until you’re successful. We’ve heard of first home buyers attending up to half a dozen auctions and spending up to $10,000 on due diligence before buying a home!
New builds on the other hand, are almost never sold via auction. Instead they’ll have a transparent and clear price, you’ll pick a property then perform due diligence during a conditional period. This means it’s very unlikely that you’ll ever need to carry out the costly parts of due diligence more than once when buying a new build.
Want more advice about buying new builds? Or are you ready to start property hunting? Get in touch with the new build experts at SM Property today.
