So you’re almost at the finish line. You’ve gone through the process of getting on the property ladder, made an offer on a house and it’s been accepted. While this is definitely cause for celebration, you’re not out of the woods yet. You’ve simply entered a new phase of the home-buying process formally known as “under contract.” 

So, what next? This is a common question for a lot of first home buyers and investors. We’re going to break down what being under contract means, and what more you have to do to finally own your own home. Here’s what to expect when you’re under contract.

You’re not committing to buying the home

The good news about being under contract, is that you’re not bound to pay anything at this point. It’s simply a chance to give yourself time to undertake all your research and due diligence before you hand over any money. Working with SM Property and a mortgage broker or bank is essentially free, so there’s no money exchanged between you and the developer when you put a home under conditional offer. The lawyer review (which is a legal requirement) is the only cost, once you crack into your due diligence.

What does ‘under contract’ mean?

When a property is under contract, typically this will include some “conditions” (what you included in your offer). These can include finance approval, solicitors approval, building inspections or the “due diligence clause”. 

Once your offer is accepted, it’s time to crack into satisfying your conditions. You normally have a limited amount of time to achieve these so time is of the essence. When a property is under contract, it usually means that the buyer’s accepted your offer on the property – but the sale isn’t final yet. There are still a few things that need to happen before closing. 

At this point, the property will be listed as pending. Before the sale is finalised all contingencies in the contract must be met by both parties. This could include home appraisals, to inspections and title reports. If either you or the seller fails to meet those conditions the contract becomes void and you can both back out of the sale.

Review the contract

Ensure you send your contract to your solicitor for review. If your contract includes a due diligence clause or solicitors approval clause, should your solicitor advise you against the content of the offer you can negotiate changes or cancel. Your solicitor will talk you through the risks and protections of the contract, and let you know if there’s any cause for concern. Don’t be too worried if there are some big clauses in there – remember, the contract covers “worst-case” scenarios. On our end, we’ll also email your solicitor a signed copy of the agreement to keep the lines of communication transparent.

This is also a good time to think about your pre-approval amount if it needs to change. If you’re going to extend your pre-approval amount, now’s the time to start the conversation with your broker – we’ll email them a signed copy of the agreement.

Ask questions

If you have questions, now’s the time to speak up. It’s important to voice any concerns or specific requirements you may have. The due diligence period is the best time to discuss these with your new build specialist or agent and solicitor.

Do some due diligence

It pays to fully investigate a property. When you’re under contract, you have the opportunity to undertake due diligence. Due diligence is a comprehensive check of a property undertaken by a prospective buyer. This can help confirm the physical state, specs and plans, legal standing and actual market value of a home.

It’s important to undertake due diligence so you know exactly what you’re buying. That way if any issues arise, you’ll be better prepared to deal with any costs or issues that come up. This could be informal research, about the area or accessing some certificates of title and LIM reports. The aim is to give you important information about the property.

While it’s your responsibility to carry this out, remember to chat to your solicitor about due diligence early on in the process. They can advise you on what to look for, what documents to review and help you make sure all your bases are covered. We’ve put together a Due Diligence guide to help you through this process.

Prepare all closing funds and documents

It’s time to withdraw your first home grant, if applicable. If you’re using your KiwiSaver as part of your deposit and you’ve made sure you’re eligible, now’s the time to withdraw. You’ll need to let your solicitor know, and they’ll guide you through the process. 

What if I’m an investor?

When you apply for an investment property home loan, most lenders will want to see a rental appraisal. If you’re buying an investment property, this is when you should get one. You can get one by having an agency assess your property. They’ll look at similar rental properties in the area and compare your property to estimate the amount of rent you’ll likely receive.

You can talk to your property manager to get a sense of the type of tenant, rental amounts and rental demand in the area of your property. At SM Property, we always operate with a conservative rental appraisal and ask that of our property managers too. That way, there’s a good buffer if the number switches, as these can vary depending on what’s happening in the market at the time. It’s always worth chatting to different property managers to understand what they believe they could achieve in a good market. If you buy a new build that’s not ready for two years, the rental market could change in that time, so be prepared for some movement.

Decision day

If all goes well, you’ve done your due diligence, and you’re confident in your purchase, it’s time to go unconditional! 

This is where you notify your lawyer and let them know whether you want to proceed or withdraw. If you do, you’re officially unconditional. From here, your solicitor will inform the seller’s lawyer of this in writing and you’re committed to the sale. This is when you’ll pay the deposit listed on the agreement to secure your property.

It’s time to settle

This is the day you pay the balance of the purchase price and the property becomes yours. Here’s a few things you’ll need to tick off before you move into your new property:

• Touch base with your mortgage broker and ensure your lending is in place
• Sort out your insurances – house & contents and potentially personal life or income cover
• Do a pre-settlement inspection. This is a walkthrough of the property – make sure you are happy with the final product
• Start packing and purchasing any extra pieces of furniture needed
• Wait for titles and code of compliance to be finalised – after these are issued, settle by paying the remainder of the purchase price

On settlement day, not a lot actually happens for you. The paperwork should already be signed, the money should be ready to go, it’s just up to the lawyers to do their job. Then, once the transfer of funds and ownership is complete, your solicitor will tell you and you can pick up your keys and move in!

Got any more questions? If you need some help navigating the home-buying process, contact us today. You can also visit our Instagram for more tips and tricks on the home buying process.