REA urges buyers to remember due diligence as the spring market gets underway
With residential real estate market activity expected to increase through spring and summer, the Real Estate Authority (REA) warns prospective home buyers about the importance of thorough pre-purchase due diligence. REA also reminds real estate professionals about the importance of disclosure to support fair transactions.
REA Chief Executive Belinda Moffat says it is particularly important for buyers to take a considered approach to the buying process as both the weather and the market start to warm up.
“It can be easy to fall in love with a prospective home on a warm spring day, or a potential bargain in a buyer’s market. We’re reminding house hunters to make sure they do their homework before making a commitment in what for many will be the biggest asset they will ever own.”
Ms Moffat says that consumers who don’t undertake thorough due diligence risk potentially costly surprises once they take possession of the property.
“If you’re serious about making an offer on a home, get a property inspection report from an accredited property inspector, get a council LIM (Land Information Memorandum), read the council file and record of title, and engage a lawyer early in the process to advise you along the way.”
REA research this year indicates that prior to making an offer, only 59% of buyers spoke to a lawyer or conveyancer, only 44% obtained an inspection report by a certified inspector and only 37% obtained a LIM.
“Considering the financial obligation buying a house brings, these due diligence statistics are surprising and concerning. Our research suggests too many buyers may be leaving themselves exposed as they take a property plunge. Before making a commitment, it is vital to check the building’s condition, understand its insurability, check for problem building materials or weathertightness issues and review all the Council property information, preferably with the help of professionals including a lawyer. For those buying off the plans or a buying a new build ensure you understand the consenting process and read the vendor warranties. Legal advice before signing a sale and purchase agreement is important” Ms Moffat says.
For first home buyers, Ms Moffat says it is also critical for people to thoroughly understand the buying and selling process.
“Buying a home, particularly a first home, can be a daunting prospect and a lack knowledge about how it all works can leave you feeling poorly equipped. Taking steps to understand the process will build confidence ahead of tackling some big financial decisions. This advice is important for sellers as well.
At REA we provide a range of consumer resources, including the website Settled.govt.nz, specifically designed to inform consumers about the buying and selling process. Our resources are accessible in a range of languages and formats to support the diverse consumer groups in New Zealand.”
Real estate professionals play a critical role
Ms Moffat says licensed real estate professionals’ (licensees) play a critical role in the real estate transaction process. That is why they are regulated by REA and must meet a range of conduct obligations under the Code of Conduct we oversee.
“Real estate professionals, generally act for the vendor, but play a critical role in guiding all parties through a real estate transaction. Under the Code of Conduct REA oversees licensees must ensure all representations about the property are accurate and verified, that known defects are disclosed and that consumers are given time to seek legal advice before signing agreements. Importantly, they must treat all parties fairly, and that includes allowing parties time to obtain professional advice and not placing parties under undue pressure”
Ms Moffat says licensees cannot avoid having to disclose defects by not asking vendors about them.
“While licensees are usually engaged by vendors and must act in the best interests of their client, they must also act in good faith and deal fairly with all parties engaged in a transaction.
Licensees are not expected to discover hidden problems with a property, but where it appears likely to them that a defect exists, they cannot ignore it. They must either confirm with the owner that there isn’t a problem (supported by evidence or expert advice) or tell potential buyers about the risk and advise them to get their own expert advice.”
Ms Moffat says that by doing their homework, asking questions and taking expert advice, buyers can protect and empower themselves.
“Knowledge is critical to good decisions. Know the process so you know what to expect, know the role of a real estate agent and their obligations, and know the property before you make a commitment.
In these challenging market conditions, we want transactions to be fair. Ensuring parties have the information they need to make good transaction decisions is critical to a well performing real estate market”.
For more information contact Aaron Alexander, REA Communications and Engagement Manager on 027 237 7196 or via media@rea.govt.nz
About REA
The Real Estate Authority (REA) is the independent government agency that regulates the conduct of licensed real estate professionals in New Zealand. We license people and companies working in real estate, provide oversight of the code of conduct, oversee the complaints and disciplinary process for poor conduct by licensees, provide education and guidance to licensees to assist them to meet their regulatory obligations, and provide information to consumers about the real estate transaction process. REA is governed by a Board. The Chair is Denese Bates KC. REA Chief Executive is Belinda Moffat.
People who have concerns about the conduct of a real estate professional can contact the Real Estate Authority (REA) – visit rea.govt.nz or call 0800 367 732. Consumers seeking independent information about buying and selling property can visit REA’s consumer website settled.govt.nz.