What is due diligence?

Doing your due diligence means using the care that a reasonable person takes to avoid harm. In short, do your research! You should undertake due diligence on a property before signing an agreement.  Sometimes you may feel constrained by timing to sign the agreement so you must insert an adequate due diligence clause (we can assist you with this on an urgent basis).  The best-case scenario is for you to undertake due diligence before signing an agreement. Here are some matters you should consider when undertaking due diligence.  We have separated the options into things you can do and things your lawyer can do for you:

o   You: Check out the local community.  The more you know about the area where you are buying the better.  Ideally, you should try to visit the property at different times of the day to experience the sun, wind, neighbourhood noises etc.  Try to talk to any neighbours or any other locals you know nearby.  If they cannot help you, someone they know probably can.  

o   You: Understand what is happening in the local area. Do your research regarding schools, public transport and local amenities.  Most of this information is available online. Your local council will have a wealth of free information available that will advise you whether there are any large developments nearby, any proposed zoning changes or any upcoming roading projects.

o   You: Contact a building inspector. A building inspector will look at the structural integrity of the premises and will be able to assess if there are any leaks, unconsented works etc. If there are any issues in the report, you may negotiate with the seller to have the defects rectified or you may be able to negotiate a lower purchase price.  If you would like to order a building inspection, we can provide you with a recommendation.  

o   You: Order a valuation.  Most banks will make their finance approval conditional upon the bank ordering a valuation that confirms the property is worth what you are buying it for.  Be careful because banks will often want to use their own approved valuers so do not organise a valuation that they may not accept.  

o   You: Figure out what you can afford.  There are lots of great free online tools to help you calculate how much lending a bank may offer you based on your savings, salary and monthly expenses.  Thinking further ahead, it is important to consider how much the rates, insurance, and body corporate fees will be for your property.  Your life will be less stressful if you can get your finance pre-approved by your lender before you sign an agreement.  It is up to you whether you engage with a lender directly or via a mortgage broker.  A mortgage broker may be able to get you better than advertised interest rates with a lender.  If you would like to be introduced to a mortgage broker, we can provide an introduction.  

o   Lawyer: A title (record of title) review will provide you with valuable information regarding what registered interests are on the property and what impact these may have on the value and use of the property e.g. easements, covenants, consent notices, encumbrances etc.  

o   You/Lawyer: It is your decision whether to order a Land Information Memorandum (LIM) from the local council. Your lawyer can help you review a LIM which may contain information such as unconsented building works, contamination issues, flood risks, zoning (which tells you what you can do with the land) and rates.  It is your responsibility to compare the information in the LIM with what is at the property e.g. a carport that is not shown on the original plans.  A property lawyer is not qualified to provide you with any advice regarding building or town planning matters.  If you require expert advice for these areas, we can refer you to a specialist.  

o   You/Lawyer: Understand the different ownership methods.  The three most common ownership options in New Zealand are your name personally, family trust or company.  Your lawyer can help you consider what option may benefit you best.  If you are purchasing as a couple, you can own a property as joint tenants or tenants in common. All the above options have different legal and tax implications that may require specialist help which we can either assist you with or provide you with an expert.

At the end of the day, it is up to you regarding how much due diligence you undertake.  The more thorough your investigation is means you will be less likely to encounter problems later.  All the above options take time so it is crucial to factor time into any decisions you will make.