A formal offer has to be made even if you wish to pay the advertised price. The offer is conditional and conditions may include the approval of finance (e.g. a mortgage), a satisfactory independent valuation, a satisfactory title search or the sale of another home, etc.
Unless you’ve agreed to pay the asking price, there then follows a bargaining process which concludes when both parties have agreed a price for the property. As soon as you agree the price, you must sign a sales contract, which commits you to go through with the purchase. There are usually exclusions to this commitment (e.g. you aren’t obliged to go ahead with the purchase if you find out that a new road is about to be built through the living room), but you cannot back out because you decide that you don’t like the house or cannot afford it, without paying compensation. You also cannot subsequently reduce the price you’ve agreed to pay.
Many estate agents try to insist that purchasers sign a contract as soon as a sale is agreed, i.e. the day you view the property and say that you want it. However, you shouldn’t sign a contract before taking legal advice and confirming that the title is clear.
If you feel obliged to sign a contract before the conveyance checks are complete, you should ask your lawyer to insert a clause in the contract to the effect that the contract is null and void if any problems arise. However, there’s no legal requirement to sign a contract immediately, provided it’s done within a reasonable time, so don’t allow yourself to be pressured into signing. It’s usually better to pass up a property if, for example, the agent says that another party is keen to sign (which may be a bluff), rather than buy a property that you aren’t really sure about. The advantage of this system is that the seller cannot accept a higher offer after he has signed a contract with you, although most estate agents will try to push up the price to the highest possible level before pressing the highest bidder to sign a contract.
A deposit of 10 per cent is required when a sales contract is signed. This is usually non-refundable, but most contracts include a clause requiring its return if the title to the property isn’t clear or the land is subject to government requisition (compulsory purchase). When buying a property in New Zealand, it’s the exception rather than the rule to have a structural survey carried out. The main exception is if you’re borrowing more than 80 per cent of the value of the property, when the lender usually insists that a survey and valuation is carried out to protect its interests.
Because the time between viewing a property and being required to sign a contract can be short, you should have a mortgage arranged before you start looking. Most banks will give you an ‘in principle’ decision on a mortgage before you’ve found a suitable property and issue a mortgage guarantee certificate. This allows you to make an offer in the knowledge that, assuming the property is in order and your financial circumstances haven’t changed, you will be lent the money to buy the property.