Jazial Crossley, Monday June 15 2009 – 07:48am
The high risks involved in in longer residential property sale settlement times have been highlighted at a recent High Court case and experts are recommending buyers seek legal advice before finalizing the settlement period on a purchase.
Buyer Yanxun Sun who purchased a Lewis Rd, Karaka property in August 2007 with a twelve month settlement period not only lost the land, but had to cough up over $360,000 to the vendor. Mr Sun entered an unconditional agreement to buy the property for $1.1 million at a time when banks were lending 80% finance and paid vendor Peter Grant Tucker a $55,500 deposit. But by the time settlement approached in August 2008 the property market had sunk, and Westpac said it required a valuation before lending to Mr Sun.
Valuers Marsh & Irwin said the property was worth $1.05 million, and Westpac would then only commit to lending 50% of the property value. Other banks said the same, having changed lending policies when the property market crashed in the intervening period. Mr Tucker cancelled the agreement and resold the property through Harcourts for the market price of $750,000. Mr Tucker then took Mr Sun to court to reclaim the balance he lost on the original $1.1 million sale.
In the High Court at Auckland, Judge Anthony Christiansen ruled that Mr Sun is liable to pay Mr Tucker the $304,500 he lost on the sale and incidental losses of $529.
New Zealand Property Investors Federation president Martin Evans said he recommends investors allow four weeks for confirmation and settlement. “Longer settlements allow investors time to do maintenance work on properties before possession takes place,” Mr Evans said. “Circumstances do change, and a lawyer should give a buyer advice about a suitable settlement period.”
Bayleys residential manager Rachel Dovey confirmed one month was the average settlement time buyers sign on for. She adds that longer settlement times have become less common over the past year. “A lot of buyers are typically cashed up, renting and ready to move so they do not require the extended time,” Ms Dovey said. “However there is still a small group of purchasers who require much longer settlements, who have had the ability to purchase but have not yet sold their own home.”