What Hidden Costs Are Involved in Property Transactions?
“The settlement was straightforward… so why does the legal invoice seem so high?”
It’s a common question, and the answer lies in the work that happens behind the scenes. Once an Agreement for Sale and Purchase becomes unconditional, many buyers assume the hard work is done. The offer has been accepted, settlement is completed, and all that’s left is to collect the keys.Then the invoice arrives, and many clients wonder why it cost so much when the transaction seemed straightforward.
In reality, much of a property lawyer’s work takes place throughout the settlement process, away from the client’s view. From reviewing legal documents and managing risks, to satisfying bank requirements and completing settlement, there are many tasks involved in ensuring ownership transfers safely and correctly. Behind the scenes, a significant amount of legal work is underway. Conveyancing and property lawyer’s co-ordinate a process to protect buyers, manage risk and ensure clean transfer of ownership, that is often not evident to the client.
Some of the “hidden” or unexpected costs relate to the following:
Due Diligence – Looking Beyond the Property (review title and LIM)
A property may look perfect, but the legal documents can tell a very different story. Before settlement, your lawyer carefully reviews the title, registered interests, and often the LIM report to identify any issues that could affect your ownership or future plans. Costs can add up quickly as part of due diligence.
Acting for You – and Your Bank (Finance and loan documentation)
The bank instructs your lawyer directly (by way of a letter of instructions); so, as well as acting for the buyer, your lawyer is also acting for the bank. Lawyers are required to disclose key terms of lending to the purchaser, ensure compliance with the lender’s instructions, prepare mortgage details at Landonline and also provide a number of certifications to the bank as part of their solicitor’s certificate (for example, checking rates for the property, Personal Property Securities Register (“PPSR”) searches and confirming all of the bank’s conditions are all met).
Disbursements – The Costs You Don’t Always Expect
Disbursements are third-party costs paid on your behalf during the transaction and commonly include: Landonline registration costs, title and instrument searches on Landonline (as part of the title review) and PPSR searches. If there are a number of instruments on the title, these costs can add up. A transfer instrument and mortgage on Landonline are $122 each, with disbursements often overlooked by a purchaser. A lawyer will usually provide a fee estimate, with disbursements and GST additional (e.g. $2,000 + GST + disbursements)
Kiwisaver
Using KiwiSaver towards your first home is often straightforward, but every provider has different documentation and processing requirements. Your lawyer ensures your application meets the provider’s requirements, follows up where necessary and coordinates the release of funds so they are available for settlement.
Other Situations Where Hidden Costs Can Arise:
Every property transaction is different. Certain situations require additional legal advice and documentation, including:
Purchasing through a trust or company
Buying through a trust or company usually requires trustee, director or shareholder resolutions, together with additional documentation requested by the lender.
Buying with a partner
If purchasers are contributing different amounts towards the purchase price, a Contracting Out (Relationship Property) Agreement should be considered to record each person’s financial contribution and intentions.
Preparing or reviewing the Agreement
Many buyers ask their lawyer to review or prepare the Agreement for Sale and Purchase before it is signed. This advice can identify risks, suggest appropriate conditions, and help avoid costly issues later.
Updating your Will
Buying property is also an ideal time to prepare or review your Will. Without one, your estate may be administered under the rules of intestacy, which can create unnecessary complications for your family.
Whether you’re buying or selling property, our experienced team is here to help you understand the costs involved, why they arise, and guide you through every stage of the process.
Want to learn more?
Get in touch with our property team for personalised advice and to book a consultation.
