Making An Offer
Ways to buy a house
How much should I pay for a house?
What is a 'sale and purchase agreement'?
Who puts together the sale and purchase agreement?
Should my lawyer be involved?
What conditions do I need?
What is the deposit? How much is it?
What is the possession/settlement date?
What happens now my offer has been made?
Essential checks before making an offer
Make sure you have done some basic checks! Including:
Second inspection
Title check
Find out the costs
Confirm your finance
For more information on what these checks involve check out our I've found a house section. We have all you need to know regarding basic checks you can do (at a minimum cost!) that will prepare you for making an offer.
Ways to buy a house
There are 3 main ways to buy a house:
These methods can be employed by both real estate agents on behalf of vendors or by the vendors themselves in private sale situations. To find out all about these methods - click on the links above for all you need to know about buying a house by auction, negotiation, and by tender.
How much should I pay for a house?
The house you are interested in may be marketed with or without a price - and the only thing a price indicates is the vendor's expectations. Whether these expectations are realistic, is for you to decide. You may think you have a good idea of what a house is worth, but it never hurts to do a bit more research.
If you want to get the experts in, a registered property valuation can be done and costs from $500. If there have been some sales in the area that you think were comparable, ring the listing agent. If the sales are now unconditional agents should be happy to tell you what the sale prices were.
If you want reliable house sale information Quoteable Value or QV has fantastic online resources. QV have a huge range of reports available, the most useful being:
- Local sales report - you can choose to get up to 30 of the most recent local sales (up to $27.95)
- e-valuer or comprehensive property report (which includes the e-valuer) $49.95 or $79.95
We recommend you buy a recent or local sales report from QV as this report will give you the addresses of a number of recent sales near your chosen address.
Take the report and go for a drive, note the differences you can see between the houses. Take into account, location, street appeal, exterior presentation and building type. The reports will give you floor area, age, rateable value, sale price and sale date, and you can use all this information to compare houses and to make up your mind about price.
The online 'valuer' reports do not give an accurate enough estimate of market value to be relied on, but they can be useful as they contain an 'all you need to know' range of information about a house which includes comparable sales, sales history and more.
QV has other information available about an address, some of which is free (aerial photos, school zoning and demographics). If you are after more - QV has a HUGE range of reports, for a variety of prices, so if you really want to delve deep, head here.
Sometimes the rateable value (government valuation of the house) has a strong relationship with price for an area i.e. in Palmerston North, in February 09, houses were selling within 1% of their rateable value. In areas like these, the rateable value can give you a good idea of price. But you should only use the rateable value in combination with other information, like your own experience or a registered valuation. You can find out rateable value information on your local council's website for free.
Before settling on a price, make sure you have done a second inspection and checked around the house again, as you may have missed something that significantly affects the value. Here is our second inspection checklist to help you out.
What is a 'sale and purchase agreement'?
The sale and purchase agreement is a contract between you and the vendor that agrees the details of the sale of a house.
A document called the 'Agreement for Sale and Purchase of Real Estate' is the generally accepted document to use. This document was created in a joint effort by the Real Estate Institute and Auckland District Law Society. Check the ADLSI Sample Forms to find about the latest version of this document.
The first page of the sale and purchase agreement outlines all the specifics regarding the property transaction that is being negotiated including:
- The vendor
- The purchaser
- Details of the property
- Details regarding the purchase price
- Possession date
- Some standard conditions (including finance and LIM)
- Tenancies
- Who is selling the property - real estate agent or private sale
The following pages of the agreement give the general terms of sale outlined in a number of clauses.
The last pages of the agreement provide an opportunity to add any other conditions (further terms of sale) and lists all the chattels included in the sale. In these last few pages is also the 'sign here' part.
The final page of the agreement has a handy list of things to check before signing the agreement and is where all the lawyers', and the real estate agents' (if applicable) details are added.
Who puts together the sale and purchase agreement?
The agreement is usually prepared by the real estate agent on behalf of the vendor. If it is a private sale, get your lawyer to prepare the agreement. You can actually prepare a sale and purchase agreement yourself!
You will need a copy of the most recent version of the 'Agreement for Sale and Purchase of Real Estate'. This document can be purchased from the ADLSI Online Shop.
You will also need the legal description of the property from the title document and appropriate wording for any conditions you would like to put in, but make sure you get your lawyer to check it over!
Should my lawyer be involved?
Yes! It is very important to have your lawyer check the title of the house before you even consider making an offer.
When you are in the process of making an offer, get your lawyer to look over the agreement before you sign it. Your lawyer can check it, and let you know if there is anything they think is of concern.
What conditions do I need?
Do you want to add conditions to your offer? Adding a condition means that a price can be negotiated, but the agreement to purchase the house will not be finalised until you have satisfied all your conditions. You can put anything as a condition, and you do not have to go through with the purchase of the house if any of your conditions are not met satisfactorily.
Good conditions to put in initial offers are any or all of:
It is important that the wording of each of conditions states that the results be satisfactory to you, then only you can decide if the condition has been satisfied.
You may also have a house to sell as a condition of sale - this needs to be carefully worded in the conditions. This sort of condition usually includes a 'cash out' or 'escape' clause. These clauses allow the vendor to keep marketing the house until you go unconditional. If they get another offer before this happens the vendor gives you a specified amount of time (as per the clause) to go unconditional (usually around 3 working days) or your offer will be considered cancelled.
Another condition that can be used is 'due diligence'. This clause covers all the standard conditions and more, and can be used when you have unusual or sensitive conditions to cover off.
What is the deposit? How much is it?
The deposit is usually 5-10% of the purchase price. This deposit is considered to be an indication of your seriousness as a purchaser and any real estate agent will encourage you to put down a 10% deposit.
As this is money you have to come up with out of your own pocket (you don't own the property yet so can't get a mortgage) or have to borrow at a higher interest rate (on a credit card or overdraft) then it is in your interest to make this amount as small as possible, 5% is always more then enough.
The deposit is due to be paid when/if the contract goes unconditional. It is paid into the real estate agent's trust account, or the vendor's lawyer's trust account if it is a private sale. Make sure the payment is made out to a trust account and cheques are crossed with 'Not Negotiable'.
The money is a reserve that is kept in case of problems, such as late settlement (where penalty interest payments to the vendor will be payable), it is also used to pay the real estate agent's commission. If you choose not to settle on the property the deposit is forfeited. There is a common misunderstanding that this is all that you will lose if you choose not to go ahead with a sale, this is not the case, the vendor has a legal right to make you uphold your side of the contract.
What is the possession/settlement date?
The possession date, usually the same as the settlement date, is the day that you will take possession of the house. It is also known as the settlement date because it is the day you pay for the house, and this process of transferring money is known as settlement.
This date can be determined by a number of things. Most often the vendor has a possession date in mind based on their situation i.e. the date they can move to a new house or the date of a work relocation. They may not be prepared to move on any other date.
When you are deciding on a possession date, you need to consider when you will be able to make the move i.e. do you need to give notice? It is always best to start with a possession date that suits you, if you are flexible, this can be a point of negotiation in the price; you may be able to agree on a lower price so that the vendor can set the possession date.
Alternatively, if the vendor has a set possession date, agreeing to this date can make your offer more attractive to them in a competitive offer situation. If you are flexible on the date, ask the agent what date the vendor wants and put this date in your offer.
If the possession and settlement dates are different for some reason, the implications of this should be carefully considered prior to finalising your agreement - for example you may need to agree an amount of rent if you are agreeing to take possession some time after settlement.
What happens now my offer has been made?
Once your offer is submitted it will either be accepted, rejected, or you will start negotiations with the vendor. It is usual for those negotiations to be handled by the agent and you should have any amendments to the contract approved by your lawyer.
Every time the contract form is amended and submitted to the other party it is, in law, the rejection of the previous offer and the making of a counter-offer. Only when the document is accepted without amendment and signed is a contract formed.
Sometimes it may take a long time for the agent to get back to you once they have left with the offer in hand. Make sure you follow up with them and ask for the offer to be withdrawn if this waiting doesn't suit. You can put a 'sunset' clause in a sale and purchase agreement which means that the vendor has a limited amount of time to either accept the offer or counter-sign.
