Making An Offer

Essential checks before you make that offer!
Ways to buy a house
For sale by negotiation
For sale by tender
For sale by auction
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 you make that offer!
Make sure you have done some basic checks! Including:

For more information on what these checks involve, and more, 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 of cost!) that will prepare you for making an offer.

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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.

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For sale by negotiation
This is the most common sale method and also called 'sale by private treaty'. If you are interested in a house that is for sale 'by negotiation' you can have a sale and purchase agreement drafted up and presented to the vendor at any time. Houses for sale by this method are commonly advertised with a price and an invite for 'offers over' (or similar terminology).

With 'by negotiation' there is no closing date for offers and no need for offers to be unconditional. Your offer will be submitted to the vendor and the vendor will consider it, taking into account the price, settlement date and conditions. They may then reject it, accept it, or countersign - and the negotiations begin.

In most situations you will be the only one 'in negotiations' with the vendor. If this is not the case, the real estate agent (or the vendor - if it is a private sale) should make this clear. Often an agent will get you to sign a form acknowledging that you are in a competitive offer situation. If this is the case, you only have one chance, so have to put in your best offer.

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For sale by tender
When a house is sold by tender, any offers (tenders) for the property are made by a set date and time (the tender date) and can include conditions. The offers are all sealed (confidential) and are all opened after the close of the tender. The vendor can choose to accept any tender (not necessarily the highest one), reject all the tenders, or enter negotiations with one or more of the tenderers.

The tender process attempts to encourage a competitive offer situation with the tenderers all being unaware of what the other is offering. Sometimes the 'winning' tender can be far in excess of any other tenders. Properties for sale by tender are usually not marketed with a price. However, a recent trend is the 'tender reserve' where a guide as to the minimum amount acceptable to the vendor is advertised.

If you are interested in making a tender on a property, request a copy of the tender documents from the real estate agent. The tender documents usually include:

Never assume that the tender documents include all the relevant documentation with regard to a property. You still need to do your own checks.

If you want to make a tender, fill in the tender documents. The sale and purchase agreement will need to be completed including adding your details, the purchase price, the deposit amount, the settlement date and any conditions. There may also be other documents to sign i.e. acknowledgement that the sale is by tender.

It is very important to get your lawyer to look over completed tender documents. In most cases, the vendor will have added conditions and deleted standard clauses in the sale and purchase agreement. Your lawyer can tell you the implications of these changes and should also check the title.

After all these checks have been done, and you are happy to proceed, the tender can be submitted (usually to the real estate agents' offices), with a cheque for the deposit, before the tender closes.

Be aware of the fine print as some houses are advertised for sale by tender (unless sold prior), which means the vendor is open to offers before the tender date. In this situation, you can choose to approach the vendor early or wait to the tender date. Registering your interest in the property with the agent ensures that if an offer is being submitted prior to the tender date, you get a chance to put an offer in also.

With a tender situation you may be the only tender, or one of many. You may be able to gauge this by asking how many copies of the tender documents were sent out, or you can ask the agent - neither is a reliable method. The reality of a tender is that unless you have reliable information to the contrary, you have to assume you are in a competitive bidding situation and have to put in your best offer.

You should hear back within a couple of hours past the tender close time whether or not you have been successful. If you are, you now have a contract with the vendor and can start working through your conditions (if any). If you have not been successful, your deposit cheque will be returned.

If the vendor does not receive the price they want, they may choose to start negotiations. The submitters of the top tenders can be asked to re-submit a new offer, or negotiations can continue with one. This can mean that tender negotiations continue well past the tender date. If you do not hear within a few hours the result of the tender, contact the agent and discuss the situation. Make sure you are comfortable with what is going on. Ultimately, if the tender deadline has past, and the vendor is in negotiations with another party, your offer is now considered unaccepted and you are free to pursue other house purchase opportunities.

An open tender is a tender made available to anyone while a closed tender is where only selected individuals or companies are invited to submit a tender on the property. Open tenders are the most common form of tender used for the sale of private dwellings. Often the term 'closed tender' is used incorrectly - most commonly the intended meaning is that offers will not be accepted prior to the tender date.

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For sale by auction
Auctions are another common way to sell houses. Houses for sale by auction are rarely advertised with a price. Auctions are used when there is likely to be multiple interested parties, when the sale price is hard to gauge, or when an unconditional sale is needed.

The date and time for an auction is included with marketing for the property, and if you want to buy the house you just have to bid. You do not have to be at the auction in person, you can organise to bid over the phone, or you can send someone to bid on your behalf.

When you buy at auction you are buying unconditionally. This means that if you are the highest bidder, and the reserve is met, you have effectively made a cash offer that has been accepted and this is legally binding. If you are unable to make a cash offer, don't give up, if a property does not sell at auction, conditional offers will usually then be considered.

If you are planning on buying at auction, you need to make sure that all your conditions have been satisfied before you bid. Get your property valuation, building inspection, and your LIM, confirm your finance, get your lawyer to check the title and make sure you have done your personal inspections and research into the property.

Sounds painful! It is! Auctions are not for the faint hearted. By the time you are standing (or sitting) in front of that auctioneer you have probably already spent a fair bit of money on the house. It is very important to not let that affect your bidding. You need to set a budget and stick to it! Easier said then done when you already have an emotional and financial investment in the house. Perhaps someone bidding on your behalf is a better way to go...

Vendor bidding is something to be aware of when buying at auction. A vendor bid is when a representative of the vendor (usually the auctioneer) bids in an attempt to get the price up to the reserve. Even though an auctioneer will make it clear at the beginning about vendor bids, sometimes it is very hard to distinguish which bids the auctioneer is taking off people in the room and what bids are being made by the auctioneer. Vendor bids can only be made up to the reserve. Try not to bid against the vendor, this is basically bidding yourself up. Definitely do not bid against vendor bids above your budget!

If a property is 'passed in' at auction, it has not sold as it has not reached the reserve. The person who had the highest bid when this happened gets the first right to negotiate with the vendor.

Properties for sale by auction can also be sold prior (again, usually in the small print). If you are interested in the property, register this interest with the estate agent, that way if an offer is being submitted prior to the auction you can get a chance to put your offer in, turning the negotiations into a competitive offer situation.

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How much should I pay for a house?
The house you are interested in may be marketed with or without a price - the only thing the 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, there are some great online resources:

We recommend you buy a recent or local sales report from Zoodle or QV as these reports 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.

Both Zoodle and QV have other information available about an address, some of which is free (aerial photos, school zoning and demographics). Zoodle is a great user-friendly site, with well formatted reports, so it is much easier to find out what you want. 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.

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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 and is now in its 8th edition.

The first page of the sale and purchase agreement outlines all the specifics regarding the property transaction that is being negotiated including:

The following seven pages of the agreement give the general terms of sale, 14 clauses in all.

The next page of the agreement is an opportunity to add any other conditions (further terms of sale) and lists all the chattels included in the sale. This page is also the 'sign here' page.

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.

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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 'Agreement for Sale and Purchase of Real Estate' Version 8(2), 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!

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Should my lawyer be involved?
Yes! It is very important to have your lawyer to 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.

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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 you 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 is 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.

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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.

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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.

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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.

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