Cash buyers and cash offers are two very different things but these terms are quite often used in the house buying process so it is a good idea to know what they mean.
A ‘cash buyer’ is a buyer with the ability to make a ‘cash offer’. House buyers often refer to themselves as ‘cash buyers’ when they:
Have ‘cash’ i.e. have money in the bank and don’t need to get a mortgage, or
Have pre-approval from their bank for lending and will not need to sell an existing house in order to buy a new one (i.e. will not need a house sale condition).
But! Many ‘cash buyers’ will never end up making a cash offer… So what is a ‘cash offer’?
If you make an offer with no conditions (an unconditional offer) then you are making a ‘cash offer’. It is not recommended that you make a cash offer unless you have completed all your due diligence regarding a house (i.e. know what you are getting into!). Due diligence can include, but is not limited to, a property valuation, building inspection, LIM, and making sure you have finance approved for that particular house for the price you are offering i.e. all the stuff that you would normally have as a condition…
Once a cash offer is accepted you have ‘gone unconditional’, skipping the period between ‘under offer’ and ‘gone unconditional’ that exists when a conditional offer is accepted. If you make a cash offer and it is accepted you have now bought a house and on the possession/settlement date you will be required to have the funds to complete the purchase.
So you may be a cash buyer – but will you ever make a cash offer? That is for you to decide…
Need to find out more about financing and making an offer – check out our Mortgages and Money section and the Propertytoolbox House Buying Guide.
You are putting an offer in on a house, the sale and purchase agreement has been drawn up (usually by the real estate agent) it is time to sign - for your own peace of mind check that the sale and purchase agreement is correct.
Your Sale and Purchase Agreement Checklist
Date - is the agreement dated correctly (at the top).
Purchaser – The name(s) of the person(s) purchasing the house.
Property - The Address, Estate, and Legal Description of the property – these should be the same as on the title document which can be provided (and checked) by your lawyer.
Deposit - The deposit amount - these are funds that you must have available to pay if/when the contract becomes unconditional.
Possession - Check that this date (the date you want to take over ownership of the property) is correct.
Conditions - Check these are correct and agreeable to you.
Tenancies – Check to see if there are any
Futher Terms of Sale - These are also referred to as 'Conditions'. Check that any conditions you require are present, are worded correctly, and are agreeable to you.
Schedule 1 (Chattels) - Are these what you expect to be included - is anything crossed off or excluded.
Check that all the pages of the agreement are present
Check that no clauses in the agreement have been crossed out - if they have - find out the reasons and the implications.
Check that all the pages and amendments have been initialled.
Who is the Purchaser on the Sale and Purchase Agreement?
Be careful when checking the name of the purchaser(s). You need to correctly name all of the people who will be owners of the property. These names can be people, company’s or trusts.
If you are unsure who the purchaser of the property is going to be – you can add ‘or nominee’ after the purchasers name (i.e. John Smith or Nominee) – this gives you scope to change the name.
It really is best to know exactly who/what is going to be purchasing the property when filling in the sale and purchase agreement. Remember any change to the contract – even a change to the name is considered countersigning.
Adding Conditions to Your Sale and Purchase Agreement
There can be conditions added to the sale and purchase agreement in both the 'Conditions' section on the first page and the Further Terms of Sale section later on in the document.
The 'Conditions' section provides a structure to the way in which the conditions are dealt with in the body of the agreement. Any conditions that are specified in the 'Further Terms of Sale' section can be drafted to meet your requirements - which is often preferable.
Tenancies Noted on the Sale and Purchase Agreement
Tenancies can be an issue – if the property is tenanted check to see what the tenants lease agreement is. If they have a fixed term tenancy they have a legal right to live in the house until the end of the fixed term.
If it is a periodic tenancy – 42 days notice needs to be given to the tenants (if you, or your family) are going to move in. For more info on tenancies check out the tenancy services website.
Check With Your Property Lawyer
It is always best, and we highly recommend, sending your sale and purchase agreement to your lawyer to look over before you sign. Especially if there is some unusual conditions, sections crossed out or anything you are unsure about or have questions about - run them past your property lawyer.
Are You Ready to Sign?
When you have finished checking have one final think - have you done all you possibly can to assure yourself that you know what you are signing?
Are you feeling pressured? Don’t worry about taking a bit more time to do some more checks and research. Don’t sign until you are assured that you know what you are committing to.
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The Propertytoolbox Home Buyers Guide
For all you need to know about making an offer on a house – check out the Propertytoolbox house buying guide.
Making an offer on a house is quite often done too quickly and not enough is known about the kind of commitment you are about to make.
An offer on a house quickly turns into a legally binding contract – you need to be aware of this – you will not be able to get out of a contract once it goes unconditional – so make sure you know what you are doing when you make an offer!
Making an Offer - the Highlights
In the Propertytoolbox Blog we have often delved into the subject of making an offer - here are our highlights:
A sunset clause is a condition that can be included by you or by the vendor in a sale and purchase agreement. They are not commonly used, but can be useful. In this article ‘Sunset clauses – What are they?’ we go over why and when you may want to use a sunset clause – and why the vendor may have included a sunset clause.
3. All About Countersigning
Countersigning is common – a very large proportion of house purchase negotiations involve haggling on price and conditions – and therefore will involve countersigning – especially in today’s market. This is actually one of the most common questions we get here at Propertytoolbox. So find out all about it in our ‘What is countersigning’ article.
There are a number of reason sunset clauses are put into sale and purchase agreements - the most common being to put pressure on the vendor to make a decision about your offer, or to ensure you can continue to house hunt, and put offers on houses, if an offer you have submitted is not accepted or rejected within a reasonable timeframe i.e. about 2 days.
If you don’t have a sunset clause your offer remains current until accepted or rejected by the vendor. This can be painful as you may miss out on other opportunities – or you could find yourself having multiple offers accepted if you continue to make offers on other houses assuming old offers were rejected.
When to Use a Sunset Clause
Putting a sunset clause on a sale and purchase agreement is not often done but is a good idea when you want an answer to your offer quickly for whatever reason and especially in tender situations – where your offer may be kept ‘on hold’ until negotiations with someone else are finalised.
How Long Should a Sunset Clause Be?
A good amount of time to make a sunset clause for is approximately 2 working days – with the clause expiring at 4pm on the second day – allowing for paperwork to be processed before close of business if the offer is accepted at the last minute.
If you are making an offer late in the week, try to make sure the sunset clause expires before the open home crowd descends on your potential home on the Sunday – you may not want the competition!
Leveraging the Sunset Clause
The sunset clause gives you some degree of control over the timing of the offer acceptance or negotiations. If the sale and purchase agreement expires – it is not the end - you can always offer again, or extend the sunset clause on the same (or amended) agreement if you want.
If the agreement is accepted after the sunset clause expires, the offer has expired, and no legally binding agreement has been entered into. In this case it is up to you whether or not you want to proceed. You can choose to accept the original agreement or you can resubmit the offer with some changes suitable to you.
Vendors and Sunset Clauses
Sometimes the vendor may put a sunset clause in the sale and purchase agreement – if this is the case – it really pays to get your lawyer to look over it and to explain the implications of the clause.
Sunset Clauses - Get Your Property Lawyers Advice
Don’t forget - like any clause you put in your sale and purchase agreements – whether it is being put in by you or the vendor – get it checked over by your property lawyer!
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The Propertytoolbox Home Buyers Guide
After some more great home buying advice – don’t forget to check out our home buying guide!
Your LIM Report has arrived from your local council for the house you are looking to buy – now what! There is a lot of information in a LIM Report and knowing what to look for, knowing what it serious and what is minor, and wondering what is missing can make assessing the LIM Report a daunting task – you went to the time and effort of getting it – make the most of it.
Getting a LIM Report
You may have ordered your LIM as part of working through your conditions on an agreed sale and purchase agreement, or you may not have agreed the sale yet - the house may be for sale by auction or tender and you feel that a LIM is important to have before deciding on a price for the house – whatever the reason - the LIM Report needs to be gone over carefully.
Looking Over Your LIM Report
Read through the summary pages – potential issues are likely to be obvious here. Then dive into the main contents of the LIM. Look for outstanding financial obligations, resource consents, building permits, and related plans. Check that all issued consents have been signed off. For building work from 1992 onwards, check that a code of compliance certificate has been issued for works completed.
Take your personal knowledge of the property, its buildings, retaining walls, land use and the surrounding properties and the area and consider that against the information contained in the LIM. You should ask questions of the seller and the council if you find differences.
Getting Expert Help With the LIM Report Analysis
It is always a good idea to look over the LIM report with your lawyer when you receive it. Your lawyer’s experience and expertise regarding LIMs, combined with your knowledge of the property and your thoughts on what you intend to do with the property, will ensure that the LIM is understood and the full implications of any aspects of the LIM are realised.
Get additional expert help from a valuer or builder (the councils ‘on duty’ building officer is a great free resource), or any other relevant professional if you feel you need it to get the full picture.
What To Do With the LIM Report Results
Consider what impact the findings of the LIM report will have on your enjoyment of the property and the value of the property before you make your decision on whether this is the house for you.
Last blog post we talked about just what a tender is.This post is all about putting in a tender. Next post we give you an insight to after the tender.
Thinking of Making a Tender on a House?
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 can include any or all of:
Never assume that the tender documents include all the relevant documentation with regard to a property. You still need to do your own house buying checks.
Ready to Put in a Tender?
If you have done all your checks, your happy, and you have decided you are going ahead with the tender, read all the tender documents carefully, and fill them in.
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.
Get in Touch with Your Bank or Mortgage Broker
This is also a good time to run the details of the property you are interested in past your bank or mortgage broker. There may be some issues with the property that could affect the amount a bank is prepared to lend i.e. its condition, title type, location etc.
This can be quickly checked. It is always good to have some mortgage advice at this point and a good mortgage broker, or personal banker can help – take advantage of free advice from a mortgage broker!
Conditions in Your Tender
Deciding on conditions to have in your tender can be difficult. A condition free tender (a cash tender) is always going to be more attractive then a conditional tender if the money is approximately the same.
A tender process often gives you time to work through all your potential conditions prior to the tender date i.e. you can get a building inspection, valuation, LIM, and confirm you finance etc, but whether or not you choose to do this is up to you. Propertytoolbox has a few thoughts on the subject of conditional vs cash offers here.
Help with Your Tender From Your Property Lawyer
It is very important to get your property lawyer or conveyancer to look over the tender documents. In most cases, the vendor will have added conditions and deleted standard clauses in the sale and purchase agreement.
Your property lawyer can tell you the implications of these changes, change the wording of the tender conditions if necessary, add any of your own conditions and check the title.
Done all Your Checks? Time to Submit Your Tender
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. You will get a receipt to confirm that your tender documents & deposit were submitted.
Working Out Your Chances of Winning the Tender
With a tender situation you may be the only tender, or one of many. You may be able to gauge this by asking the real estate agents office 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.
Houses Sold Prior to Tender
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.
The first thing you need to do when your building inspection identifies a problem is to work out how serious the problem is – a good person to question initially is the person who did your building inspection – you need to make sure that you fully understand the problem that they have identified.
Building Inspection Problem? Get a Specialist Building Advice
A building inspector is not an expert in all aspects of building so if a particular problem has been identified and the building inspector has indicated that they cannot tell you the extent of the problem or the cost to fix - it is best to speak to, or get quotes from, an expert in the area.
Say the piles are a problem – speak to a replier – they will be able to assess the extent of the problem and give you a quote for the remedial work.
Now you are in a position to start making decisions depending on your situation...
You are now legally entitled to cancel the agreement. To do this you tell your lawyer, and usually the real estate agent that you are not going unconditional based on an unsatisfactory building inspection. This can be a very hard decision to make as by this stage you have invested time, money, and emotion in the house, but in many cases it is the best decision.
You can re-negotiation the price of the house with the vendor. Go into negotiations with quotes for remedial work in hand – and bargain hard! Don't forget, it always pays to budget for some extras!
You can ask the vendor to fix what is wrong before you buy the house. Especially if the problem is fairly easy to fix i.e. a few hours work by a plumber or electrician this is often a good solution. If the problem is major – the vendor will rarely agree to fix it.
You may still be happy to proceed with purchasing the house at the agreed price - and you still can. Perhaps none of what was identified in the building inspection is a surprise, or you now know why the house was a reasonable price from the beginning! Before proceeding double check your numbers, make sure you are happy with the amount you are going to have to pay in repairs and renovation, and add a contingency of at least 10%.
If you and the vendor come to an agreement that involves the vendor having to complete work, or the price changes, or anything else at all, this needs to be formalised in the sale and purchase agreement by your lawyer.
Even if the work agreed is small (i.e. rubbish removal or repairing flashing) and seems insignificant to include – the reality is that it will not be done unless the vendor commits to it via the sale and purchase agreement.
I Haven’t Started Price Negotiations
If you have obtained this building inspection before even beginning negotiations on a house that you are interested in you have similar options:
You can walk away – the house is not suitable anymore – move on!
You can start price negotiations fully armed with exactly what is going on with the house. This is a much stronger bargaining position then if a price had already been agreed and a reduction was being negotiated. It is hard for people to comprehend that seemly overnight their house price has decreased significantly.
You can start negotiations from the beginning with a condition that lists things for the vendor to fix before you will settle on the house – again, if the problems are extensive - this can be a very short negotiation!
Sometimes the extent of the remedial work needed to fix a problem identified by a building inspection can not be worked out exactly by a ‘surface only’ examination by a building inspector or tradesman i.e. extent of rot given evidence of rotten weatherboards.
In these situations you will only be able to get an estimate of the cost of fixing – as a lot will depend on the extent of the problem and this will only be known when the remedial work starts.
It is up to you here to make a decision based on how much of a risk you want to take! In these cases, if you are not comfortable with what can potentially be an unknown, and large, expense it is best to walk away.
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The Propertytoolbox Home Buyers Guide
The information you have just read about building inspection problems has been added to the Propertytoolbox house buying guide - An essential resource for house buyers in New Zealand. Find out more about house buying in New Zealand here.
