Buying a house can be very frustrating especially when it’s your first time. And when it comes to presenting an offer to a vendor, less is obviously more. But with increasing risk aversion, pressure on lending and an insurance industry in turmoil, it is becoming more and more difficult to offer unconditionally. This month, we look at the ways each party in a transaction views conditions, and how to make a conditional offer look attractive to a vendor.
If a purchaser hasn’t had the time to gain a pre-approval for finance, or has conditions associated with the finance (e.g. a valuation), it will be necessary to insert a finance condition. From the purchaser’s point of view, they are simply going through a process to secure mortgage finance but for a vendor, a finance condition poses a risk and demonstrates a lack of commitment to the process.
Here are a few simple ways to make your finance condition less threatening.
- Partner with your agent. We know there is a perception of mistrust in the industry but working with your agent to help provide context to your clause and humanize your offer is one of the most beneficial things you can do, especially in a multi offer situation. Let your agent know where you are at in the process, and what if any conditions are associated with securing the finance. If your bank simply requires a review of the signed agreement, your condition is infinitely more appealing than one which is subject to valuation or a building report.
- Do not list the conditions of finance, such as valuation, as separate conditions. Multiple conditions make your offer unappealing and as one is a condition of the other, a finance clause is an all-encompassing representation of such.
- Reduce your number of days to confirm the condition. Less days = less risk for a vendor.
Many vendors will choose to commission a building report prior to coming to the market. In most circumstances this will be provided to purchasers as a courtesy reference, but purchasers are always advised to complete their own due diligence.
A purchaser offering subject to a building condition is simply reassuring themselves that the property they intend to purchase does not have any major issues. But from the vendor’s perspective, it is viewed as a reason to renegotiate the agreed purchase price or pull out of the contract.
If you intend to offer subject to a building condition
- Insert as a condition in the further term of sale vs. the general terms clause noted on page one. This clause has a condition length of ten working days which takes the property off the market, losing momentum, for too long. A building condition can be easily satisfied within five days
- Show commitment to the process by penciling in your building inspector for the next working day and communicate this to your agent
Where a LIM report has been provided up front, a vendor will view a LIM clause as a lack of commitment to the process. If you have come in late to the party, and your solicitor has not had time to review the LIM, ensure your condition length is no longer than necessary. Two days is ample time for a LIM to be reviewed and the condition confirmed, and provided that the vendor is confident that there are no curve balls in the LIM, a LIM condition is unlikely to be cause for concern.
Insurance is becoming increasingly sticky with some properties (and some areas) proving more difficult to secure insurance on than others. While a vendor may assume that because they have insurance the property will automatically be reinsured by the same company, this is not always the case. It is for this reason that an insurance clause is now often included in the further terms of sale.
If you are looking to offer on a property and the vendor has provide a certificate of currency in the information pack it is should be relatively easy to call around and secure an offer for insurance prior to submitting your offer. If you have been successful in doing so, and you have written confirmation from the insurance company that it is ok to remove the clause prior to offering – definitely do this.
This all-encompassing clause poses great risk to a vendor as it is non-specific and, in more cases than not, overly lengthy. To be honest, unless a vendor is provided with little other option, a due diligence clause is unlikely to be viewed favourably. The best way to make a due diligence clause more attractive is to be specific about what your clause is likely to encompass e.g. finance, builders etc. And then reduce the length of the clause to no more than five days.
Subject to sale
It has been a while since offers submitted subject to sale were in with a chance of being accepted. But in a soft market, for properties which have not successfully generated multiple offers, it is once again possible to offer with this clause. In order to make it attractive to the vendor:
- Ensure the listing agent of the property you are offering on has completed an appraisal of your home so that they can reassure the vendor of the quality and likelihood of the sale going through
- Ensure you can come to the market within no more than two weeks of the offer being accepted, faster if at all possible
- Accept that the vendor may insert a cash out clause which will provide you with a set timeframe to accept an unconditional offer on your own property
In the case of offers on high value homes, offers subject to sale becoming increasingly common.
Any offer submitted on a given property will be viewed in its entirety with purchase price the most important consideration of any offer. The preferred settlement date is often a close second. It may be that your offer is highly conditional, but the purchase price you have submitted is worth the risk. Therefore, ensuring that you have put your best foot forward with regards to price will always put you in a better position when having your conditional offer accepted.
The Wellington Market
Stock levels are unseasonably low and anecdotal evidence points to a tightly held market heading through to the end of 2019. As mentioned before the gap between well-presented homes and those requiring work continues to be highlighted, not only by price but also days on market as they push out to an average of thirty-five.
Properties with likely market ranges between $700-$800’s are generating the most interested with investors back and keen to look at properties producing a positive yield.
WELLINGTON MARKET QUICK FACTS
Average sale price by Ward:
What’s on this October in Wellington:
School Holiday Fun, Te Papa, 55 Cable St, Wellington
Jump into the fun at Te Papa this school holidays with our free activities for little ones. These whānau-friendly events are for children accompanied by adults.
The Emergency Services Expo is back by popular demand, The Royal New Zealand Ballet Whānau Day features dancers in a daily warm-up, learn some new dance steps, explore the art of mime, and get a taste for their new production Hansel & Gretel.
An Evening For Foodies & Film Buffs, The Weta Cave, 1 Weka St, Miramar, Wellington
A special evening of inspiring stories and fine food awaits…
Enjoy a journey through 25 years of creativity with two film effects tours which will get you up close to mesmerising miniatures, props, weapons, armour, creatures, and more. Once you’ve worked up an appetite you’ll be transported to Coco at the Roxy to dine among incredible artworks, movie memorabilia, and sculptures.
Includes: Return transfers from central Wellington, 2 guided tours, 3-course dinner, drink & special gift.
World of WearableArt Awards Show 2019, TSB Arena, Queens Wharf, Wellington
This year World of WearableArt invite you to journey out of this world to a breathtaking world of creativity! Explore the beauty and grandeur of a frozen land, dive into hidden realms where ancient monuments are waiting to be revealed and experience surreal landscapes that unfold before you.
No two years are ever the same with the World of WearableArt Awards Show. Prepare to journey out of this world in 2019.
If you, or anyone you know, could benefit from a considered market assessment by Wellington’s only licensed agent and registered property valuer, please do not hesitate to call. We are always happy to help.