Monthly Archives

June 2017

What’s an Agency Agreement?

Last week we answered Diana’s question on why her home had not sold, and because we mentioned that it might be because she is using the wrong agent we thought we should tell you what is involved in a Sole Listing Agreement, and when and how you can cancel it. The real estate agent you choose to sell your house will ask you to sign an agency agreement.

This is a legally binding contract so make sure you read and understand it before signing. Your agent should also recommend that you take legal advice before signing.

Your agent must also give you a copy of the REAA  Agency Agreement Guide which explains your rights under the agreement.

If you use any of the major Auckland real estate brands you will most likely be signing an agreement that contains just the approved standard clauses – if your agent modifies the agreement in any way then definitely seek legal advice before signing.

Your agent must explain to you when the agency agreement will end.  Make sure you check the cancellation terms. These can vary from agency to agency.

A sole agency agreement gives one agent or agency the exclusive right to market and arrange the sale of your property. If you sign a sole agency agreement you should not sign another agency agreement with any

other agent until you have cancelled the first agreement.  If you do, you may have to pay all agents a commission,  regardless of which one arranged the sale.

If the sole agency agreement is for a residential property and for a term longer than 90 days, the client or the agent can cancel the agreement at any time after 90  days.

Make sure you check what happens when the sole agency agreement is cancelled. Some sole agency agreements become general agency agreements when cancelled – this means that you will also have to cancel the general agency agreement if you no longer want to work with the agency.

When a sole agency agreement is cancelled your agent must give you a list of people they have introduced.

If you sell to one of these people, the agent may be entitled to a commission.

If you change your mind after signing a sole agency agreement you can cancel it by 5.00pm on the first working day after you have been given a copy. This must be done in writing ie, letter, email or fax.

However, if an agent carries out any work before the agreement is cancelled and that work results in the sale of the property after the agreement is cancelled, the agency agreement will be legally binding and you will have to pay that agent commission.

Why isn’t my Home Selling?

Q: We put our home on the market 3 months  ago (auction) and had no bids. Since then we  have put a price on it but we haven’t received  one written offer. Our agent is a lovely lady but  we just don’t seem to be getting anywhere.

Any suggestions? Diana C.

A: There is nothing as frustrating for a home seller as their home not selling, and I’m sure your agent feels the same way too!

There are a number of possible reasons, but the most obvious is price. If you have been through an auction campaign and had feedback at say $1m  and you are holding out for $1.2m then maybe that’s your problem, especially if the market is

not on the rise. We are often confronted with a  potential seller who has based their price on what the house owes them, or what a neighbour’s  property sold for. The sale price is determined by the buyer, not the seller I’m afraid.

Another reason can be your choice of agent.  There is no doubt that a good agent will get you a better price than an average agent, and in a  tough market such as we have now, this is even truer. We have written before about choosing the right agent for you, and as we say, it’s even more important in the current market. Make sure you have good rapport certainly, but also check their listings to sales ratio: How many properties  have you taken to market this year, and what percentage of them have sold? Over 80% or 90%  is good.

There may be a whole raft of other reasons you are still on the market. People will tell you that presentation makes a big difference, and it does.  But price will always trump any other reason:

If your home needs a $100,000 makeover then it will be reflected in the price. Drop the price by $100k and you will very likely sell. If you want to spend the $100k doing the makeover you may find it easier to sell, but not necessarily for an extra $100k!

We’re sorry you haven’t managed to find your buyer, but keep an open mind and think hard about what you are willing to accept in order to move on.

Next week we will talk about what your rights are in terms of a listing with a sole agency.

What is a Final Inspection?

Q: I purchased a house at auction last week.  I have been told I have the right to a ‘final inspection’. What does that mean exactly?  Alison M.

A: Congratulations on your purchase! Yes, you have the right to inspect your new home prior to taking possession at settlement (when the exchange of funds and the title takes place). The final inspection entitles you to look through the property to ensure that it is ‘as inspected’ i.e. it is in the same condition as when you last saw it, excluding reasonable wear and tear, before bidding at the auction or having your offer go unconditional.

What this highlights is that you should be very sure of what you are buying before making an offer or bidding at auction. We strongly suggest you have a building inspection to be sure that you have identified any issues of concern. If there is a hole in the carpet that has been covered with a rug, or a hole in the wall behind a painting, you need pre-settlement inspection the pre-settlement inspection. Unless you can prove that it was not  there when you inspected the property then there is  no come-back for you.

A few things to consider:

Anything that has not been excluded as a chattel  should be in good working order: We suggest that  you check that all the lights work, and that any  included appliances (stove, dishwasher, waste  disposal etc.) are all in working order. A competent  real estate agent will have noted on the Sale and  Purchase agreement that any chattels that are not  working are either specifically excluded from the  chattels list, or are noted as “not in working order”.

Under NZ law the property does not have to be  cleaned prior to settlement but should not have  rubbish left on or in the premises – so it doesn’t  have to be ‘clean’ but it does have to be ‘tidy’. So  if, for example, you notice a pile of old bricks under  the house when you are looking through before buying, be sure to mention to the real estate agent  that you expect them to be gone by settlement – the  last thing anyone wants is a last minute dispute  when you are about to take possession and move in.

As always, be sure to seek professional advice when buying a property, and we’d just like to re-iterate that a building inspection is a really worthwhile investment.

Enjoy your new home!

Can you trust on-line valuations?

Q: We are looking at buying, but find it really hard to get a price indication on auction or  ‘by neg’ properties. How accurate is it to use  the CV of an online estimate of the sale price?  Julie and Bruce

A: Didn’t your mother ever tell you “Don’t believe everything you read online”! There are some real problems with online valuations. No-one  has actually looked at the property. Basically the estimate is the result of a computer algorithm and doesn’t take into account interior condition,  renovations, aspect, charm or just the general feel of the home. The Auckland property market moves rapidly, and online estimates are based on historic data of settled sales – sales that settled in the past month may have actually sold  at auction several months earlier so the sale price is way out of date.

Remember too that there is more than one price for a home: It will be a different value for a buyer who wants to make it their home versus an investor. It may be worth more to you if it’s close to family, or in a school zone that you particularly want. These are the kind of factors that can lead to one buyer paying much more than another.

We have written before that we bought our apartment for just under $1m. Would we care if we had paid just over a million? Not at all. It just doesn’t matter in the scheme of things as long as you get the home you want and you are going to live in for the medium to long term.

We see online valuations that are both too low and too high. Don’t let an online valuation pressure you into paying more than you think it’s worth to you. It is your opinion of value that counts, not a computers!

When you find a home that you really think will work for you, our very strong recommendation is to do your own in-depth research on sales in the area. Take the time to visit other open homes nearby and ask the agents what they think. By all means look up the values online, after all, the more information you have the better, but don’t  let a computer-generated valuation stop you fro trusting your instinct and getting the home of your dreams.

Does a Sleep-Out Add Value?

Q: Hi Steve and Lisa. We have bought a  property in South Auckland as an investment and have noticed a few of properties in our area have sleep-outs in their backyards. This seems to us to be a great way of adding rental income to our investment. Is it worthwhile, does it add capital value, and how do we go about it?

A: A minor dwelling (or sleep-out) is a second unit built on the same title, detached from the primary residence. It has its own bedrooms, bathroom,  kitchen, separate water and electricity meter.

The average size of a minor dwelling is 60-65sqm,  and varies depending on the zone you’re living in.  Adding a sleep-out to your home property can be a cost-effective way to provide a home for elderly relatives or older children struggling with rising rent. It can also be a great way for investors to generate extra cash flow through rental income and increase the property’s overall value.

With rental yields of anywhere between $200 and $600 a week, sleep-outs can be a great strategy if you’re looking for a long-term return on investment. Not only that, but a sleep-out can make your property a far more attractive option and stand out from the competition when it comes to selling.

In terms of how to go about it, the first stop is your council. If you are adding a building of more than 10m2 then you will need building consent (and 10m2 is too small for a sleep-out!)  Regulations regarding what size your minor dwelling can be will vary from council to council so be sure to check before you buy. Once you know what you can fit on your land then Google  “minor dwellings NZ” and you will see that there are plenty of options. By law, sleep-outs must comply with both the Building Code of  New Zealand and any relevant NZ standards, so go to a reputable company to ensure you will be fully compliant. Useful information can be found at www.building.govt.nz as well as on your local regional or city council website.

Just one word of warning though: A sleep-out that isn’t in keeping with the design of the existing property or encroaches too much on the garden may actually end up devaluing the property, so use common sense and install something that fits your property.

Pools

Q: Hi guys, even though we didn’t really have a summer this year we are seriously considering putting in a pool for next summer.  We were a bit taken aback at the price so just want to know if it is going to add value when we eventually sell. Can you help? Thanks, Jan and Don W.

A: Firstly, adding a pool will not always add value.  On occasion we get buyers who see the pool as a detriment rather than attribute to a home.

In general though, a pool is likely to be an advantage at sale time, but it has to be done well so it doesn’t detract from the appeal of the home.

Pools are often considered statement pieces and should always add aesthetic value – in other words, they need to look good and fit with the general style and feel of the home. Pools should complement a property, rather than take attention away from it.

The best pools are almost an extension of the house, making them visible from living rooms and other areas within the home and bringing that all important ‘indoor-outdoor flow’ to your home. Glass fencing looks fantastic and doesn’t visually  interfere with the outdoor flow, but it can be  expensive so be sure to get a quotation for the  whole installation before ‘jumping in’(pun intended!)

Another factor to take into consideration is whether the project will over-capitalise your home. Remember, you can always ask a good real estate agent to come around to give you their opinion of value before and after – a second opinion can sometimes save you money and heartache.

When it comes to selling, remember that while it  can be aesthetically appealing and can enhance  the value of a home, a neglected pool can do the opposite, so make sure the pool is vacuumed, the  water crystal clear and clear of leaves and other  debris when it comes to going to market and  having your open homes.

For buyers looking to purchase a home with  a pool, make sure the real estate salesperson  shows you documentation to ensure the pool and fencing is fully compliant with council regulations.

 

Sale & Purchase Agreements

Q: What are the implications of making a conditional offer on a property, and what conditions are available to us? Jeremy P.

A: What a great question Jeremy! This is a big subject so we will answer in ‘instalments’ over the next few weeks. Firstly, the more conditions there are in an offer to purchase property, the less attractive that offer will be to a vendor.  Vendors have a natural aversion to contracts with many conditions because each condition introduces more opportunity for the purchaser to cancel the contract and therefore more risk to the vendor that the sale will not proceed. So if you are in a competitive (multi-offer) situation then you either need to be offering a good price or have as few conditions as possible. The three most common conditions are listed on the front page of the sale and purchase agreement (9th edition): Finance, LIM and building inspection. (It also includes OIA Consent. This is seldom used and applies to foreign buyers purchasing ‘sensitive’ land – and that’s a whole other subject!) And there is then the option to insert conditions in the Further Terms of Sale towards the end of the agreement. These are probably the conditions that you will be more interested in – things such as Due Diligence, Back-up agreement, Escape clause, sale of purchaser’s property, etc. There are plenty of them!

Before we get into what the various clauses mean, just be aware (just stating the obvious here!) any conditions that you put in the agreement are intended to be fulfilled: clause 9.8 (2) of the agreement requires purchasers to “do all things that may reasonably be necessary to enable the condition to be fulfilled by the date for fulfilment.” So if you put in a subject to finance clause (more on that next week) that means you are expected to at least seek finance from banks and other lenders. If the vendor can show that you haven’t done that you cannot exit the agreement because ‘I haven’t managed to get my finance’.

We will go through a few of them over the next few weeks, starting with the common ones.

So let’s start with finance. This is one condition that some think is a bit of a catch-all for buyers to almost indiscriminately exit from a contract. But according to clause 9.8 (2) (“the party for whose benefit the condition has been included shall do all things which may reasonably be necessary to enable the condition to be fulfilled…”) the purchasers must seek finance from banks and other lenders. As we say, some think this is an easy way out of a contract but recent court rulings, where the purchasers have made no attempt to secure finance, have resulted in the purchasers having to pay (sometimes considerable) costs to the vendor.

The finance condition is usually entered under Conditions on the front page of the agreement. Here you enter the Lender (you don’t need to nominate a lender, you can put “purchaser’s choice” if you prefer. If you don’t want to disclose how much you are borrowing you can enter “sufficient to complete” under Amount Required. Finally, under Finance Date you may decide to put an actual date (perhaps your preferred unconditional date), or a number of working days (usually three to five) – your real estate agent will help you here.

Incidentally, under Clause 9.8 (6) “At any time before this agreement is avoided, the purchaser may waive the finance condition…”. This means that if your finance comes through prior to the finance date you can tell the vendor or his agent that the condition is satisfied; you don’t have to wait for the time stipulated under the finance clause.

Next week we will cover off the LIM clause. This is an interesting one as it can be quite complicated.

As always, please seek legal advice BEFORE you sign a sale and purchase agreement – whether you are buying or selling.

We covered finance last time, so now we would like to go over another well-used clause: The sale being conditional on your acceptance of the LIM (Land Information Memorandum). In our opinion it is essential for you and/or your lawyer to view the LIM prior to purchase – the reasons for this will be the subject of another article at a later date.

You have two choices when including a LIM condition in the contract: You can use the clause on the front page of the contract, or you can insert your own clause under Further Terms of Sale.

Inserting your own clause gives you plenty of flexibility of course, so let’s look at what the standard front-page clause means to a prospective buyer.

When you ask for the LIM using this clause you have a total of 15 working days in which to order and examine the LIM. The 15 days includes up to 5 working days to order the LIM, and then another 10 days in which to review it. If there is anything that you are unhappy with in the LIM “on reasonable grounds” then you need to advise the seller and/or his solicitor exactly what it is, in writing, within the 15 working days – failure to do this will result in the clause being taken as satisfied. The vendor then has the right to give notice of their intention to remedy within 5 working days of receipt of the notice. The issue(s) must then be remedied by settlement date (the date at which you take possession of the property) otherwise the agreement will be cancelled.

If they won’t or can’t remedy the issue(s) then, again, the agreement is null and void, and your deposit, if any, must be refunded to you.

As with any legal agreement be sure to get legal advice before signing and make sure your solicitor checks the LIM thoroughly for you.