Category

Putting in an Offer

Thinking of buying off-plan?

antipodean living room

Q: We are about to put our home of twenty years on the market and are considering buying an apartment in the city off the plans. The block we are looking at will be finished in another 18 months so then we can decide whether to move in for a while or rent it out. What are your thoughts on buying off the plans and what are the risks? Julie & Bryan K.

A: Interestingly our partner company Loan Market recently published an article on this, so I have summarised this in my answer. Signing a contract for an apartment that is yet to be built can be a little daunting. After all, you’re handing over money for a property that hasn’t been built yet. Buying off the plan can be tricky but doing your homework can help prevent disappointment down the track. Here are some tips to help guide you through the process.

Firstly, researching the developer and their reputation is probably the most important step to determine whether to invest in a particular project. Reputation is everything, so research the work ethics and level of integrity of the property developing company. Definitely take a look around some of their previous projects and speak with owners (if you can) about how they feel about the company.

Next thing to research is the location. This is hugely important. If you are buying in the city then you will be fine for services such as transport and restaurants but just be sure to check that there are no new developments planned that might block your view or sun in the future.

The NZ Building Code should ensure that the building is properly built and weather-proof, and that you will have all the required safety and security features (fire alarms, etc.) but be sure to check that sound-proofing, the standard of finish, measurements, car parking etc. are all consistent with what is in the contract.

During the course of building, the developer may still have the right to modify the building plans so it’s paramount to go over the contract with a fine tooth comb and ensure the contract mitigates the risks involved in purchasing off the plan.

As always, seek the opinion of your solicitor before committing to paper, and always talk to a mortgage advisor re your finance.

What is a Multi-Offer?

Q: I put an offer on a property last week but was told that my offer was rejected in favour of one through another agent. Isn’t there some process to protect the buyer when two offers are received at the same time? Peter T.

A: This is what we call a multi-offer and the REINZ recommends a process to be followed in these cases. This process is intended to provide all interested parties with a fair opportunity to submit their best offer.

Firstly, your agent should advise you that you are in this situation and let you know how it will work, and have you sign a multi-offer form. For an agent to present you with a multi-offer form he MUST have more than one offer in writing. Signing the form protects you from being told that there is another offer on the table when there is not.

All offers must be presented to the seller at the same time, preferably by a neutral party such as an agency manager, so they can compare them and choose only ONE to either negotiate with, or to just sign and accept, so put your best foot forward right from the get go. Think about how much you want the property and how much it’s worth to you and base your offer on that.

Remember you are in a competitive situation: It’s like an auction but you don’t know where the competition is at and in most cases, you don’t have a chance to increase your offer – the best offer will win. This includes conditions as well – you should keep your offer as clean as possible so that is as attractive to the seller as possible.  Remember – there may not be a second chance!

Putting in an Offer

Q: I put an offer on a property last week but was told that my offer was rejected in favour of one through another agent. Isn’t there some process to protect the buyer when two offers are received at the same time? Peter T.

This is what we call a multi offer, and the REINZ recommends a process to be followed in these cases. All offers should be presented to the seller at the same time so they can compare them and choose only ONE to either negotiate with, or these days more likely to just accept. Firstly, your agent should advise you that you are in this situation and let you know how it will work. What you need to know is that it is unlikely that you will get a chance to negotiate with the seller, so put your best foot forward right from the get go. Think about how much you want the property and how much it’s worth to you and base your offer on that. Remember you are in a competitive situation: It’s like an auction but you don’t know where the competition is at and in most cases you don’t have a chance to increase your offer – the best offer will win. This includes conditions as well – you should keep your offer as clean as possible so that is as attractive to the seller as possible.  Remember – there may not be a second chance!


Q: What is the difference between using the Building Inspection clause on the front of the standard sale and purchase agreement, and inserting a building clause in the “additional clauses” section? Which would you recommend to a purchaser? Raewyn T.

Good question Raewyn. Firstly, there is no obligation to use the standard clause rather than your own ‘custom’ clause (which you can insert under Further Terms of Sale). Formerly your agent or solicitor would draft a clause to go in the further terms of the agreement and the terms of the clause could vary. The new standard clause (clause 9.3 in the agreement) is designed to protect both vendor and purchaser from possible misuse of a custom written clause. The main points are:

Written report required: The report must be in writing and must be provided to the vendor immediately should the purchaser decide to void the contract on the basis of the inspection. Note however, that the new clause does not give the vendor the option of rectifying any defects.

Suitably qualified builder: The clause states that the inspector must be suitably qualified, so no getting your mate to have a look over the property if they are not a qualified builder or building inspector.

Ability to cancel (objective test): The clause also states that the purchaser must decide whether the report is unsatisfactory on an objective assessment – that is, would any reasonable purchaser, on reading that report, have found it unsatisfactory? The answer must be yes to cancel validly.

So those are the main elements of the clause. Of course as a purchaser you may want to have any minor defects found to be rectified by the vendor, or even negotiate a price reduction, and you will still have that right. However as a seller you need to be aware that this clause does not give YOU the right to rectify unless the purchaser agrees.
If the above points don’t suit you are still at liberty to have clause 9.3 deleted and have your lawyer insert your own building inspection clause under Further Terms of Sale. You may want to do this because you have a friend who you feel is qualified to look over the property, rather than paying for a full building inspection. Or if you are a seller and you want the option to rectify any defects identified rather than having the purchaser being able to cancel the agreement automatically.

Whether you are buying or selling, as with all contracts, it is best to get your lawyer to check and explain the agreement to you to ensure you understand what you are signing and that your interests are protected.