Archive for the 'Real Estate Terms' Category

Beware of Asking Price Statistics

I am very wary of real estate statistics based on asking prices. As we all know, you can ask whatever price you want, but a sale will only take place when a willing seller reaches agreement with a willing buyer. This is virtually the definition of current market value. An asking price might be ridiculously high and distort the stats.

Asking prices are usually high in a bullish market such as in Auckland currently, and some sellers get lucky. In a more static market such as ours currently, sellers are going to miss opportunities of a good fair sale if they have a high asking price. The average margin between asking prices and sale prices would therefore be different in a bull market and a bear market.

How do these “Asking Price Statisticians” deal with auctions, tenders, offers over, buyer enquiry ranges etc etc?

I heard a DJ on a reputable radio station say this week that the residential real estate boom is not just happening in Auckland and Christchurch. It is happening right throughout New Zealand. This is simply not true, and will misinform the public. He was basing his comment on “Asking Price Statistics!”

Kind regards
Michael Ford

Depth Table Principles

Valuers use depth tables when valuing land, and the same principles apply to retail floor space. The concept is that the land closest to the frontage is more valuable than the land closest to the rear boundary, and that after a standard depth for that location, the value of the “surplus” rear land drops significantly. There are a number of depth tables with different 100% or standard depths. For example, the Jerrett 40m, Somers Cleveland 30m etc. The Jerrett 40m depth table assigns 76.9% of the value at a depth of 25m and 111.1% of value at 50m, whereas the Somers Cleveland 30m depth table assigns 91.9% of value at 25m, and 117.5% of value at 50m.

If market demand is generally for a 40m deep section, Buyers will pay more for a deeper section of say 70m, but not proportionately more. Different localities have different standard depths, and different classes of land especially have different standard depths. Consider the different standard depths between retail land, industrial land and residential land. There are situations where depth tables are not appropriate, and a straight land area valuation approach is appropriate.

Kind regards

Michael Ford

Property Terms

Eminent domain – The principle that the Crown is the ultimate owner of the land.

Estate in Fee Simple – The closest thing a person can come to actual ownership of land, because the Crown owns the land in NZ, apart from that under Maori sovereignty.

Indefeasibility of title – The registered proprietor of land is recognised and protected by Crown guarantee against competing claims that do not appear on the LINZ register.

Caveat – A caveat gives notice to anyone searching the title that the caveator is protecting a claim of an unregistered interest against the property.

Dominant tenement – The tenement party which gains the benefit of an easement or other covenant. Eg right of way. Servient tenement- The covenanting party who is giving the benefit to the dominant tenement. Eg right of way.

Kind regards

Michael Ford

 

Things to ask about

The following should be explained if you don’t know about them. They are not necessarily problems, but you should be informed about them.

  • What are totara piles?
  • What is weatherside?
  • What is a cross lease or unit title?
  • What may whisper style ceilings contain?
  • What is dry rot?
  • What are weathertight building issues?
  • What is an aluminium roof?
  • What are Duroc sidings?
  • Can you tell where a boundary is?
  • What types of easements are there?
  • Who is expert on GST matters?
  • What is a covenant?
  • How do you read a LIM?

I am happy to help. Kind regards, Michael Ford

 

Building Materials

Shingles – Used to made of Kauri, Totara or Redwood, and used as window hoods and in gable ends. Originally used as roofing.

Marseilles Tiles – Orange clay tiles from France and other European countries. NZ copied them. Most attractive.

Sarking – Timber boarding, usually 15cm – 20cm wide and 1.27cm thick. Sometimes called apple box boards. Used under iron roofing, and over wall framing and under scrim and paper decoration. Added insulation and guarded against condensation. Not used when Gibraltar and other wall boards came in.

Malthoid – Used on flat roves from the 1930’s. A bonded emulsion with asphalt and fine pebbles. Had a limited life and was generally replaced by long run iron and Butynol.

Corrugated Aluminium – Made a good roof if good quality aluminium was used, and there was no need to paint it. Soft to walk on however, and care needed.

Slate – Imported mainly from Wales for roofing, and found in rectangle and diamond patterns. Expensive.

Kind regards, Michael Ford

 

The Escape Clause

Some people call this the “cash out” clause, which is not strictly a correct description.

What is it? It is a clause used in an agreement for sale and purchase of real estate, and usually relates to when there is a long period of time for another condition or conditions in the agreement to be satisfied. By far the most common use is when the agreement is subject to the sale of another property owned by the prospective Buyer. In that situation it is usually wise to run the clause subject to the sale of the other property for some months, in order to give a realistic chance of selling. Without the escape clause, this long time frame would effectively take the property off the market for the Seller, which is not fair to them in most circumstances. A second prospective Buyer would have to wait until the end of the first contract (maybe 2 months) before their back up offer could be acted upon. Most would not wait that long and would lose interest in that property, and as such, a genuine Buyer may be lost.

The escape clause adds fairness to the above scenario. In layman’s terms it states that while the property is under contract to the first Buyer Prospect, and a second offer is made, from another Buyer Prospect, then the Seller can give the First Buyer Prospect a short time frame such as 3 working days, to make their contract unconditional. The Seller decides what is preferable, but the usual reason is that there are no conditions in the second back up offer – i.e. it is a cash offer. In practice, the 2nd back up offer often comes in with conditions, and might be accepted without an obligation to activate the escape clause until the conditions are satisfied. The 2nd Buyer Prospect works through their conditions as fast as possible, and advises that they are satisfied. At that point the Seller gives say 3 working days notice to Buyer Prospect 1 to make their contract unconditional (remove conditions) or the contract will be at an end, and the property will sell to Buyer Prospect 2. The first Buyer does not have to match any higher price in the 2nd agreement; just remove the conditions. Sometimes Buyer Prospect 1 will obtain bridging finance, or take a chance that their property will sell and they confirm their contract. Buyer Prospect 2 misses out. On other occasions Buyer Prospect 1 can’t or won’t confirm and they miss out, with the property selling to Buyer 2. Care needs to be taken with escape clauses, and Solicitors should be involved.

Kind regards, Michael

 

What are Covenants?

A covenant is a binding legal agreement. We commonly find covenants on certificates of title for land. They would typically describe what an owner of that title can and can’t do on that land. In these cases, the covenants are written by the person selling the property, which would usually be a bare land section. The purpose is usually to protect the amenity of an adjacent section(s). There are usually quality covenants in a new subdivision, whereby people buy into the new locality in the knowledge that all other buyers will also have to build a house of a certain standard, and that things like car wrecks, etc are unacceptable. They may prohibit second hand houses being re-located to the subdivision, and generally set the style, tone and standard required. Sometimes they stipulate a height restriction to protect a neighbour’s view; the neighbour often being the person selling the section. In my opinion, there are ways of writing building quality covenants that are better than others, and I am happy to advise, along with your Solicitor.

These covenants are different to what the Council say can be done on the land. When buying land it is important to check with Council and also to check out the covenants on the title. Many sections have no covenants.

Kind regards

Michael

 

Character Home Terms:

Finial – Decorative capping or turned post added to the apex of the roof gable. Originally used to protect a home from witches (clearly don’t work from my experience!)

Rusticated Board – A weatherboard that, with a curved shape cut out of the top and bottom, was able to lap the board below, yet lay flat against the wall studs. An imitation of coursed stonework.

Pilaster – A column, or imitation column, attached to a wall. It is generally half the thickness of the column it is matching.

Matchlining – Boarding on internal walls which is usually tongue and grooved.

Frieze – A rail or decoration marking the upper part of a wall just below the cornice. The frieze is usually of wallpaper.

Bay window – A square or polygonal shaped window that projects beyond a wall, and is supported on the ground.

Bow window – Similar to a bay, but semi circular or segmented in plan.