Archive for the 'Home Buyers' Category
Where does an agent/licensee draw the line between wanting to please and fulfill their obligation to their Vendor, and the need to provide information and protect their purchaser in a transaction? I certainly don’t have the definitive answer to this question and would love input from industry players and home buyers and sellers. If you have a comment, please feel free…..
This question was posed to me recently,
OK so the REAA Code of Conduct says:
A licensee is not required to discover hidden or underlying defects in land but must disclose known defects to a customer. Further, where it appears likely, on the basis of the licensee’s knowledge and experience of the real estate market(1), that land may be subject to hidden or underlying defects, the licensee must either–
(a) obtain confirmation from the client that the land in question is not subject to defect; or
(b) ensure that a customer is informed of any significant potential risk so that the customer can seek expert advice if the customer so chooses.
(1) For example, houses built within a particular period of time, and of particular materials, are or may be at risk of weathertightness problems. A licensee could reasonably be expected to know of this risk (whether or not a seller directly discloses any weathertightness problems). While a customer is expected to inquire into risks regarding a property and to undertake the necessary inspections and seek advice, the licensee must not simply rely on caveat emptor.
So as a salesperson what exactly do you say if the seller says the property doesn’t have any defects. Let’s say you have a buyer who just arrived from the UK and knows nothing about our leaky home problem – do you say to them “this home was built in a time frame when homes are known to leak, is most likely built from untreated framing and doesn’t have a cavity system. Oh and by the way it is predicted that 80% of homes built in that era are likely to have leak damage within 15 years of completion” – Monolithic Home Owner
When I received this question, I had the answer straight away but I wanted to give myself space to consider the angles and options. The Real Estate Agents Act 2008 has changed the footprint of expected behaviour in some areas of an agent/licensees real estate work, but in other areas, it has only defined more clearly what the expectation is. Personally, I don’t do anything differently under the new regime except fill out more paper work. My answer prior to the ushering in of the new Act to this particular question is the same now as it would have been two years ago. I have sold texture coated homes in the 1990-2004 era and my company is actively marketing homes built in this era currently, so it is a great question to raise and one that is being dealt with by licensees on a daily basis all around NZ.
When is a problem a problem?
When does a leak become a Syndrome? Is it fair that a perfectly good home that isn’t leaking be tarred with the same brush as a neighbouring home that leaks profusely? All buildings have the potential to leak if not maintained. When does the potential to leak become greater than the fact that the house doesn’t leak?
Some interesting questions….
Fact and Opinion
I feel it is important to define fact from opinion. A potential leak is not a leak
There seems to be much emotion and subjectivity mixed with the facts surrounding this issue. An example from the quote above, “it is predicted that 80% of homes built in that era are likely to have leak damage within 15 years of completion”. This is not fact it is opinion. It implies that owners of homes in this era are a helpless audience and have no active role in maintaining and protecting their own investment. This in reality differs from owner to owner.
There are houses of this era I drive past every day that are showing the signs of cladding problems – cracking in sheeting joints, big water bubbles in the paint layer, silicon peeling from the window frames. Some of these homes haven’t been touched by the owners for years. Potential water issues? Definitely! I have to resist the urge to knock on the door and say to the owner, “get your house sorted out buddy or its going to hurt you!”. Other owners, meanwhile, work to actively maintain their investment, regularly check for problems and get them fixed smartly.
I’m certainly not wanting to downplay the issue because I believe that it is a serious problem and I also believe that it won’t go away any time soon. It is an issue that needs to be treated with respect, and the owners of homes that have leaking issues need to be treated with care and compassion. I have seen first hand, the stress that envelopes people living in a home that has water, rot, and mould issues.
But I have found that dealing with houses from this era on a daily practical level has given me a chance to overcome for myself, the hype, emotion, and sense of powerlessness that surrounds the words Leaky Building Syndrome. I have had the opportunity to view many examples of homes that have leaked, and others that appear perfectly maintained and showing no signs of leaking what-so-ever. I have come to the opinion that every house is unique and needs to be treated as such rather than branded. It isn’t just construction technique or the type of cladding system, it can be architectural design, placement on the site, the skill and care of the builder, the skill and care of the paint applicator, the care and maintenance of the owner, and the level of site exposure to wind and weather patterns that can allow the ingress of water.
Interestingly, in talking with experienced builders and tradesmen in the area, I have come to understand that there are other potential problems with these homes. There are many buildings that have problems in this era not from water coming in, but water not being able to escape out. Many of these houses are so well sealed and insulated that moisture can’t escape if the homes are not well ventilated by the owners. Moisture moves through the gib and condenses at the coldest point, the inner wall of the p0ly block cladding. With no way to escape it then gets absorbed by the untreated timber that is sitting up against the poly causing it to begin rotting from the inside out. A dry air ventilation system like DVS or Moisture Master will help with this issue if it is caught in time. Making sure that your home is well ventilated (using exhaust fans when showering, rangehoods when cooking) and eliminating the use of unflued gas heaters and other moisture contributants may help keep your home dryer. But it doesn’t deal with the issue of untreated timber framing.
I haven’t been able to find much literature in NZ regarding this particular issue, but I found this and this interesting reading.
What do I say to buyers?
When marketing a texture coated property of this era, I make known to buyers that some properties in this era have leaking issues. I also strongly suggest that they find out the facts for themselves. I inform them that it is important to pay for an exhaustive builders report with moisture meter testing on any home they are looking to buy. I also suggest that it is a good idea to check the Council records.
I try always to keep in mind that I am not an expert in the construction industry, and thus, have no place making statements about the soundness or otherwise about a particular property. I am there to market the home for sale and secure an unconditional offer, not defend the house when it is bagged by visiting buyers.
Agency protocols
Luckily I work for a reputable agency. Having given much thought to this issue, my company has put protocols in place which seek to ensure that the correct disclosures are made and both licensees and buyers are protected. When an agency agreement is signed with a vendor at the time of listing, the paperwork asks for disclosures from vendors about their property. Any disclosures made are in writing and are shared with all staff who may be involved in the selling or marketing of the property.
It is a part of our office policy that every sale and purchase contract that is written up should have a builders report clause added. If the buyer then decides not to carry through with the builders report that is on their own head. If there were any issues down the track, the contract would then be used as evidence that a builders report was offered. Along with the sale and purchase agreement, another form is filled out by the licensee and buyer that gives the licensee the chance to provide any disclosures regarding known defects in writing to the buyer.
We also have a transaction sheet that is filled out on every property sale. On this sheet, conversations are recorded with specific focus on the offer of builders reports and LIM reports to buyers along with any other statements that are made about the house including things like potential capital gains suggested, potential rental returns mentioned, boundaries, and building soundness etc.
The idea being that the licensees in our company have some measure of protection and evidence if ever a question was raised about the details of a transaction. Having these office protocols also makes licensees very conscious of what they are saying and doing when they are marketing a property.
Helping Monolithic homesellers
On the other side of the coin, agencies are employed to market and sell property. We have a duty to the homeowner to attempt to achieve the satisfactory sale of the homeowners property. What steps can practically taken by owners of monolithic homes built in the 1990-2004 era that are looking to sell?
BEFORE PUTTING YOUR HOUSE ON THE MARKET
Did you do enough homework when you bought your home? Did you get a builders report or check the Council Records? If not, start there.
Start with an physical examination of your home by an expert.
Pay for an exhaustive building report on your property to be conducted by someone who has the skill and experience to know what they are talking about. This report has to include moisture meter testing and should be conducted by someone with training in the equipment. A visual inspection of your property is not enough. Don’t bury your head in the sand or hope that no issues will be found when a prospective purchaser has a builders report for themselves. In this way, you will have a view of your home that is facts based. If issues are raised, get them dealt with by an expert who will provide you with a written guarantee or warranty of their work, who has a good history of similar work, and who has their own public indemnity insurance. If major work is required, make sure the correct paper work is filled out and you receive the Council tick off at the end with an E2 Code of Compliance or whatever else is needed.
Once any remedial work has been completed. Have another building inspection completed. Yes, a second one! This is an independent assessment of the work completed, and if not showing any major issues, a tool for helping to sell your home. Make this builders report available to your real estate professional to pass on to potential purchasers.
Pay for a LIM report
If you don’t know what is on the council files for your property, find out before you put your home on the market. This is a good exercise not only for peace of mind, this information is a good tool to help your real estate professional sell your home. Land Information Memorandum (LIM) reports have become more important as a part of a buyer’s due diligence when buying a property, many solicitors insist upon their clients getting a LIM report. Most home owners I have come across don’t want to pay for this report themselves and consider this to be something that buyers should pay for as part of their homework.
Information is Power
The ideal situation would be for all homesellers to apply and pay for a Building Inspection and a LIM on their property prior to selling, and to make full copies of this available to purchasers. Homeowners do themselves a double favour by paying for these reports themselves. Not only are you demonstrating a willingness to be open and transparent, you are providing some important selling tools to your real estate agent/licensee. This will impart greater confidence in the soundness of your property to prospective purchasers and will make the selling process quicker and easier. You may also find that you will secure a higher selling price as a result. I have seen many situations where multiple offers have been presented on a property with the highest offer being subject to the most buyer conditions and, therefore, eliminated from the running with unconditional offers being accepted at price points sometimes tens of thousands of dollars less. Making your LIM and builders reports available may speed up the information and due diligence process for these buyers.
There is so much more to this topic, but this is a start. Not sure if I have answered the question completely.
Please feel free to comment whether you agree or disagree with my take on the subject…
Again, I am not an expert in this matter. Talk to a building surveyor or professional who has training and expertise in this issue before making any purchasing or selling decisions.
Required Reading
Consumer Build Website
Department of Building and Housing
Weathertightness E-news
http://unconditional.co.nz/blog/greater-disclosure-of-leaky-homes-advocated/
http://unconditional.co.nz/dith/2010/03/22/making-leaky-building-claims/
Some Local Wellington Companies that conduct moisture meter testing
New Zealand House Inspection Company
Capital House Inspections
Total Home Inspection Services
Realsure
March 06 2010 | General Real Estate and Home Buyers and Home Sellers | 9 Comments »
As an agent, I sometimes inwardly cringe when some of these questions are asked, but as a buyer, it is always good to ask direct questions if you want direct answers!
Before deciding on whether to offer or what price to offer – here are five questions you should consider asking:
1.How did the vendor come to the asking price for their home? There can be many factors rational and emotional that come into play when owners decide how much they want for their home. In the ideal scenario, they have come to a price decision based on the very recent sales of very comparable homes in the surrounding area. Was the price the agent’s suggestion or because that’s how much they need to buy their next dream home? If the reason for the owners pricing is because they need a certain amount to buy in the next location, just hope and pray that they aren’t moving to Paris or central London! Some sellers are unrealistic and unlikely to come down from their asking price if they have to get a certain amount for a particular reason or if they have lived in the property for a long time. When high emotions are involved, reason sometimes flies out the door.
2.Have there been any other offers made? This lets you know if you have any competition and how serious the vendor is about selling their home for a reasonable price, it will also give you a feel for what other buyers think. If there have been offers, it means that someone else active in the market finds this property attractive too. Competition may be hard when you are buying, but it certainly will help you when you come to sell if your property is attractive to the buying market. It is also good to know if other offers have been accepted but the buyers have pulled out. This can sometimes be for unrelated reasons but it can also raise red flags in terms of the soundness of the house etc. If offers have fallen over on the property, ask why.
3.How long has the home been on the market? If it’s just been put up for sale, the seller may not be anxious to accept the first offer. If the home has been on the market for several months it’s more likely the seller would be ready to accept your offer. Timing can be everything! When a home is first listed, the sellers expectations will be at their highest and they will be the most inflexible in terms of price negotiation unless there are time or financial constraints.
4.Why is the vendor selling and how quickly do they need to move? Are they going through a divorce? Do they have to move urgently for some reason such as a job transfer, illness, financial hardship? Have they already bought another home that would put them under pressure to sell their current home? This will let you know how motivated the seller is. If the agent is slightly evasive on this question it may be because they are trying to guard the privacy of the owners. Don’t push too hard if the agent won’t tell you as they may have been asked not to say by the owner, and they are being professional by not telling.
5. Is there anything about the house or property that I should be made aware of or could influence my decision to buy and what are the neighbours like? Under the Real Estate Code of Ethics in New Zealand, an agent or salesperson is obligated to tell you if they are aware of any issues with the property or anything going on in the surrounding area that could affect your purchasing decision.
Is there asbestos on the roof? Is there a brothel operating out of the house next door? Has the property being used for the manufacture of methamphetamine? Does the neighbour breed fighting dogs? Is there plans for a motorway through the backyard? Has the suburb been built on the site of a market garden that used herbicides which contaminated the soil? Was there a murder or suicide in the house?
Some of theses scenarios are not as far fetched as you might think. Sometimes there maybe nothing wrong physically with the property itself, but there can be things happening in the suburb or history with the house that would influence your decision.
Above all, do the homework you need to do, and ask the questions you need to ask BEFORE you confirm on your contract to purchase a property.
September 04 2009 | General Real Estate and Home Buyers | 1 Comment »
Security, pride of ownership, a chance to save…..there are many reasons why most New Zealanders choose to own their own home. You’ll find that there are few countries where it is simpler and more affordable to own your own home than New Zealand. The following are 10 steps to lead you to owning a place you can call home.
1) Get to know your city and suburbs
If you have just completed the move to New Zealand, it may be a good idea to rent first to allow you time to become familiar with the area in which you intend to live. Take your time and research the suburbs and streets that you intend to buy in. Check out the local schools, public transport, growth in the local population, other amenities – these things will have a bearing on how the home you eventually buy, will go up in value.
2) Work out your financial situation
This is a vital step to save you time and money looking for houses and putting in offers that may not be realistic or possible financially for you. An independent mortgage broker can help work out the best approach and timing for you to buy a house, this service are usually free-of-charge and can save you much time and money. Be as honest and upfront about your current situation as possible when talking with agents and mortgage brokers. Play conservative when estimating future earnings. There are some great calculators here you can use to get a feel for weekly repayments etc
3) Decide on what you want and what you actually need
Home buying becomes more affordable if you don’t ask for every luxury. Make a list that contains the items and features that are really necessary. It is human nature to think that your money can and should buy you more than it really can. The process of becoming realistic may be hard when you have been used to a much higher standard of living renting.
Looking for a home can be emotionally draining, take up way too much of your weekends and spare time, and can be a little depressing. Get through the grind and you will come through into a mental space that will allow you to see homes that you can imagine living in with a realistic feel for value.
4) Forget Open Homes, develop a direct relationship with an agent
Agents are specialists in local markets. To start with, visit some Open homes, look in the paper, or ask your friends to give you the name of a good agent. You want someone who will listen to what you need in a house, and someone who you can trust to help you in the purchase of a very big investment.
Choose someone who you feel comfortable with, and pro-actively call them regularly to see if there are new homes on the market in your price range. Be open and honest about your budget and what you are looking for. Give feedback when you are shown houses you don’t like. In this way the agent will get a good feel for the type of home you like. This is the best and most efficient way to view real estate.
Stress the fact that to the agents you have contact with that you will buy when you find the right house.Pick one agent in each agency in your area of focus and call, email, or text this agent first if you see a house advertised by their company that they haven’t shown you – there will be a reason why you weren’t called.If you show loyalty as a buyer you will be treated like a king or queen by the agent and will get the first and best of the new homes that come into the market. The people that make contact regularly with their agent get a head start on everyone else. Using the property press, the Internet and Open Homes is not enough—there is a time lag for the release of print media of between 6 and 10 days—often a house has been on the market a week before it reaches the newspaper and real estate mags.
Nothing beats talking to an agent direct because there are often homes coming up soon that aren’t quite ready for sale or homes whose owners don’t want advertising for one reason or another. Again, If you show loyalty and motivation to buy, you will be rewarded with extra help and consideration, and will get a head start on the rest of the market (from an agents point of view—I cannot stress this point enough).
A quick point about the web. The Internet has changed the way buyers search and filter homes. It is time efficient and anonymous which suits many buyers. But there is a danger that you gloss over homes that would suitable for you simply because the photos of the house on the web don’t appeal. Though the Internet is the primary source of information on houses for sale, it will never replace the vibe you need and can only get by actually walking through the front door. There is also a danger that both agent and buyer see each other as simply a means to an end (ie the purchase and sale of a house). Don’t let the house buying process degrade into an emotionless process of comparing floor areas and GVs vs asking price. Human beings buy with emotion and need trustworthy human contact in the process to feel satisfied with the purchase. Treat agents with courtesy, not as someone who stands as a hurdle between you and the house you want, and you get the same in return!
5) Make the most of inspections
Don’t try to see too many homes at once, by the time you get to the end you’ll have forgotten what you saw at the start. Avoid bringing small children with you, they tend to get bored and grumpy quickly and will put stress on you and the agent. When you see new homes for the first time, trust your gut feeling, don’t get fixated on the small details, the house either appeals or doesn’t and you will know in the first two minutes. Remember, you can always go back for another closer look another day.
6) Arrange your finance
Having already visited with a mortgage broker or lending institution, when you see a home you plan to buy, check with your bank contact that it fits their requirements for a loan. Get pre-approval if it is available from your bank, it will give you the confidence to act fast when you see the perfect house.
7) Make a formal offer
When no other parties are involved
Once you’ve decided on the house, your agent will show you how to go about making an offer. If you are unfamiliar with the fine print of the written offer, seek advice from a solicitor BEFORE signing. Unless your first offer is a good one, it will not usually be accepted right off. There may be some negotiation before both parties come to an agreement so allow yourself a negotiating margin giving you room to move without going over your budget, but don’t be too cheeky, it will work against you by getting the owners offside and not thinking you are serious.
Making an offer in a competition situation (including auctions and tenders)
When in competition for a house with other buyers, don’t try to play too smart. Eliminate your negotiation margin, go to your best price and cut down the time of your conditions (for examples of conditions view my blog here) as much as possible or eliminate them by doing your homework before offering if you have time. In my experience cash unconditional offers are often worth at least $10,000 i.e. a bidder without an unconditional contract would have to pay $10,000 more in order to make the vendors take a chance on their offer over an unconditional one, I have seen a situation where a $379,000 unconditional offer was accepted over a $405,000 offer with conditions in it).
In order to successfully get the house, you have to win convincingly. Winning by $500 isn’t enough, the owners will simply play you off against the next best offer, the winning party will usually end up spending much more than if they had lifted their initial bid. You only have to miss out on a home once to realize how important these points are. An extra $5000 is not much to pay in the whole scheme of things to secure the home you really want.
A note on Auctions—In an auction situation, my preference has always been to start bidding late when you feel the other players have shown their hand. Once you have started bidding, follow through strongly without hesitation to your maximum figure—I have seen this strategy work well to psyche out other buyers. As you near your top, don’t be scared to play the auctioneer with a verbal bid in a smaller increment (e.g. a $2000 bid when it has been going up in $5000 lots), this will slow the auction down, give you more control of the process, and give you more bids before you hit your top dollar. Once you have reached your comfortable top, think hard about the way the auction has run, are other buyers also faltering? It may only take another $5000 in $1000 lots to buy the home, don’t throw it away for $5000. Another strategy that I’ve seen sometimes work is the “kingmaker” – a bid of a greater increment than the auction has been running at in order to scare other bidders (e.g. last bid was at $385,000 running in $5000 bids. A kingmaker bid would be $400,000 or better $405,000 convincingly breaking the psychological barrier that $400,000 (or any $100,000 increment represents)).
8 ) Seek expert advice
Involve as many experts as you need to make sure you are buying a home that is physically and legally sound. Most offers made in New Zealand are conditional on the purchaser’s solicitor checking the title, a builders report, a valuation by an independent registered valuer, checking the council records, and approval by your lending institution. In a busy market, be careful that you don’t jeopardize your chance of buying by the inclusion of a full LIM report in your clauses. The Wellington City Council takes 10 working days to do these reports. Most vendors don’t want to wait two weeks to see if your LIM is acceptable. The Council also does abbreviated LIM reports called a Property Report which covers such things as building consents and permit history, drainage plans, aerial photos, etc. Another option is to start the LIM before you make the offer so the amount of days in the conditional period doesn’t work against you. Please don’t get me wrong here, I am not advocating forgoing doing your due diligence on the property. It is simply how things work out in practice when you are in a competition situation. If you are not comfortable making offers without a LIM report, be prepared to miss out on houses to other buyers who have already done their homework or are taking the chance that the home is okay without doing their homework. This is happening regularly in the current market. In an offer, you will usually allow yourself a certain time period to complete your due diligence. At the expiry time, you will either confirm that you are satisfied and go unconditional with your offer or pull out of the deal because something in your homework was unsatisfactory.
9) Arrange insurance
While the risks for fire and other calamities are carried by the present owner until settlement date, it is often wise to safeguard your investment by arranging insurance from the date you unconditionally agree to buy the home.
10) Settlement Date
This is usually the date at which you will also take possession of the house, and is normally between 4-8 weeks after the offer has been made and accepted. In the days leading up to taking possession of the house you will need to talk with your lawyer about getting keys, set up new power and telephone accounts, and arrange a furniture mover to help with the big day. Settlement usually takes place between 11 and 2 pm. You will usually be able to pick up a key from the agent who sold you the house but he cannot release the keys to until the property has settled.
If possible, try to move in the day AFTER settlement. This will save you heaps of stress if the house doesn’t settle on time or the previous owners are still packing up and leaving when you want to get in.
After completing these ten steps, take the next week off and sleep continuously until you start to feel normal again but rest in the knowledge that you are now sleeping in your bed in your new home!
August 31 2009 | General Real Estate and Home Buyers | 1 Comment »
What happens when the home you are selling goes unconditional and yet doesn’t settle or the vendor pulls out of the deal at the last minute even though the contract is unconditional and a deposit paid.
This nzherald article got me thinking about the public perception of the job of real estate agents.
Where does the agents job that he/she is contracted to perform end and when should they get paid?
Does it end at the time of an unconditional sale?
Or is the agent legally obliged to be involved until the house settles?
The piece of paper governing the agent’s relationship with the seller is known as a listing / agency agreement or authority to market. For those readers who haven’t seen one of these documents, I have scanned an example here. All agencies will have a similar document that will need to be signed by the homeowners at the time of appointment of the agency. No similar piece of paper is signed by the purchaser and the agent unless you as a purchaser contract an agent to find you a house and are willing to pay a finders fee. This happens outside of New Zealand but is still relatively uncommon here. Therefore, the agent has no legal obligation to aid the purchaser, though it can be argued that there is a moral obligation.
The listing agreement sets out among other things, the commission payable and when. As you can see from the example, the agreed commission payable is triggered when the contract for sale and purchase of the homeowners property “becomes unconditional and binding on both parties”.
Reading down further in the Terms and Conditions (section 1a), the signing homeowners authorize the agent “to deduct any fees, commissions and other expenses from the deposit”. This deduction of fees from the deposit is standard industry practice.
Officially on paper, the real estate agency is contracted to market a property for sale. Once a binding and unconditional contract is reached, the contract with the agent ends! Anything further to do with the property and the contract needs to be done through the solicitors acting for each party. If a house doesn’t settle because one of the parties pulls out, then the other party has to sue based on the breach of contract. Though it has nothing to do with the agent at all, he/she would be called in as a witness to the contract and its breach. I have never been involved in such a situation and am glad that it is rare as it would be expensive, stressful and time consuming for all parties concerned.
However, in actuality, the agent continues to work as a go between communicating verbally between the purchaser and vendor up until and even after settlement and possession have taken place. This is seen by agents as goodwill and relationship building even though they aren’t getting paid for this job. Contrary to public opinion, this is not part of an agents legally contracted job! It is worth remembering that agents are engaged to market the property for sale and to secure a binding contract, they are not hired by purchasers to be available for pre-settlement inspections or to physically help the vendors pack up and move out even though the expectation is sometimes there that this is part of their job.
I myself have been involved on numerous settlement days to make sure things go smoothly when one party is moving in on the same day that the previous owners are moving out.
I remember one settlement that was delayed as the moving truck for the previous owners had broken down. My phone was ringing hot late into the evening of settlement with the almost deranged purchasers screaming at me to get the previous owners moved out immediately! There was nothing at all I could do in this situation, but the purchasers (who I have no legal relationship with by the way) expected, nay demanded that I be actively involved in getting the vendors out of the house! The sad thing to me is that even though I made myself available to try and keep both parties from throttling each other, including visiting the house on three occasions on the afternoon of settlement with the last time being at 11pm (!) , the buyers finished the day with ill feeling towards me because the vendors weren’t out of the house when expected.
Is there a standard size expected for the deposit?
Most agencies and solicitors see a 10% deposit as a fair amount. But in recent times with many young people scratching together all the spare cash they can to get their foot on the property ladder, a 5% deposit has become more common. Even then, coming up with $20k on a $400k house purchase can be a bit of a stretch. Real Estate Agency fees usually sit in the 3-4% range so a 5% deposit will usually be enough to cover the real estate commission at the very least and this is why agents want to collect at least this percentage in deposit. There are some solicitors operating in the conveyancing field that tell their clients not to pay any deposit which throws a bit of a spanner in the works on the odd occasion. I always come back to these solicitors and ask them what they would say if they were on the other side of the transaction, working for the home seller. At this point the answer is usually, “Please collect a 10% deposit!”.
Does a Deposit have to be paid?
Yes and no. It is my understanding that you can buy a house in NZ without offering to pay a deposit BUT. Very few sellers (or their solicitors) will sign an offer for sale and purchase without some sort of deposit. If you are buying a house and make this a sticking point, the owners will get suspicious and wonder if you have the ability to buy the house in the first place.
More reading on deposits here.
Lessons I have learned regarding deposits…
As an agent, I am obliged to collect a deposit. I try to make sure the deposit is high enough to cover the commission payable at least. If a buyer won’t pay the deposit amount that was agreed on in the sale and purchase agreement, I need to inform the vendor and/or the vendor’s solicitor as soon as I am aware there is an issue.
As a purchaser, there is little that you can do to protect yourself that I am aware of unless you want to try and pay no deposit at all. I have encountered this only a handful of times and it is usually from buyers who have gone through a get rich quick course or have a solicitor who has told them they don’t need to pay a deposit. In reality, your offer will be looked at with suspicion by a vendor if you put up no deposit and could result in you losing the chance to buy the house if you stick to your guns. Minimize the amount of deposit payable as much as possible. If the agent insists on 10% of the purchase price, tell them you’ll only pay 5%. This is usually enough to cover the commission so he/she will be pacified at this point in most cases. You could talk to your solicitor about notifying the vendors solicitor that you don’t want the deposit released until settlement takes place. I haven’t heard of this from a purchaser personally, but I guess you could always try.
As a vendor, you need to make sure that the deposit is high enough to more than cover the agents commission in case there are issues, but contrary to public opinion, you can’t just help yourself to the deposit if the buyers pull out of an unconditional deal. You have to go through the courts and sue for damages based on the remedies outlined in the sale and purchase agreement you have signed with the other party. Aim for as high a deposit as possible from the purchasers but understand that some well intentioned buyers don’t have the facility to pay a huge wad of cash before settlement.
If you as a vendor are uncomfortable with the deposit being released to pay commissions and other fees (including solicitors fees in some cases too), you need to talk with your solicitor and tell them not to allow the agent to deduct their fees until settlement. Conversely, you can ask that your solicitor holds the deposit in their trust account. Of course, the agent will be uncomfortable with this!
The opportunity for vendors to reneg on paying agency commissions is greater when the vendor’s solicitor holds the funds. And if you don’t think this happens, I can tell you that I personally am still owed $3500 in commission from the sale of a property well over a year ago where this scenario took place. The vendor wanted a huge deposit because the settlement was at least 6 months after the unconditional sale date, and he wanted the deposit held by his solicitor. On settlement, my agency sent an invoice to the vendor’s solicitor for the commission payable. Unfortunately for us, the solicitor released all of the monies on settlement to the vendor and told him to pay our invoice. This never happened… So for me it is deal made and no commission!
August 27 2009 | General Real Estate and Home Buyers and Home Sellers | 2 Comments »
What happens when the home you are selling goes unconditional and yet doesn’t settle or the vendor pulls out of the deal at the last minute even though the contract is unconditional and a deposit paid.
This nzherald article got me thinking about the public perception of the job of real estate agents.
Where does the agents job that he/she is contracted to perform end and when should they get paid?
Does it end at the time of an unconditional sale?
Or is the agent legally obliged to be involved until the house settles?
The piece of paper governing the agent’s relationship with the seller is known as a listing / agency agreement or authority to market. For those readers who haven’t seen one of these documents, I have scanned an example here. All agencies will have a similar document that will need to be signed by the homeowners at the time of appointment of the agency.
No similar piece of paper is signed by the purchaser and the agent.
The exception to this would be a scenario where you as a purchaser contract an agent to find you a house and are willing to pay a finders fee. This happens outside of New Zealand but is still very rare here.
Therefore, the agent has no contractual obligation to aid the purchaser, though it can be argued that there is a moral obligation.
The listing agreement sets out among other things, the commission payable and when. As you can see from the example, the agreed commission payable is triggered when the contract for sale and purchase of the homeowners property “becomes unconditional and binding on both parties”.
Reading down further in the Terms and Conditions (section 1a), the signing homeowners authorize the agent “to deduct any fees, commissions and other expenses from the deposit”. This deduction of fees from the deposit is standard industry practice.
Contractually, the real estate agency is engaged to market a property for sale. Once a binding and unconditional contract for the sale and purchase of the property is secured, the contract with the agent ends! Anything further to do with the property and the contract needs to be communicated through the solicitors acting for each party. If a house doesn’t settle because one of the parties pulls out after the agreement becomes unconditional, then the other party has to sue based on the breach of the sale and purchase agreement. Though it has nothing to do with the agent at all, he/she may be called in as a witness to the contract and its breach. I have never been involved in such a situation and am glad that it is rare as it would be expensive, stressful and time consuming for all parties concerned.
However, in actuality, the agent continues to work as a go between communicating verbally between the purchaser and vendor up until and even after settlement and possession have taken place. This is seen by agents as goodwill and relationship building even though they aren’t getting paid for this job. Contrary to public opinion, this is not part of an agents legally contracted job!
It is worth remembering that agents are engaged to market the property for sale and to secure a binding contract. They are not hired by purchasers to be available for pre-settlement inspections, to kick the owners out when moving out takes longer than expected on settlement day, or to physically help the vendors clean and pack up even though the expectation is sometimes there that this is part of their job.
I myself have been involved on numerous settlement days to make sure things go smoothly when one party is moving in on the same day that the previous owners are moving out. As Johnny on the spot, I have often taken the brunt of any venting that takes place when the stress of moving gets too much for one of the parties involved.
I remember one settlement that was delayed as the moving truck for the previous owners had broken down. My phone was ringing hot late into the evening of settlement with the almost deranged purchasers screaming at me to get the previous owners moved out immediately! There was nothing at all I could do in this situation, but the purchasers (who I have no legal relationship with by the way) expected, nay demanded that I be actively involved in getting the vendors out of the house! The sad thing to me is that even though I made myself available to try and keep both parties from throttling each other, including visiting the house on three occasions on the afternoon of settlement with the last time being at 11pm (!) , the buyers finished the day with ill feeling towards me because the vendors weren’t out of the house when expected.
I remember another time when an agent in my office had to spend three hours on a saturday afternoon rummaging underneath a house he had marketed and sold. The previous owners had left the property as they had found it, including a trailer load of wood offcuts and corrugated iron in the basement. The new owner demanded that this refuse be removed from his house. And who did he demand this from? Not the previous owner, but the agent! In order to placate the purchaser and to attempt to build good will to secure repeat business from this person, the agent complied. You may smile at this story, as did the rest of my office when we found out how he had spent his weekend, but it highlights the perception that some members of the public have regarding the role of the agent involved in their house sale/purchase.
Is there a standard size expected for the deposit?
Most agencies and solicitors see a 10% deposit as a fair amount. But in recent times with many young people scratching together all the spare cash they can to get their foot on the property ladder, a 5% deposit has become more common. Even then, coming up with $20k on a $400k house purchase can be a bit of a stretch.
Real Estate Agency fees usually sit in the 3-4% range so a 5% deposit will usually be enough to cover the real estate commission at the very least and this is why agents want to collect at least this percentage in deposit.
There are some solicitors operating in the conveyancing field that tell their clients not to pay any deposit which throws a bit of a spanner in the works on the odd occasion. I always come back to these solicitors and ask them what they would say if they were on the other side of the transaction, working for the home seller. At this point the answer is usually, “Please collect a 10% deposit!”.
It depends on your point of view.
Lessons I have learned regarding deposits…
As an agent, I am obliged to collect a deposit. I try to make sure the deposit is high enough to cover the commission payable at least. If a buyer won’t pay the deposit amount that was agreed on in the sale and purchase agreement, I need to inform the vendor and/or the vendor’s solicitor as soon as I am aware there is an issue.
As a purchaser, there is little that you can do to protect yourself that I am aware of unless you want to try and pay no deposit at all. I have encountered this only a handful of times and it is usually from buyers who have gone through a get rich quick course or have a solicitor who has told them they don’t need to pay a deposit. In reality, your offer will be looked at with suspicion by a vendor if you put up no deposit and could result in you losing the chance to buy the house if you stick to your guns. Minimize the amount of deposit payable as much as possible. If the agent insists on 10% of the purchase price, tell them you’ll only pay 5%. This is usually enough to cover the commission so he/she will be pacified at this point in most cases. If you want to make sure that your deposit is secure. You could talk to your solicitor about notifying the vendors solicitor that you don’t want the deposit released until settlement takes place. I haven’t heard of this from a purchaser personally, but I guess you could always try.
As a vendor, you need to make sure that the deposit is high enough to more than cover the agents commission in case there are issues, but contrary to public opinion, you can’t just help yourself to the deposit if the buyers pull out of an unconditional deal. You have to go through the courts and sue for damages based on the remedies outlined in the sale and purchase agreement you have signed with the other party. Aim for as high a deposit as possible from the purchasers but understand that some well intentioned buyers don’t have the facility to pay a huge wad of cash before settlement.
If you as a vendor are uncomfortable with the deposit being released to pay commissions and other fees (including solicitors fees in some cases too), you need to talk with your solicitor and tell them not to allow the agent to deduct their fees until settlement. Conversely, you can ask that your solicitor holds the deposit in their trust account. Of course, the agent will be uncomfortable with this!
The opportunity for vendors to reneg on paying agency commissions is greater when the vendor’s solicitor holds the funds. And if you don’t think this happens, I can tell you that I personally am still owed $3500 in commission from the sale of a property well over two years ago. The vendor wanted a huge deposit because the settlement was at least 6 months after the unconditional sale date, and he wanted the deposit held by his solicitor. On settlement, my agency sent an invoice to the vendor’s solicitor for the commission payable. Unfortunately for us, the solicitor released all of the monies on settlement to the vendor and told him to pay our invoice. The owner had purchased another home and so informed us that he had no funds to pay us the commission owed. He is still drip feeding small amounts into our company account monthly but my chance of getting the full amount owed to me is minimal at this point… So for me, it is deal made and no commission!
August 27 2009 | General Real Estate and Home Buyers and Home Sellers | 2 Comments »
Below are some of the generic clauses/ conditions that may feature on sale and purchase agreements. These are plain English clauses and will suffice in a majority of cases. There are plenty of variations of these basic clauses but the purpose and intent is largely the same. If you are needing something more specific or complex, then talk with your solicitor. Usually a conditional period of between 1 and 7 working days (with 3-5 working days being the norm) will be sufficient for the completion of most of these clauses. The LIM clause may need 10-15 working days to complete, it is worth checking with your local Council to find out how quickly than can process a LIM before putting a time limit on yourself in an offer. In a situation where competition is expected, it is good to do as much homework as possible before your offer or tender is submitted. The fewer the clauses and the shorter the conditional period, the more attractive your offer is to the owner!
Title Search
This offer is conditional upon the Purchasers Solicitor searching and approving the Title on the above property within working days of acceptance of this offer.
Valuation Report
This offer is conditional upon the Purchaser arranging a Valuation Report from a Registered Valuer , which is acceptable in all respects to the Purchaser within working days from the date of acceptance of this offer.
Builders Report
This offer is conditional upon the Purchaser arranging a Builders Report from a Certified Builder or Building Inspector, which is acceptable in all respects to the Purchaser within working days from the date of acceptance of this offer.
Land Information Memorandum (LIM) Report
This offer is conditional upon the Purchaser/s reviewing Local Council records including obtaining a LIM Report if they desire and being satisfied with such records and LIM Report in all respects within working days of acceptance of this offer.
Partial LIM or Property Report
This offer is conditional upon the Purchasers searching the council records and/or obtaining a Property Report if they desire and being satisfied with such records and Property Report in all respects within working days of acceptance of this offer.
Subject to Purchasers Property Selling
This offer is conditional upon the Purchaser arranging the unconditional sale of property situated at on terms and conditions acceptable to them within working days of acceptance of this offer.
Conditional upon Purchasers Property sale becoming Unconditional
This offer is conditional upon the existing signed Agreement for the Sale of the Purchaser’s property situated at (address) becoming unconditional on or before 5PM on (date).
Due Diligence Clause
This offer is conditional upon the Purchaser completing and being satisfied with a due diligence program in respect of the subject property. Such program may include but is not limited to: approval of the title, builders report, Council Records search or any other matters which the Purchaser at the Purchasers’ discretion may consider relevant to the completion of the purchase. This condition is to be satisfied within days of acceptance of this offer.
Regarding Due Diligence clauses, many agents and solicitors frown on the use of general due diligence clauses as they are too vague to be able to hold the buyer to the offer in the case that they pull out of the deal in the conditional period. Be aware of that use of a Due Diligence clause may work against you if you are in competition for a house with other buyers. I experienced this a number of years back when I presented four offers to an owner and they accepted an unconditional offer $23,000 less than the top offer which featured a 10 working day due diligence clause from a developer who wanted to subdivide the land but didn’t have time to do the homework needed before the deadline for presentation of offers. The owners expressed the sentiment that this offer was almost non existent because it was so vague and that they preferred to take the offer that definitely mean’t that their home was sold.
You are reminded that the agreement for sale and purchase of real estate is a binding agreement. If you have any doubts, please seek professional legal advice before submitting your offer.
August 26 2009 | Home Buyers | 2 Comments »
I have just got off the phone from a potential home buyer who is considering putting a tender in on a property tomorrow with another agency. She rang for my advice on what price to put on the document.
“How do I perform with success in a tender situation?” is a question that more and more buyers will be asking in the coming months.
As evidence of the increase in use of no-price marketing, I have taken the liberty of borrowing the link for the latest Harcourts Market Watch from Mason Parker of Levin. There were few surprises in this latest report but what did interest me is the jump in usage of auctions and tenders.
All markets showed a large percentage hike in the use of these sale methods which reflects to me, the speed at which new listings are heading out the door and the demand for new property by the active buyer pool. Auctions and Tenders slow the pace down and allow time for the house in question to be well exposed to the market before the selling decision is made by the owner.
Buyers generally hate Tenders and Auctions because money has to be spent before the Auction or Tender date carrying out due diligence ( LIM reports, building inspections, and title searches ) and as a buyer you have no powers of negotiation and no real clue as to how much the owner wants for the house.
With the listings shortage continuing, I’m sure we will see more Tenders and Auctions ahead so it may pay to acquaint yourself with these processes if you are looking to buy in the coming months.
The question remains, what can you do as a buyer to give yourself the best fighting chance of beating the rest to the house you have fallen in love with?
1) Do your homework first.
Going into an Auction situation, any bids made will be cash unconditional with a deposit to be paid at the fall of the hammer. Tenders don’t have to be cash unconditional, however, the closer you are to a cash unconditional offer, the better your chances of winning the Tender with all other things equal.
If you have to have conditions in your tender because you have run out of time or don’t want to fork out a small wad of cash before knowing if you have the chance to buy the place, then try to trim as much excess time and conditions off as possible (eg. if you can do a builders report in 2 days, don’t stick 3 in the contract! ).
In general terms, my experience is that a cash unconditional offer usually beats a conditional offer by at least $5000. In other words, if the home owner has two offers sitting in front of them. One offer is for $405k but is subject to conditions of say five working days for builders report and approval of finance. The other offer is for $400k but is cash unconditional. In my experience, most home owners will take the cash offer in this scenario. The greater the conditional period or the more complicated the conditions, the greater the difference in price will have to be to persuade the homeowner to take a chance on the conditional vs the unconditional offer. I once ran a Tender in which the highest offer ($23k higher than the next best) had a 10 working day general due diligence clause. The owners only took 20 minutes to decide to take the next best offer which was unconditional. That buyer saved themselves $23,000 by paying out $800 to get a builders report and title search completed before offering!
Talking about conditions, here is a hard call - If you are considering putting in a Tender but you want it to be conditional on the sale of your current home, don’t bother putting a Tender in!
There is no way your Tender will be taken above any other Tender with conditions of less than 5 working days. It would be better for you to wait and see what happens with the Tender and if it doesn’t sell at the Tender date, come in with your offer to buy based on the sale of your home at this point.
Try to get around sticking this condition in your contract. Ring your bank and see whether they will extend bridging finance to you in case there is a timing difference between buying and selling. Or sell first, then buy. Another option which many people forget is to treat your current home as an investment property and plan to rent it out when you move into the home you have bought. Your last option would be to extend the settlement date out on your Tender and then attempt to sell after you have been successful in the Tender. This is a gutsy move and can put undue pressure on you if you don’t get it right so you need to be aware of the potential downsides to this if you can’t sell your place before you have to settle on the one you have bought, but success is for the bold right??
2) Get a rational feel for value.
Without any other information available, the Rating Valuation often becomes the fixation point. No matter how unrelated to actual market value this historical figure is, it has now come into play for the house in question.
As a homeowner considering selling your home by Tender or Auction, you want to make sure this figure is as high as possible. Get it tweaked if you have renovated or have done anything to your home that you consider will change the price you will get in the marketplace.
As a buyer, forget the Rating Valuation in terms of assessing actual market value for the house in question, but be aware that other buyers may be more naive and will, therefore, probably be placing their bids at the Tender casino with the RV figure in mind. To get a rational feel for value, ask the real estate agent for a copy of the recent sales in the area for the last three months. You can also use online resources such as zoodle.co.nz to help guide your feel for value. I call it a feel for value because that is all it is. It is impossible prior to sale to put an actual market price on a house down to the exact dollar. You can also pay for a registered valuation, but again, this is only someones informed opinion of value. Valuers can get the potential sale price wrong and regularly do!
3) Decide how much you want the house.
Once you have ascertained the rational value of the house in question. Let that go for a bit and have the conversation as to how much you want the house emotionally. Will you buy it only if you get it for a bargain? Can you take it or leave it? Would it be nice to own? Do you want to have it? Do you HAVE to have it??
Rate your feelings toward the house on a scale of 1 to 10. One being – I have no emotional stake in this house and, therefore, I am being guided by the rational thoughts only when putting my price in.
Ten being – I am in love with this house and have to have this house at any cost because it won’t be worth living if I don’t get it.
If you are a one then simply put in the value that the recent comparable sales consider is fair value for the house or a bit below. For every number up the scale you go, add 1% to your tender value eg. if fair value is $400k and you see yourself as a 5 on the scale, add $20k to your offer.
If you are a ten on the scale, don’t muck around, add 20% to what you the rationally feel is the fair market price for the house. Yep, pay way too much for the house and not by a little bit, do it by a long shot!
4) Home sellers are people too!
Take the time to write a little note to accompany your Tender. Tell the home sellers about yourself and your family, and how much you love their home and want to purchase it. Sound barmy????! I have seen this strategy work numerous times when everything else about the Tenders are the same. Home buying and selling is naturally adversarial, so take the time to put a face to the name for the sellers and plead your case!
One example of this sticks out to me and won the buyers the house even though they were a close fourth in terms of tender price. The young daughter of the buyer’s family had drawn a picture of her family smiling outside the home sellers house. Underneath the picture was the note, “Thank you very much. My family is so happy that you are selling your house to us”. Talk about closing the deal! This 6 yr old had already assumed that the seller was going to sign her family’s tender even before it was submitted! And it worked!
5) Let the agent see your keenness to purchase.
The agent who takes your offer may be the only one in the room with the sellers when the decision between tenders is made. Make the agent your advocate! Though the ultimate decision is the home sellers, often the agent is asked their opinion. Within the bounds of professionalism, the agent can communicate to the home seller information about the prospective buyers that may aid in the decision. Let the agent know that you are flexible in terms of settlement date. Also it may pay to let the agent know that if no offers are deemed acceptable by the owner, you would like the opportunity to revisit your offer to them.
With all of these strategies, you are trying to eliminate the chance that the house sells within reaching distance of your offer but to someone else! Once you complete these steps and have launched your Tender into the hands of the gods, go home and pray like crazy that they smile on you!
August 17 2009 | General Real Estate and Home Buyers | No Comments »
Everyone has heard of Leaky Home Syndrome but not much is talked about Leaky Home Owner Syndrome. Symptoms can include depression, sleepless nights, a fear of rain and wind, an inability to completely unwind and relax, relationship issues, and the compulsion to spend large amounts of time and money on repairs/litigation/investigation.
Abraham Maslow in his 1943 paper a Theory of Human Motivation proposed a pyramid of what he described as human needs.
The Theory suggests that the needs of the level below have to be met before the next level up can be considered or satisfied. The need for shelter is one of the most basic human needs for survival and must be fulfilled before things like friendship and intimacy, esteem, and financial and personal security. At the heart of the Leaky Building Syndrome is the disruption to homeowners of this most basic need for shelter from the weather. It is damaging psychologically to live in a shelter that cannot properly protect itself or the occupants from the vagaries of the New Zealand weather patterns.
Added to this stress is the undue amount of time and money to get things rectified, if at all. And the way the house building and certification “system” has butt covered and fluffed around in its dealings with homeowners caught in the leaky trap. I have not personally owned a leaky home but I have sympathy for the hundreds of homeowners who have unwittingly become participants in this dance of depression.
I would also suggest that the problem won’t go away anytime soon. There are homes entering the market every day in New Zealand that either have problems that the owners may or may not know about, or have the potential to have problems with time and a lack of basic maintenance. In my experience, sometimes the first inkling that a homeowner has of a problem with their home is when they come to sell and a potential buyer gets a builders report with moisture meter testing that highlights higher than average moisture in wall linings. You can get used to the faint musty smell or dismiss the mold affecting the paint work under windows as due to condensation, but these things can be a result of greater underlying problems.
Like many building companies, councils, and government agencies, I have no obvious answers for people who have leaky homes and who can’t seem to get redress. But I can help prospective purchasers avoid the problems of others by encouraging them to pay the money and get a comprehensive builders report completed by a respected and insured house inspection company that includes moisture meter testing in their report, especially if you a considering purchasing a mono-clad or textured coated home in New Zealand in the 1990’s – 2004 era.
One such company who conducts moisture meter testing is the NZ House Inspection Company. This is not a personal endorsement but is simply an example of one such company I have had dealings with who seem to tick all the boxes. Having a builder friend or family member in the trades give the house a quick once over is all well and good, but if any problems are missed then you have little or no redress. I have more than once witnessed friendships disintegrate over such issues.
I also feel strongly that potential home sellers should consider getting a building inspection done before putting their home on the market especially if the house is built in the era mentioned, has a mono-clad exterior, or is exhibiting suspicious symptoms. It is often too late once you have your home on the market and building inspections start coming back with high moisture content mentioned. If you have an offer that falls through due to real (I emphasize “real” here, not just imagined by the buyer or used as an excuse for cold feet in the purchase process as sometimes happens) concerns regarding moisture (or any other major structural issue) your real estate consultant is obligated to mention this to any further prospective purchasers making the selling process more difficult. It is better to get any issues rectified before selling so that you go into the marketing process with an issue free home and a guilt free mind.
July 20 2009 | General Real Estate and Home Buyers and Home Sellers | 1 Comment »
Does your home’s Rating Valuation represent real value??
I have just finished reading Jana’s rant about Quotable Value’s housing valuations.
Early on in my real estate career, I often tried to inform both buyers and sellers about the true nature of the Ratable Value and the dangers of trusting this figure as an indication of Market Value. I tell you, it is a hard thing to do!
I have long since given up trying to convince home buyers and sellers that the RV (Rating Value – not to be confused with Registered Valuation!) isn’t representative of market value because the myth is too ingrained. I am glad that we have moved away from calling the value GV or Government Value because this only perpetuated the myth that somehow this is what the Government believed your house to be worth. Rating Valuation is the best name for the value as opposed to Capital Valuation or Quotable Valuation.
I now go with the flow and work the system to help home sellers maximize their sale price by getting their Rating Valuation tweaked before putting their home on the market. Yep it can be done! Its called an urgent valuation update and costs around $200 from memory. I find that generally I can get the Rating Value up at least $20k and sometimes I have seen this figure jump almost $100k largely dependent on how much renovation has taken place in the house in question and how long it has been since a valuer actually entered the premises. As you can easily see, based on the belief that the RV actually means something, getting the RV up by this kind of amount has a large bearing on how buyers will assess value for the property when it enters the marketplace for sale.
Things to remember regarding a Rating Valuation figure:
# It is a historical snapshot of your property at a point in time and is already out of date by the time you receive notification in the post. Wellington City Council is reviewing it’s Wellington real estate housing stock values this year in a couple of months time. This year is the transition year from annual revaluations to three yearly revaluations. The current Rating Valuations were assessed in September 2007. With the extreme change in the global economy that has taken place in the last 18 months, how can this figure be in any way related to value today? There will be greater opportunities to use the RV system to your advantage as a home seller when we move to the three year system because of the time between revaluations.
# The figure is primarily designed to aid the fair apportionment of the rates bill between all houses in a Council’s jurisdiction. As long as everyone pays a fair percentage of the rates, then the system is working. The RV figures do not have to necessarily be aligned to market value to work successfully as an apportionment system!
# The figure does not include an amount for chattels. And so it shouldn’t! Why should you pay more rates simply because you have bought a flash new stove or triple heatpumps or installed a spabath?!
# When renovating your home, the RV will not change unless you bring it to the Council’s attention. This process usually happens when you are doing work requiring a permit or consent. You can spend thousands of dollars cosmetically upgrading your home such as replacing carpet, installing insulation, buying new drapes, painting through etc without the Council ever knowing about it. Obviously, you would expect this renovation to lift the market value of your home, but it will not affect your RV unless you tell them.
Interestingly, in my personal experience, if you hire Quotable Value to give you a market valuation (confusingly called a Registered Valuation (RV) as opposed to Rating Valuation (RV) ), the figure will be different than if you hire the same valuer from QV to redo your Rating Valuation. Do I get it? NO!
Do I have a problem with it? NO!
When selling, pay the $200 and get your RV revisited.
I am constantly amazed at how few other real estate agents suggest this to their prospective home sellers. Maybe these agents believe the myth as well?
You can download a form and read more about the Urgent Valuation Update here.
When the nice valuer visits make sure you give him a nice cup of coffee, a freshly baked afghan, and an expansive tour of your home. Make sure your home is presented in a way that you would expect for an open home. Valuers are human beings! Unbelievable but true! Human beings respond emotionally to houses so make sure that the response of the valuer is good to your home. This will hopefully translate into a nice healthy optimistic valuation which will make it easier to achieve a premium price for your home. Have you ever heard this talked about by any real estate agent ever? Bizarre huh! And yet so simple!
Important! After this process has been completed. Don’t buy into the myth yourself! I have seen it happen too many times. The homeowner listens to my advice and gets their RV revisited, the RV goes up in value, and suddenly the homeowner believes that their house is worth more on the market than they did the day before. One fine example of this from last year was a couple with a renovated villa in North Wellington. The RV was originally $475k, after the visit from the nice valuer person, the RV sky rocketed to $580k. I saw the glowing dollar signs in their eyes fade as I told them that it was not worth $580k but was closer to the original RV in value on the market compared with other homes that had recently sold in the area. They didn’t believe me and followed a course of action which saw them spend just over a year on the market with many many open homes and buyer visits day and evening. Unfortunately, the market also dropped further during this time and they ended up selling a year after our conversation just below the level that I had first suggested to them.
If you are buying, forget the Rating Value!
Don’t be suckered into the belief that you are buying value if you can purchase a house below the RV. The best indication of value is the history of recent comparable sales in the area surrounding the home in question. Preferably these sales should have been completed within the last three months and will be filtered to show homes with a similar floor area, section size, location and age to the target home. You won’t know what the standard of renovation is like in the houses that are represented in the stats but a drive past of the homes in the list will give you a good feel. Ask the real estate agent representing the house for a list of such sales statistics.
As a buyer, if you have been actively looking at homes in a certain area of focus for at least a couple of months, you will be one of the more informed people in the market place in terms of market value.
Stick to your guns but read the market signs! If there are a bunch of people wanting to buy the house too, your comparative stats will be outdated. In order to buy the house, you will have to spend more than you think it is worth. Don’t muck around putting in an offer that throws you into the middle of the fair value melee. Go in with a mindset that you want to win. Put both feet forward in terms of a more than fair price, and minimal conditions.
If you have comments to make or you disagree with anything I have said here, please feel free to leave a comment! I value healthy open discussion.
July 09 2009 | General Real Estate and Home Buyers and Home Sellers | No Comments »
Does your home’s Rating Valuation represent real value?? And what is market value anyway?
Market Value is the most probable amount that a willing and informed buyer will pay and a willing and informed seller will accept for a property in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus.
I have just finished reading Jama’s rant about Quotable Value’s housing valuations. It is quite common for questions regarding Rating Values RV (read also QV, CV, GV) to be asked by both buyers and sellers in the market place. And I believe that too much focus is placed on the RV figure by buyers trying to ascertain the market value of a property. Early on in my real estate career, I often tried to inform both buyers and sellers about the true nature of the Ratable Value and the dangers of trusting this figure as an indication of Market Value. I tell you, it is a hard thing to do!
I have long since given up trying to convince home buyers and sellers that the RV (Rating Value – not to be confused with Registered Valuation!) isn’t representative of market value because the myth is too ingrained. I am glad that we have moved away from calling the value GV or Government Value because this only perpetuated the myth that somehow this is what the Government believed your house to be worth. Rating Valuation is the best name for the value as opposed to Capital Valuation or Quotable Valuation.
I now go with the flow and work the system to help home sellers maximize their sale price by getting their Rating Valuation tweaked before putting their home on the market. Yep it can be done! Its called an urgent valuation update and costs around $200 from memory. I find that generally I can get the Rating Value up at least $20k and sometimes I have seen this figure jump almost $100k largely dependent on how much renovation has taken place in the house in question and how long it has been since a valuer actually entered the premises. As you can easily see, based on the belief that the RV actually means something, getting the RV up by this kind of amount has a large bearing on how buyers will assess value for the property when it enters the marketplace for sale.
Here is what Quotable Value says about Rating Values on their website…
The primary purpose of a Rating Value is to apportion the rates payable by property owners to their respective Councils. It was historically called a Government Valuation (GV) before the industry was deregulated in 1998, and is also sometimes referred to as the Capital Value (CV).
The calculation of Rating Values and how they impact on the rates is a complex process which can vary by council. Rating Values are calculated using mass-appraisal techniques supplemented with kerbside inspections and random internal inspections. This method of mass-appraisal gives a good indication of general property values and is cost-effective and appropriate for Councils purpose of allocating rates. Building consents or sub-divisions will also result in the Rating Values being re-assessed. When you receive your Rating Valuation notice there is a period of time where you can object to the valuation by supplying evidence to support why you believe the valuation is too high or too low.
Over time RVs have become utilised as property marketing tools, a role which the poor little RV never intended to fulfil. It is constantly being stretched between measuring capital gain, and the home-owner not wanting to contribute more than their fair share to the rate pool. Fundamentally, an RV is an indicative value snapshot in time. Yes, it easily goes out of date in a fickle market, but all properties in the same Council are on an even keel with the same effective date.
If you can’t used the RV as a price guide, how do you assess market value?
A good indication of the likely market value of a property can be gained by looking at the sale prices of recent (less than three months preferably) comparable (similar floor area, location, and renovation standard) properties. Though this will not give you an exact figure, it will give you a general guide for comparative value.
The new Real Estate Agents Act recognizes this as the best way to gauge the likely market value of a property. From November this year, real estate agents and licensees (salespeople) will be required by law to provide appraisals in writing that include recent comparable sales.
I quote from the newly revised Real Estate Code of Ethics
An appraisal of land or a business must be provided in writing to a client (seller) by a licensee (salesperson); must realistically reflect current market conditions; and must be supported by comparable information on sales of similar land in similar locations or businesses.
This is how the law describes the process of determining a likely market value of land (including any house or buildings on the land) or a business. There is no mention of comparing Rating Valuations or any such thing.
Another piece of the puzzle would be to look at the other homes currently for sale in a similar bracket. Buyers buy by comparison and make value decisions based on the homes currently on the market and what they offer based on asking price.
Things to remember regarding a Rating Valuation figure:
# It is a historical snapshot of your property at a point in time and is already out of date by the time you receive notification in the post. Wellington City Council is reviewing it’s Wellington real estate housing stock values this year in a couple of months time. This year is the transition year from annual revaluations to three yearly revaluations. The current Rating Valuations were assessed in September 2007. With the extreme change in the global economy that has taken place in the last 18 months, how can this figure be in any way related to value today? There will be greater opportunities to use the RV system to your advantage as a home seller when we move to the three year system because of the time between revaluations.
# The figure is primarily designed to aid the fair apportionment of the rates bill between all houses in a Council’s jurisdiction. As long as everyone pays a fair percentage of the rates, then the system is working. The RV figures do not have to necessarily be aligned to market value to work successfully as an apportionment system!
# The figure does not include an amount for chattels. And so it shouldn’t! Why should you pay more rates simply because you have bought a flash new stove or triple heatpumps or installed a spabath?!
# When renovating your home, the RV will not change unless you bring it to the Council’s attention. This process usually happens when you are doing work requiring a permit or consent. You can spend thousands of dollars cosmetically upgrading your home such as replacing carpet, installing insulation, buying new drapes, painting through etc without the Council ever knowing about it. Obviously, you would expect this renovation to lift the market value of your home, but it will not affect your RV unless you tell them.
#In most scenarios, the Rating Valuation figure is set remotely. This is known as a desktop valuation. How can anyone assess the true value of your home without at least doing a drive past? It may have been decades since someone has physically visited an address to assess it in terms of market value.
Interestingly, in my personal experience, if you hire Quotable Value to give you a market valuation (confusingly called a Registered Valuation (RV) as opposed to Rating Valuation (RV) ), the figure will be different than if you hire the same valuer from QV to redo your Rating Valuation.
A classic example of this happened to me only last month. A house I listed for sale had an RV of $340k. I didn’t feel that this was helping the owners because it didn’t reflect market value, so I suggested they get it redone. Unfortunately, when the valuer visited he thought the owner wanted a Registered Valuation (ie an opinion of market value). This opinion came out at $362k. When I found out, I told the owners to go back to Quotable Value as there had been a mistake made. I wanted the Rating Valuation updated. They obliged and the figure jumped from $340k to $370k. The house was sold a week later at $360k. A week after that the newly assessed Rating Valuations came out in the post. Our new RV of $370k got downgraded to $350k!
So after all is said and done, what is the real market value of this particular property? The sale price of course! $360k. All other figures are opinion only!
When selling, pay the $200 and get your RV revisited.
I am constantly amazed at how few other real estate agents suggest this to their prospective home sellers. Maybe these agents believe the myth as well?
You can download a form and read more about the Urgent Valuation Update here.
When the nice valuer visits make sure you give him a good cup of coffee, a freshly baked afghan, and an expansive tour of your home. Make sure your home is presented in a way that you would expect for an open home. Valuers are human beings! Unbelievable but true! Human beings respond emotionally to houses so make sure that the response of the valuer is good to your home. This will hopefully translate into a healthy optimistic valuation which will make it easier to achieve a premium price for your home. Have you ever heard this talked about by any real estate agent ever? Bizarre huh! And yet so simple!
Important! After this process has been completed. Don’t buy into the myth yourself! I have seen it happen too many times. The homeowner listens to my advice and gets their RV revisited, the RV goes up in value, and suddenly the homeowner believes that their house is worth more on the market than they did the day before. One fine example of this from last year was a couple with a renovated villa in Wellington. The RV was originally $475k, after the visit from the nice valuer person, the RV sky rocketed to $580k. I saw the glowing dollar signs in their eyes fade as I told them that it was not worth $580k but was closer to the original RV in value on the market compared with other homes that had recently sold in the area. They didn’t believe me and followed a course of action which saw them list their home with an agent who told them what they wanted to hear, fail to sell at Tender with this agent because the price was talked up too much, list with another agent and then spend just over a year on the market with many many open homes, advertising dollars spent, and buyer visits day and evening. Unfortunately, the market also dropped further during this time and they ended up selling a year and two months after our conversation about $15k below the level that I had first suggested to them.
If you are buying, forget the Rating Value!
Don’t be suckered into the belief that you are buying value if you can purchase a house below the RV. The best indication of value is the history of recent comparable sales in the area surrounding the home in question. Preferably these sales should have been completed within the last three months and will be filtered to show homes with a similar floor area, section size, location and age to the target home. You won’t know what the standard of renovation is like in the houses that are represented in the stats but a drive past of the homes in the list will give you a good feel. Ask the real estate agent representing the house for a list of such sales statistics.
As a buyer, if you have been actively looking at homes in a certain area of focus for at least a couple of months, you will be one of the more informed people in the market place in terms of market value.
Stick to your guns but read the market signs! If there are a bunch of people wanting to buy the house too, your comparative stats will be outdated. In order to buy the house, you will have to spend more than you think it is worth. Don’t muck around putting in an offer that throws you into the middle of the fair value melee. Go in with a mindset that you want to win. Put both feet forward in terms of a more than fair price, and minimal conditions.
If you have comments to make or you disagree with anything I have said here, please feel free to leave a comment! I value healthy open discussion.
July 09 2009 | General Real Estate and Home Buyers and Home Sellers | No Comments »
