North Wellington Real Estate

Archive for the 'Home Sellers' Category

Is it worth getting a valuation when you’re selling your house?

I had this question posed to me recently.
As always, there are two sides to the story.

On one hand, registered valuations provided by an independent, trained valuer with experience in your local market and property type will give you a good indication of potential market value based on recent comparable sales in your area allowing you to make investment and refinancing decisions and giving your loan provider some surety in terms of your loan to value ratio (the market value of your home minus what you owe on the mortgage and other debt).

On the other hand, the valuer is not active in the marketplace as a buyer, is using historical data (even recent data can be out of date when used), is trying to make value judgements on things that are often intangible (how do you place a value on the particular view your home has looking towards the sunset, the landscaping, the loss of light resulting from the macrocapas that are in your neighbours property, the colours you have chosen to paint the inside of your home etc) and is often not as independent as may seem from the outside.

The Cynics View

Having been involved in the real estate industry for well over a decade, I know that registered valuers are generally well trained, competent, and professional in their business BUT they are also human. I have received many calls from valuers over the years who are needing fresh sale price info and often my opinion on the value of properties in my jurisdiction. It can be difficult to place a value on unique properties or places that have few comparable recent sales and yet they are asked to do just that by buyers, sellers, and banking institutions.

Independent? Not always. Impartial? yes. Objective? yes. Professional? yes. Can be influenced? YES!

There are valuers that value high, there are valuers that value low. Most people in the industry know how particular valuers work and hire them accordingly. Experienced investors and developers understand this also and use valuations to gain more borrowing, claim greater tax advantages, and convince unwary buyers of inflated values.

What options do I have then? Good question! I’m glad you asked.

First let me define Market Value

Market Value is what a willing and informed seller will sell their home for

and what a willing and informed buyer will by that same house for.

In the purest sense, this transaction should be without time pressure, duress, or any other influencing factors but this is never completely the case in reality. No one has perfect knowledge and there are always other people with opinions involved be it a real estate agent, valuer, builder, family member, work colleague, or local mechanic. Both parties can and are swayed in terms of value by other people, many of whom are totally ignorant of local market property values and construction methods but believe themselves to be resident experts. There is nothing worse than a fool who doesn’t know he’s a fool,and this definitely applies to real estate!

Option 1) If you are wanting an idea of value without putting your house on the market – obtain two valuations from independent registered valuers. Make it known that you are getting two valuations to both valuers but NEVER let either of them know who the other valuer is. You don’t want them to ring each other and decide on a satisfactory value for your property together. I have no proof that this happens but I wouldn’t take the chance. If I’m paying for two valuations, I want two separate valuations NOT one merged valuation that I pay for twice. Remember also, that valuers have to be accountable to the banking institutions that the valuations get forwarded to. As such, it is often safer for them to be conservative on the value if they are unsure.

Option 2) Get in touch with a couple of real estate agents and ask for a free market valuation from them. At least you don’t have to part with hundreds of dollars this way. Of course, real estate agents/licensees though professional in the main, are not totally objective or impartial either. They want your business and, therefore, want to please you. This can translate into a willingness to overvalue your property. Salespeople are also positive by nature and can be caught up the enthusiasm for your property that surrounds a potential hot new listing.

Option 3) Add both option 1 and 2 together – costly and involved. At least this way, you’ll get a good general feel for value. Remember that valuers often value low and agents value high.

Option 4) Put your house on the market. You will find out what the current stable of active buyers think about your place giving you the best indication of value available.

But what if I don’t want to sell?

If that is truly the case, why on earth do you want a valuation in the first place?

If it is simply for bank refinancing then get one valuation – the cheapest and highest value you can get. If you don’t have any such contacts, then ask a real estate salesperson or agent that you know and trust to give you a valuer contact that will work with you in the way you want.

Sometimes banks will let you get away with a written appraisal from a real estate salesperson. But be nice. Let the salesperson know this is why you are getting the appraisal. Some agents will charge you a paltry sum for this, others will d0 it for free to try and gain good will from you. Don’t be a user though, don’t pretend you are going to put your house on the market and get appraisals done for you only to use the info for your bank. It’s not nice and karma will get you in the end! Give them a bottle of wine and refer them to your friends and acquaintances so that they get something out of providing you with their time, expertise, and energy for free.

If you are wanting to sell your home but don’t trust the values that agents put on your property then try a no-price marketing strategy like a tender or auction. In this way you are allowing the buying market to show you the value of your home without artificially influencing it.

Be aware that with this strategy, buyers will take value hints from other sources if you don’t advertise a price eg the rateable value, their own registered valuation, the agent/s involved on the sale, and the influencing people in their lives that I’ve already talked about.

Have a read about getting your rating valuation up here

I value your opinion. Let me know what you think…

June 11 2010 | General Real Estate and Home Sellers | No Comments »

Which marketing method is right for you?

Auction or Tender? By Negotiation or Fixed Price?
Every property sales agent has their favourite marketing method. There are also preferred methods within companies and franchises. A rather played up and public stoush between two big real estate players in the property section of the New Zealand Herald got me in the blog writing mood. So with cup of tea and ginger nut in hand, I sat at my laptop to pen this post.

How do you decide which method is right for you?

If we are to generalize, there are two main streams you can follow when selling a property. These streams can be succinctly summarized using the following words – “price” and “no price“. To easy!

Under the price stream we have the likes of fixed figure, Buyer Enquiry Over (or Buyer Budget Over), and any price range styles of marketing (which have fallen into disfavour in NZ currently). In the other stream we have Auction, Tender, By Negotiation, Private Treaty etc.

Which way to go?

In considering the following questions with your property in mind, hopefully the answer will become clearer.

To start though, it is profitable to dismiss the preconceptions and bias that you will have regarding certain methods of sale. Steady your nerves to consider such words as Tender and Auction with an objective eye.

Now to the questions…

In the current market conditions, who holds the balance of power?

To get an indication of whether it is a buyers or sellers market, ask your an experienced and active local agent what the average time to sell a home in your area is. Ask the agent whether prices are firming or weakening. Is there a build up of homes on the market or is demand outstripping supply?

If the power is firmly plugged in on the seller side of the scales, then no-price methods are usually favoured by agents. In a bouyant market, pricing is more difficult, and there is often the need to slow the pace of activity down to ensure that the property has been well exposed to a good portion of the active buyers in the market place before the owners decide which offer to take.

If the market is full of sellers and buyers are few and far between, then advertising your home with a realistic price point will get a much better response from the active buyers than any no-price methods.

What appears to be the predominant method of selling real estate in your area?

I pose this question because it will guide you as to what is potentially working, and what buyers are expecting. There is no point committing to an Auction, for example, if there are few or no auctions being undertaken in the area. The buyers will have no idea how to act in an auction situation and will turn up in droves on auction day out of curiosity and to learn but not to buy. In some areas (and countries), there is a good history of Auctions or Tenders, and this will make it easier to get bites on the deadline day if you pursue one of these avenues of sale.

Is your home unique and distinctive compared to homes in the surrounding area?

Of course every home is unique, don’t get me wrong, but I am looking for characteristics that truly separate your property from your neighbours. These characteristics can be either good or bad, and it pays to try and step back and consider your home objectively if possible. Does your home have a pool and spa area which your neighbours don’t? Is your home a heritage property? Is it brand new in an area that is predominantly older housing? Does it come with more land than your neighbours? Is your next door neighbour a power pylon, school, playcentre, or park? Does your home have expansive sea views?

True uniqueness in a property adds value uncertainty. Buyers and agents cannot easily gauge market value. Value in this situation, especially if the uniqueness is positive, can be more subjective and emotive. Each buyer will have to fight with their own ‘desire quotient’ (like that phrase? I just made it up) when deciding how much the home is worth to them. In this scenario, an auction or tender method may be the way to go to extract the best that the market has to give. The winner on the day will be the buyer who wants the house more than the others.

If your home is very similar to your neighbours then pricing will be easier and buyers will have a good feel for value when they walk in the door because there will be other similar homes on the market and recently sold that they can compare with. A fixed price or Buyer Enquiry Over style of marketing may work best for you.

How motivated are you to sell your home?

You may wonder what this has to do with the price of fish (or more accurately, with the price of your house). How does my motivation affect the the preferred marketing method of my house?

Motivation to sell has underlying causes. Do you have time constraints? Is there money pressure? Illness? Domestic stress? Major lifestyle changes imminent that require the sale of your home?

It is NEVER good being in a position of HAVING to sell. But if you find yourself in this situation as many do, an auction or tender may be right for you. Having a set marketing period with a distinct deadline can help mitigate some of the life stress and allow forward planning. When the final selling price is not the biggest issue, a tender or auction will get the house sold on the designated day and alleviate the stress.

Does the situation surrounding the sale of your home demand privacy?

When there is a separation going on, a death or major illness in the family, or sellers that need a buffer from the market, and privacy and time to make a decision, then I have found the Tender method of marketing can be great. As an example, I used this method when selling my own grandmothers home. She was moved to an aged care home with Alzheimers, her home had been in the family for 50 years, and my father and his sister, who were both brought up in the house, had to sell it to pay for her care. They were both in different parts of the country and had different opinions on the value of the property. It was advantageous in this scenario to put the home to Tender. On the deadline day there were 4 offers with a variety of conditions, prices, and settlement dates. The Tender method allowed the two children of the owner to discuss the offers, come to grips with selling in the first place, deal with the emotion surrounding the sale, and make a unanimous decision without feeling like they were put on the spot.

To summarize…

If you are considering selling, take the time to think about how you want to sell it. Do a bit of homework and spend some QTT (Quality Thinking Time) weighing the pros and cons. The estate agents you talk to will all have an opinion. Keep an open mind and value what they have to say as experienced professionals in their field, but if you don’t feel right about selling using a certain method, step back, rethink it all and try to be objective. Then make a call.

As an aside, I wouldn’t necessarily choose an agent because of the marketing method that they are promoting. Any experienced agent should be comfortable with all methods of marketing in vogue in your locale. If you like an agent but don’t like the marketing method they have suggested, talk it through with them. Ask them if they are comfortable and experienced with these methods, and if the agent is adamant, attempt to understand why. A good agent will be thinking about your home and your situation primarily, they will have very valid reasons why they are promoting certain methods.

April 06 2010 | General Real Estate and Home Sellers | 4 Comments »

Agents and Leaky Buildings – Walking that straight ole line

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 »

Real Estate Agents and Commissions – An insiders glimpse

Having spent over a year writing blogs via the realestate.co.nz website and having clocked up 79 posts with unique visits now heading firmly toward 10,000, my stream of fresh ideas for posts that are relevant, insightful and original has waned to a trickle. In an effort to find topical subjects, I turned to the analytics provided by the blogging platform to find the keywords or topics that readers have used most in their search for information. The subject of real estate commissions came up over and over again. And why shouldn’t it?! The industry has been strangely silent on the subject!

Taboo Topic

For some reason there seems to be an unwritten rule within the real estate industry that you don’t talk about commissions in a public sphere, so having decided to write a little of my learnings from my ten years at the real estate coal face, I approach the subject tentatively. Please, before I begin, let me say that these are my own thoughts and opinions, they don’t necessarily reflect the thoughts and view of other players in the industry or even of the colleagues in my office.

Let me begin with the basics

There is a distinction between Real Estate agents and salespeople (now called licensees under the new Act introduced in Sept 2009 ). Most people who market real estate in New Zealand are NOT agents. An agent is someone who holds a qualification that enables them to carry out agency work on their own behalf. A salesperson (licensee) is someone who holds a qualification that allows them to carry out real estate agency work for and on behalf of an agent. Agents start on their own and if successful, hire additional salespeople to work for them. In the majority of cases, the real estate person you come into contact with buying or selling a house is a salesperson.

When you enter into an agency agreement, you are contracting yourself to the Agent NOT the salesperson. The commission you pay when your property unconditionally sells, goes to the agent. The agent then pays the salesperson a percentage of the commission based on the individual employment contract the salesperson has with the agent and the part they played in the selling process of your home. Most salespeople work on a commission only basis, with no base salary or wage. NO sales, NO pay!

When an owner signs up their house for sale with an agency, the agency calls this house for sale a listing. When a salesperson lists a house for sale with the agency they work for, they become known as the Listing agent for this house. When a salesperson sells a house for sale from the stable of listings on the agency books, they are classified as the Selling agent in this instance.

Commission Splits

In very broad terms, the full commission amount that is paid by a seller can be separated into four distinct pieces.

Agency share + Lister’s share + Seller’s share + Government’s share (GST)

The percentage that each of the parties get from a selling fee can differ from agency to agency and even from salesperson to salesperson within the same company! If you were to make a general call, an old school style of agency may operate on a 35%+27.5%+25%+12.5% split or similar.

Agency Share – In most realestate agencies in New Zealand, the agent will provide a workspace for the salespeople, pay part or all of the office overheads including reception and admin staff, stationary, office landlines, internet connection etc. They will also often contribute to the branding part of any advertising that is carried out by salespeople. Some agents also provide a base level of advertising including print media, signage, and website exposure that can be shared out between salespeople for promoting office listings. This is all paid for from the agency slice of the commission.

User Pays

There has been a move within the industry especially over the last ten years towards user pays. Affectively what this means is that the agent is prepared to spend less of their share on the items mentioned above, and expects the salespeople to take the costs on themselves or pass them onto the seller (vendor). The slide towards salespeople shouldering the cost is usually balanced by the agent taking a smaller share of the commission and giving a greater share to the salespeople. The Remax system is an example at the extreme end of the scale. In this system, the agency takes a very small portion of the commission but charges all the overheads including the advertising bill and office space, to the salespeople they employ. Understandably, this became known as the rent-a-desk system. Salespeople employed under this system pay a monthly fee for using the space in the local office. There are variations on this theme and again, it can vary from salesperson to salesperson within the same office. Eg Salesperson A works from home and only uses the local office for meeting clients and signing contracts and thus, pays a minimal monthly fee to the agent. Salesperson B has a dedicated work space at the local office and uses the office internet and landline, and therefore, pays more to the agent for that privilege.

Lister’s Share – Most real estate companies try to encourage their salespeople to list houses by offering a higher share of the commission. The listing agent will spend much time behind the scenes coordinating the marketing, script writing, sign erecting, photo taking, and communicating with the seller and this higher share of the commission reflects this extra energy and time spent.

Sellers Share – If you buy a house, the salesperson who introduced you to the house will claim a portion of the commission. If the listing agent also sells the house personally (as opposed to any other salesperson working for the same agency), they qualify for two slices of the commission pie being both the lister and the seller.

Govt Share – With increases in GST being proposed, you will be paying more to sell your house because the government wants a bigger slice.

Why mention all of this?

It can be helpful to have an understanding of how the process within the agency works when you meet a salesperson and start talking commission. You are thinking about the full sum you are going to have to pay to get your home sold. The salesperson on the other hand, is thinking about the percentage that he or she will personally get from the sale. As you can now comprehend, this slice can be much smaller than the full amount that you pay and can vary dramatically from salesperson to salesperson and agency to agency.

How is the commission calculated?

The majority of realestate agencies in New Zealand charge commission as a percentage of the gross selling price of the home in question. This commission sometimes also has a nominal dollar amount added to set a base level of commission payment. GST is then added. A commission charge on a listing form from an agency may look something like this….”The commission fee payable is as follows, first a basic fee of $500 plus 4% of the sale price plus Goods and Services tax (GST).”

Some companies use a tiered system to calculate commission eg 4% of the sale price up to $400,000 then 2.5% on anything above that.

A flat fee?

The last five to ten years has also given rise to flat fee companies who charge one single all inclusive amount. Many of these companies are known as discount agencies. Often in an effort to present budget marketing packages to the marketplace, they cut corners on other parts of their business. This type of agency doesn’t appear to have much longevity. There have been plenty of start ups that have crashed and burned because they lacked the understanding that successful property marketing isn’t simply about profits and expenses. It is about people. Especially the people who are employed in agency sales teams. Nothing beats a solid history of successful selling, local knowledge and experience, a friendly, positively motivated, vibrant sales team that has some personality, and the networking that naturally takes place over many years when an agency is active in their local market.

Fixed fee structures haven’t been as popular as a way of calculating commission for a couple of reasons. There is no monetary incentive for a salesperson to get a higher price for the home sellers they represent. And maybe this is unpopular because a percentage sounds a lot smaller than a dollar value that can be in the tens of thousands

A change in the playing field

Regardless of how the commission is calculated, the recent ushering in of the Real Estate Agents Act 2008 has changed the playing field for all agencies in operation in NZ.

By law, licensees are now required to give you a) an accurate indication of the likely selling price of your house and b) an estimate of the amount of commission you will pay in actual dollar terms based on this selling price. The new law has been drafted in an effort to make professionals working in the real estate industry more accountable and make the processes more transparent. No longer will real estate salespeople be able to hide their commission charges behind complicated percentage figure calculations. Though many salespeople in the real estate industry see parts of the new law as potentially problematic, the fact remains that we all have to work within this new law until it is again reviewed. Because salespeople now have to talk in dollar value terms when discussing commission, it will be much easier for sellers to compare agency offerings and there will be more of a focus on commission in terms of value for dollars spent.

In general, I personally think this move toward greater transparency is a great step forward.

Are salespeople valuers?

The part of that process that I struggle with is that there is now an obligation on salespeople to effectively be property valuers with little or no training given. To quote from the new Code of Practice…

9.5 An appraisal of land or a business must be provided in writing to
a client by a licensee; must realistically reflect current market conditions;
and must be supported by comparable information on sales of similar
land in similar locations or businesses

My issue with this piece of the law has to do with being legally obliged to take an educated guess at the likely selling price of a house. This is all well and good when the property in question is fairly generic in an area with lots of similar homes and plenty of sales stats to use. But appraising a property that is unique from its neighbours, has few comparable sales in the area, or has structural defects that may affect its value (eg leaky building syndrome) becomes very difficult. This piece of legislation is untested so far, as is most of the new Act, and the real estate industry is watching and waiting with baited breath as to how the newly appointed Authority will rule when complaints are made and cases are tried in Court. I’m not alone with this view, check out Steve Koerber’s blog on the subject. Now back to the topic at hand….

What does the commission include?

To be able to get an accurate picture of what it is going to cost you to sell your home, and to be able to accurately compare competing agency offers, you need to get a handle on what the salesperson and/or agency is prepared to provide as part of the commission. Is there a base level of print media advertising provided or are you as the seller expected to foot the total bill?

Vendor contributions (or vendor paid advertising) are separate from the commission and go towards advertising costs. With agencies moving towards providing less base level advertising, either the salesperson has to pay for the advertising or they have to get the owner to pay. There are a decent number of educator/trainer/motivators moving around NZ on the speaking circuit making money from salespeople by teaching them ways to get a higher commission percentage and greater vendor contribution from the homeowners they have contact with.

As a seller, are vendor contributions compulsory? No, they aren’t compulsory but you may see it as valuable in assisting the sale of your property to purchase advertising upgrades or add ons. If you had the chance of getting another $10,000 in selling price for the investment of $500, it is good value right? It pays to remember that the salesperson is getting a far smaller amount on the successful sale of your house than you are getting. The salesperson will think twice about spending the same $500 on advertising for your property because it represents a huge chunk of their potential commission. If you are going to spend your own money up front on advertising, do your homework. Not all advertising is equal. In my view, $500 bucks goes much further when put into web upgrades than invested into print media. The writing is on the wall for print media for property searching.

Under the new Act, agents are obliged to obtain best value for you in terms of any advertising purchased on your behalf (rule 9.17). Could this be interpreted to mean that they should also guide you towards the best advertising media? They should also disclose any kickbacks or incentives that they are offered to sign you up to advertising.

Will you get less service by paying less commission?

Some agencies prioritize higher commission paying properties in terms of free upgrades to advertising etc if it becomes available, but in general terms, I don’t believe that you will receive less service because the commission has been discounted. In most situations, the salesperson you have employed will work just as hard selling your place as selling any other listing they have. I want to say so much more here but am aware that I am still working actively in the industry and don’t want to raise the ire of my colleagues and peers. Suffice to say that it is my opinion that even if you are receiving a good deal on the commission, a good agent will still market and sell your home to the best of their ability. Good agents have pride in their work, and it is not all about the money. You may smirk at this comment but it’s true. The best salespeople enjoy their work, have a people focus, and fulfill their obligations with energy, positivity, and enthusiasm. Though they are competitive, they are not necessarily driven by the profit motive. Being the top seller or top lister in their company can be as much of a motivation for these salespeople as anything else. Money, fame or power – the three most powerful motivators right?

As an extra comment on this subject, it is my view that if a salesperson suggests that you will get anything but the best from them because of a commission cut, MOVE TO THE NEXT AGENCY!

I do feel the need to balance what I have just said though. Some salespeople are worth the extra commission they charge. I emphasize SOME. It can be hard to know which salespeople are worth their weight in commission, but how to choose an agent is a whole different blog post!

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Time for the big question!!

Is there an industry standard level of commission?

Yes and No.

On the surface, a level of commission around the 4% mark plus gst could be considered to be a standard in New Zealand. Certainly, naive media commentators have picked up on this magical 4% ish mark as the expectation of what real estate companies charge for their services.

HOWEVER! And it is a BIG however… The real estate industry is a very free market in the basic sense of the words, meaning that it is easy to enter and exit the industry, there is little government intervention or regulation in terms of commission setting etc, and the laws of supply and demand reign supreme. Pundits who rail against what they see as horrendously high real estate commissions forget that it is one of modern humanity’s oldest professions. If there was no longer a need, the industry would dry up. Technology is changing the way buyers and sellers and agents communicate offerings to each other, but there still appears to be a place for the good ole real estate professional standing at the door to the open home.

There are huge variances in commission charges from market niche to market niche within the real estate industry in New Zealand. Geography both physical and social has an impact on real estate demand, prices, and commissions. What you would expect to pay in commission will differ in a small holiday town like Pauanui compared with the commission you would pay in an outer suburb of Christchurch. Smaller provincial areas often have less agency competition, and less competition means higher commissions.

Even within towns, standard commission rates can differ. An example of this could be the student accommodation investment market in central Wellington vs the suburban homeowner market in Khandallah, a prestige suburb of Wellington. Within the industry it is known that passive investments are a hard sell currently and, therefore, few agents are really keen to take on such listings = little or no negotiation on commission. On the other hand, if you a get a chance at a listing in Khandallah that isn’t texture coated and ticks all the common sense boxes like sun, drive on, indoor/outdoor etc it will be out the door in a week or so = drop the commission, just get that listing!

This variance was highlighted to me just this week by two phone calls I received. One call was from an ex-client who is now living in a town about an hour north of Wellington on a couple of acres. She has her home on the market currently. She told me that in her locale, the average time to sell a house is over a year. The value of her property is around the $800k mark. She is being charged 4.5%+gst by the agent she signed up. When she tried to negotiate on the commission, the agent told her that this is what the commission is, take it or leave it and that no agent in the area would take on listings for less because of the length of time it takes to sell houses in the area, and the traveling distance for the agent from the township to this semi rural property. The agent also mentioned that she was aware that this particular lifestyle property has a neighbour who was going through the process of subdividing and there would be a bunch of new houses on the boundary that would make this property hard to sell as a semi rural lifestyle place.

The second phone call was from an acquaintance who wanted advice. He was trying to buy the next door neighbour’s property in a good part of an inner Wellington Suburb.

The owner of the next door property had approached an agency and they had agreed to sell the house (worth around $700k) for $8000 representing a commission rate of around 1%.

One percent you say! But wait there is more…. One of the salespeople in this agency wants to buy the property. Oh really, you say??? In the face of a guaranteed sale within a day or so, wouldn’t you sign up the agency for a paltry 1% if you were the listing salesperson? A couple thousand dollars for visiting the house maybe twice??? Corse you would!

So you can see, agency commissions are never cut and dried. There is often stuff going on under the surface. The going commission rates can vary depending on where you live, the salesperson you talk to within an agency, your price expectation (if you believe you home to be worth more than than fair market, it will take longer to sell or not sell at all and the salesperson will alter their view of the coming time and energy to be spent on selling your home. Based on this you may pay more in commission), what type of property you want to sell, the part of the property cycle you are attempting to sell in (in a sellers market you can expect to pay less commission than in a buyers market), and the characteristics of the property market in your specific area.

I know that this doesn’t really help in terms of knowing whether you are paying too much commission for the sale of your property or not, but at least it gives you a small insight into the workings of real estate agencies, some of components that go into the commission an agency charges, and some of the factors that influence commission rates.

Thinking of selling? My advice…

If you are looking to list your home and haven’t had any contact with agents active in the area, talk to more than one agency. Get them up to give you an idea of your property’s worth and an estimate of the commission. Let the salesperson gently know that you have invited other companies in to talk to you also. You won’t have to say any more to get them sharpening their pencils! In this way you will have marketing packages to compare.

NOTE: I used the word “gently” because salespeople are people too! No one likes the feeling that they are being used, and the salesperson is taking time out of their day (or evening or weekend!) to come and talk with you and provide you with a service. The old adage applies – treat people in the same way you would like to be treated. Believe me when I say that the real estate world in any locale is a small world! Salespeople talk with their peers in competing agencies. Snarky no-it-all people can have their reputation precede them. Salespeople have their own informal black list of people who are dodgy or nasty. These types of people will have a totally different experience at the buying and selling coal face than the nice people. IN my experience, it isn’t unusual to be texted by opposition agents to warn me about such and such who may come through my open home or call me. The real estate grapevine is a strong one, and salespeople have very long memories when it comes to past buyers and sellers. People who stir the honey pot run the risk of getting stung!

If you have bought or sold a house before and rated the service of your previous agent positively, then make contact with them first. Nothing appeals to the sensibility of a good agent more than loyalty. Make it known that you contacted them because of a good previous experience and that you trust them to give you a good deal in terms of commission. No good salesperson would abuse this trust as it is a very rare and beautiful thing in the real estate industry. You will get the best that the salesperson has to give!

February 26 2010 | General Real Estate and Home Sellers | 8 Comments »

Preparing Perfect Open Home Presentation

There is plenty of claptrap written regarding the presentation of homes on the market for viewing by buyers. Unfortunately, I see common mistakes still being made on a daily basis, so I thought I’d add my own two dollars worth to the topic. The internet has influenced the way buyers filter and purchase. Open Homes may be the one and only time to catch prequalified buyers, therefore, great open home presentation is critical. The troupe of potential buyers that come through your place on a weekend will usually be seeing a good handful of your competition (other comparable homes in your locale that are on the market for sale) at the same time and will have your competitors homes in their mind to compare with when they enter your open home. I emphasize this point…

Home purchasers buy by comparison. You are helping to sell someone else’s house if your home is not up to scratch presentation-wise!

It doesn’t take much effort to lift your home’s presentation FAR above your competitors. In order to provide a framework, I have arranged my tips by SENSE.

SIGHT

The way your home is presented to the eye is the most common sense talked about and it is one of the most important. I can’t harp on using words like CLEAN, UNCLUTTERED, LIGHT and BRIGHT enough when describing perfect presentation.

CLEAN ALL surfaces that can be seen. Make sure that amenity areas like kitchens and bathrooms are spotless. These rooms are areas of focus for buyers especially women, who have a much more discerning eye for cleanliness than most males I know (did I just say that??!).
Don’t forget less cleaned areas like window sills, behind toilet and bathroom doors.
Make sure windows and mirrors are clean. Pay special attention to windows that have a view. Get rid of those scrubby old net curtains! Almost every buyer that I’ve met mentions taking down the net curtains as one of the first jobs to do when they move in. Nets are good for catching fish, not catching buyers!
Everything that may be opened needs to be tidied. Wardrobes, pantries, cupboards, vanities. In my mind I can still see a handful of the most well ordered pantries I have had the pleasure of viewing. One of these pantries with its cans in height order, its well labeled Tupperware, and spice rack with herbs and spices all in identical glass bottles, sparkling clean and facing the front like well drilled soldiers at a graduation parade, stands out to me. This pantry I saw well over eight years ago, but I remember the rest of the house and the owner in vivid detail because of this. A remarkable feat considering I have viewed 5-10 houses a week for the last 12 years!
Magnets off fridges. Paperwork off desks and kitchen benches. Clothes off the floor. No washing piles in the laundry either!
Declutter the garage and any other storage areas. If you haven’t used it in 2 years, sell it or give it away!
LIGHT AND BRIGHT. Energy saver bulbs don’t sell houses! Now is not the time to be frugal with energy. Buy a dozen 100 watt bulbs and put them everywhere especially in hallways.

SOUND

Set the tone with music. I like background music playing at my open homes. I have an ipod with a good selection of non invasive music that I can play if the owners aren’t audiophiles or I am selling a home empty of occupants. Don’t put on the radio though. The music can be hit and miss and the announcers voice can be off putting especially if the open home is busy and there are already a horde of people talking to each other in the house. Choose the kind of music you would expect to hear at a popular cafe. Mid tempo. Classical, jazz, or easy listening. Choose music where the vocals don’t feature too strongly.
Turn off all appliances. Countless times I have turned up to do an open home and the owners have flicked on the dishwasher or washing machine before they left. Nothing is more annoying than a machine beeping through its cycle or the sound of high pressure water or clothes spinning at warp speed when you are taking buyers around a house.
Dehumidifiers! Do I have to say more? What does the site and sound of a large dehumidifier in the back bedroom chugging away say to you about the health and dryness of the home you are viewing? Turn the dehumidifier off and hide it from site!
Check the window seals. On a windy day, whistling windows and doors aren’t a good sound to hear. I live in Wellington, so this is a special nod to my fellow Wellingtonians

SMELL

The sense of smell is very strong for creating emotion and is strongly linked with memory. Make sure your open home visitors remember your home for the right reasons.

Freshen up! Air the house well prior to the open home especially if you have cooked a fish curry or a lamb roast the night before. If you aren’t sure whether your place smells, ask a neighbour or friend to pop past and tell you straight up. I say this because I think sometimes occupants of houses get to a point where they no longer smell the food they cook or the pets they live with (see special note on pets at the bottom of the page). Not wanting to be seen as culturally insensitive, I do want to say that special care needs to be taken to rid your home of cooking smells when you cook highly spiced food, oily food, or use products such as fish oil or peanut oil in your cooking regularly. These smells often permeate themselves into woodwork, curtains, and carpets. I think some owners would be horrified to hear the comments of open homers when there is an over powering smell in the air.
Try to avoid highly toxic smelling cleaning products like ammonia. Choose cleaning products with citrus scents or no smell at all.
Don’t light incense, leave the overuse of incense to alternative shops selling tie dyed clothing and crystals.
Brewing coffee and baking bread? Be careful, sometimes these smells are over powering. My tip would be to sprinkle a teaspoon of cinnamon on a baking tray and heat it in the oven for ten minutes prior to the open home. It gives the kitchen the smell of home baking without all the mess, energy and hassle.
Fresh flowers reign supreme. But be careful to try and avoid overpowering or cloying floral scents. Some buyers may have allergies. So choose lightly scented flowers or appeal to sight rather than to smell. As an example, watch out for lilies – some of the lily varieties are strongly perfumed and the stamens leave nasty yellow marks on clothing if you brush against them.
Generally, less is best when it comes to scent. You can overdo it in the nice smells department so err on the cautious when playing with lotions and potions to woo buyers.

FEEL

Your home should feel warm and inviting, especially if you are selling in winter or it is a cold day. There should be an obvious temperature difference between the outside and inside of your home but not too extreme. If you don’t have central heating, try to get warm air to the cold end of the house. Turn on an oil heater in the bedrooms so that there isn’t a big temperature difference within the house.
If you have a woodburner or gas fire, have it on at a low burn unless the day is a warm one.
Humans are tactile creatures. Make sure the bench tops and balustrades are clean and grease free.
Plush cushions, nice quality towels, and comfortable furniture all help.

TASTE

Not a sense usually linked to open homes. I often use a small bowl of individually wrapped breath mints to entice people to sign my open home book.

I do remember one family that baked a tray of scones and left them smothered with jam and cream for me and my open home visitors in the kitchen with a lovely welcoming note. I usually tell homesellers not to bother with this type of nicety because the uptake is usually minimal. This story has a nice ending though. The purchasers who bought this home came back to me to sell it for them four years later. When I arrived to conduct my first open home, there was a tray of fresh scones on the kitchen bench. After the open home I thanked the lady of the house for helping add to my waistline and she commented that she remembered the scones on the bench when she had first viewed the house. She said that even though she had never indulged, the image of the scones with the note had stayed with her.

A SPECIAL COMMENT ABOUT PETS

Dogs and cats – barking and purring. Locked in the garage or in the back yard. Moving around your feet.

To the owners, they are family. To pet owning buyers, they are someone elses family. To non pet owning buyers they are someone else’s animal which may represent a lack of household hygiene, may cause fear, or may cause allergies.

Apologies if I offend you with these statements, but it is true. A classic example of this was highlighted to me two weeks ago in an open home I was conducting. The friendly family cat was there to greet everyone who came through the front door of my open home. A family came to the door and the wife, a lady in her 40’s was so fearful on seeing the cat that she turned around and went and sat back in the car. Do you think that family seriously considered buying this house? Of course not! The main decision maker was too scared to view the inside!

If you want your home to appeal to the widest possible audience of buyers, hide any signs of the existence of your animal.
Clean any furniture that has pet hair or dander on it.
Clean and put away toys and pet beds.
Pet bowls do not belong in kitchens, laundrys or hallways.
Pet food does not belong in the pantry! Pet food smells are a BIG turn off to non pet people.
Make sure there is nothing nasty in the garden that your cat or dog has left behind. Faeces, dead rodents, old half gnawed bones… you get the picture!

I know this will get some people incensed, but it has to be said.

Remember, the name of the game is to present your home in a way that appeals to other people. Having the attitude, “this is us, they can take it or leave it“, will not work in your favour in terms of house selling. Spend the extra thirty minutes on Sunday morning before the open home to make sure your home has the WOW factor!

October 30 2009 | General Real Estate and Home Sellers | No Comments »

Spring Clean before Selling

Over time, we naturally collect all kinds of stuff in our homes. When you move it is a great time to sort through and de-clutter, getting rid of things that are worn out or haven’t been used for ages. When I am asked by prospective home sellers about the best way to market a home, I always say that less is best. You want your home to be inviting but not too full of personal effects. Clearing out extra boxes, books, knick knacks, piles of stuff behind the sofa, old pictures on the wall that are sun bleached and faded, chucking out all those funny bits of wood and broken toys cluttering the garage are all good things to do before you put your house on the market. It seems a pity to just heave it all into a skip and send it to the dump. Around this time, thoughts turn to having a garage sale or selling bigger items on trademe.

So what can you do to plan and execute a great garage sale?

* Getting Started

The first step is to go through your possessions to seek out goods to be sold. These should be stored together if possible. You may like to let family, friends and neighbours know you’re holding a garage sale and ask if they have items they would like to supply. Of course, they may also like to come along on the day to help. All items should look their best to ensure a good price.

* The date and time

Choose a Saturday or Sunday, 3 to 4 weeks ahead. Ensure the day does not clash with any major events or sports activities that may affect attendance, and that your helpers will be available to assist. Ensure that you have enough free time beforehand, to clean up and price items.

9am is a good official starting time but be prepared for a much earlier start as you will find serious buyers will probably start knocking an hour or so before. An official earlier start will only mean earlier visitors disturbing you and the neighbours. Remember to clearly state a finish time (12 or 1pm), otherwise you will still have people coming later in the day.

* Advertising and signs

Call the local papers and book advertisements in your local paper 2 weeks before the day, as most Garage Sale hunters will normally look in the local papers. Daily papers tend to be expensive, but some do have special sections and price deals that may be worth considering. In this instance, place an advertisement one week ahead and again the day before the event. Don’t forget to put it on trademe, sella and the online version of the trade and exchange.

The advertisement should be brief. Day, date, times and venue are sufficient. If you have some extra special items that you think will entice buyers, mention those too. It may also be appropriate to mention if there is furniture, baby goods, books, records, or computer equipment etc.

Do not include your name or telephone number or you will be inundated with phone calls.

Place signage out the evening before or very early on the morning of sale. Any earlier signs could go missing or be vandalized. Keep signs brief, neat, and the bigger the better – day, time and address.

Arrows may be helpful. Place on the corners of your street, both sides and on major roads leading to your street.

Please respect other people’s property when putting up signs. Local shopkeepers may also allow signs in their windows. Also consider community notice boards. These can be placed about a week before the event. Often your First National Real Estate office will also be able to help you with the supply of pointer signs.

* Security

Be sure to keep your home locked at all times. If possible have the sale in the front yard to avoid people wandering around the entire house. If you have a number of helpers, one or two may like to remain inside at all times.

All helpers selling should have money belts to handle cash. Alternatively, have one person handling transactions, being sure never to leave the till unattended. As cash accumulates, ensure you have a secure place inside your locked home to place excess cash.

* Helpful Hints

Have plenty of change available and keep in mind the prices of the items you have for sale – lots of small items will require plenty of small change to be available; large items may require you to break larger notes.

Do not accept personal cheques. Ensure all items are paid for and removed immediately, or at least on the day. If people wish to pick up items later in the day, be sure to get the payment in full. If really pushed to hold an item, give a limited time, say half an hour for a consumer to return.

Have drinks and seating handy for you and your helpers – it can be a long morning.

* Have fun

A garage sale is a great way to clear your house of those unwanted items, make money and most importantly, have fun!

September 11 2009 | General Real Estate and Home Sellers | 1 Comment »

Commission paid and no deal??

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.

Commission paid and no deal?

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?

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.

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.

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 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?

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 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.

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 »

Pricing your house to sell – the 2-2-7 RULE

How do you know what to advertise your home at when you come to sell and if it doesn’t sell, when should you re-look at your advertised price?

Trial and error and plenty of market experience has helped me formulate what I call the 2-2-7 pricing rule. Here’s how it goes….
If you are going to price your property in advertising and since it is the aim to achieve the highest possible price for your property, set the asking price for the initial marketing a little higher than we expect the market to bear (no more than 10% higher ideally). When a property first enters the market, momentum is generated, because all the qualified buyers (those in the price range who have been looking around for some time and are ready to buy) will discover the property for the first time. Competition peaks in the first 5 days to 10 days of marketing and buyers are most likely to make the highest offers for fear of losing out to someone else at this time.
If the initial marketing does not attract the desired offers, it may be necessary to consider varying the asking price. If the price remains the same for too long, the momentum of the marketing programme is likely to fall away, affecting the property’s profile and competitiveness.
It is important not to vary the asking price too early because it sends a signal to prospective buyers that the price is not genuine or that the vendor is perhaps too keen to negotiate.
Varying the asking price too late sends a signal that the seller is not aware of, or prepared to listen to, market forces – in other words, not genuine or realistic. Qualified buyers lose interest and the opportunities for receiving high offers diminish, along with the potential of achieving the best price at the end of the day.
Research with past satisfied sellers and a lot of trial and error over many years tells us that there is a simple two-point rule indicating the appropriate time to vary (reduce) the asking price.

This is known as the 2-2-7 Rule.
There are two conditions which must be met before this rule can be applied:
1. The property must be well-presented and free of any major legal or physical defects that would hinder the sale, and
2. The property must be professionally marketed to attract the attention of all current prospective buyers in the price range.

Provided these two conditions have been met, research indicates that the house will most likely sell in the first couple weeks. If it hasn’t sold and no offers have been received then a good time to alter an asking price is when there have been two advertisements and no response, or two open homes and no shows, or seven inspections and no offers. Which ever comes first.

It is usual for the first handful of buyers to come through your home to be some of the most motivated buyers in the market. Having been looking for a while, these buyers are also in the best position to have a feel for fair market value. Yes, the motivated buyers know the market value of your house much better than you do!

It is a common occurrence for a price change to happen too late and well after the listing has already become stale in the market place. This usually coincides with a change of agency also (owners usually blame the fact that there house hasn’t sold on the real estate agent and poor marketing but in most cases it is their own misconception of value that is hindering the sale).

If you are going to put a price on your home, then make sure you get accurate information in the first place so that you have a rational feel for what your home is worth in the market place.

The best start would be to get a list of recent comparable sales in your area. There are some great online resources available now including zoodle.co.nz (you can buy a report including recent sales online) and realestate.co.nz (having an awareness of the competition homes in your area that are on the market and what price expectations they have is good to give you a feel for where your home sits – remembering that buyers buy by comparing like with like to determine good value). A good real estate agent will be able to provide you with comparable sales info with his/her appraisal and talk about the value of your home in terms of these recent sales.

# Talk to a small sample of real estate sales people who are busy in your area, but do take what they say with a grain of salt. Salespeople may feel the need to overstate value to you if they know they are in competition for your house to sell with other agencies. There is a common strategy in real estate called buying the listing. In other words, a salesperson tells gives you an over inflated value for your home in order to secure the listing. This strategy usually includes signing you up for an exclusive agency for an extended period of time (more than a couple months). In this time they can bring your price expectations down as time passes with no sale.

The best way to get an accurate value indication from an agent is to let them know that if you decide to actively market your home, you will decide on the agent based on experience, personality, marketing plan, and the success and reputation of the salesperson and company, NOT on the salespersons opinion of the market value of your home. Don’t be swayed by mentions of optimistic values. The best price will be achieved not by the agent who thinks your house is worth M (market value) plus $20k, but by the agent who positively and professionally markets your home to the proper target market of buyers.

# Pay for a registered valuation.Another option is to pay for a registered valuation from an independent registered valuer. The important thing to note with registered valuations is that valuers are not infallible, and that it is an informed opinion of value only. There is no way of deciding on an exact dollar value of a house because there are emotional factors involved in a house that cannot be quantified easily like the dollar value of a view, or the last of the summer sun onto the deck, or the loss in value from having a power pylon in the back yard. Valuers usually get around this by making an allowance of 10% in the fine print of their valuations as a margin of error but that can mean a variance of $40k on a $400k house!

My general rule is that salespeople value optimistically and registered valuers value conservatively

The best definition of market value that I have found is this:

Market Value is the figure that a willing and informed purchaser will pay for a house and the willing and informed vendor will sell at. This definition assumes that both parties are rational, reasonable, and not under stress or duress in the sale process.

The real estate agent is there as a facilitator in this process and is doing his/her job well if you are getting good inquiry to advertising, regular viewings through your house, and is giving you honest feedback to help guide you in terms of value and presentation. Take note of what your agent says and try not to get defensive when negatives are mentioned about your home, this is the feedback from purchasers, don’t shoot the messenger. Your agent prefers to please you so any negatives mentioned by him/her have been carefully thought through and are worthy of taking note of to see if you can work around them or eliminate them. Remember that most feedback will naturally be negative because the buyers, when asked for their opinion, will be telling your agent why they have not bought your house. The positive feedback comes in the form of an offer!

August 09 2009 | General Real Estate and Home Sellers | 2 Comments »

The emotional cost of water in the walls

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 »

North Wellington Real Estate

News and views from the Harbour Capital

Archive for the 'Home Sellers' Category

Is it worth getting a valuation when you’re selling your house?

Which marketing method is right for you?

Agents and Leaky Buildings – Walking that straight ole line

Real Estate Agents and Commissions – An insiders glimpse

Preparing Perfect Open Home Presentation

Spring Clean before Selling

Commission paid and no deal??

Commission paid and no deal?

Pricing your house to sell – the 2-2-7 RULE

The emotional cost of water in the walls

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News and views from the Harbour Capital

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