buy How to
well And buy
The buyers guide to property
Courtesy of
Keenan McNeil Eves Papamoa 1
Foreword Whether it be your first time, last time, or an investment, buying a house must always be approached carefully with a clear understanding of what you are looking for and what to do. My experience in Real Estate along with my lack of experience when I was a first home buyer, has highlighted key areas of the buying process that pose as danger zones for the unsuspecting and the inexperienced. Buying a house may very well be the biggest financial decision you will make in your lifetime. This guides sole purpose is to assist you with making the right choice in any market to ensure your greatest asset remains exactly that... an asset While all care has been taken to prepare this guide, I recommend you do not rely solely on its content and that you seek professional, independent advice.
Keenan McNeil Licensed Salesperson REAA 2008 Residential Consultant Eves Papamoa Mobile: (021) 02678552 Office: (07) 5728318 DDI: (07) 9269099 Keenan.mcneil@eves.co.nz www.keenanmcneil.co.nz 2
Contents
P4.
Getting Ready
P8.
Finding your new property
P17.
Where to start your search Creating a shortlist What to look for in a property Open homes - be prepared What to look for at the inspection Compromise Common questions for buyers Get professional help When dealing with an agent Tips before you buy Negotiation time
P21.
How much can you afford Budgets change Hidden costs of buying property Get pre-approved for finance Loan features Benefits of a mortgage broker Getting approval
How to negotiate Negotiating a private treaty How to buy at auction Final reminder
3
Getting Ready How much can you afford to borrow?
The first step is to sit down and work out a budget. Doing this, you will able to track what your income and expenses are. This will put you in a better position to make decisions on how best to save towards your deposit or simply make the mortgage repayments a n d where that money will come from. Get sorted on all your financial matters at http://www.sorted.org.nz
A budget is best worked out on a monthly basis by starting with your income after tax plus any share dividends, term deposits or other forms of income you may receive.
Next work out your monthly expenses. These will vary from household to household and will include things like food and entertainment, car expenses, health and well being, clothing, utilities, credit card repayments, loans, fees, holidays etc. It’s important to carefully monitor your expenses each month as many of these will vary each time (ie. Food). By keeping a close eye on these you will be able to work out where savings may be made
Make sure you are completely honest. Do not over stretch yourself especially when borrowing large sums of money and be prepared to sacrifice luxuries if you have to. Defaulting on mortgage payments is serious and it only takes one to cause major financial problems.
If your income versus expenditure looks good but you have a few debts like credit cards or loans, seriously consider consolidating these. Not only does this make your budgeting cleaner, it will also help save a lot of money in interest. These debts also work against you when it comes time to seek finance approval. Sometimes it’s possible to consolidate these debts into the home mortgage. Ask your bank or mortgage broker for advice on your options.
As time goes by, budgets change
Budgets are a great tool and if done correctly can last for many years. As time goes by, your spending habits and requirements will likely change so it’s important to continue to monitor and review your budget.
When you calculate how much you may be able to borrow, it’s important to consider any future changes that may affect your ability to repay the loan. For example, if you are a young couple buying your first home but also have plans to have children, it’s vital to account for this in your calculations. Owning your own home is meant to be rewarding… the last thing you want is the unhappiness of struggling to be able to pay for it.
To help off-set unexpected or planned future expenses, set up a savings account and budget for it. Make these savings automatic so you are used to not having the money available for every day spending. Make sure it’s a high interest bearing account so your money can make you more. 4
Hidden costs of buying a property Your mortgage is not the only expense when buying a property. You need to consider and budget for a number of other costs that aren't as obvious.
Expect to pay legal fees for your solicitors time and transfer of title (conveyancing). These costs vary between solicitors and may be dependant on the value of the property.
Banks will often charge administration fees for processing your loan
Insurance! You never know what may happen so it’s important to protect yourself from disaster and the loss of your greatest asset.
Not only does your home need insurance, but there are other insurances needed for total peace of mind. Contents, life and income insurance are essential to fully protect yourself from the unexpected. Your bank will usually offer these but it’s up to you who you insure with.
Home loan insurance is often required when you are borrowing more than 80% of the properties value. This insurance protects the lender in case you are unable to repay the loan and a mortgagee sale does not recoup the full amount of the loan.
Some lenders may require you to obtain a registered valuation on the property you are purchasing before they will lend on it. This is usually at your expense. If a valuation comes in lower than your negotiated purchase price, the bank may refuse to lend or request a greater deposit to cover the difference.
Building inspections may also be required by your bank. Even if they are not, it is still strongly recommended to obtain one. You wouldn't want a lemon for a car so you certainly wouldn't want a house with major issues either.
You may also need a Land Information Memorandum (LIM) before you can get finance. Like the builders report, It is also a strongly recommended to obtain one anyway. The LIM provides information pertaining to the land and will show things such as flood risks or historical slip sites.
Rates are payable on all property so you will need to budget for these. You can usually find out what the rates payable for a property are through the local council website. Water rates may also need to be budgeted for depending on local councils.
Utilities such as home phone connection may incur charges, Talk to your provider to find out what these are. Tip: Find out what the connection time frames are so you can plan and ensure you aren't without services such as phone or internet.
You may need to budget for immediate repairs or general maintenance of your new home. You will have likely already uncovered what may be required so be sure to account for it.
Finally, don't forget your moving costs. Include in these any storage costs and the cleaning costs for your vacated property and your new home. 5
Time to get pre-approved for finance It’s important to shop around for the best home loan provider that suits your needs. The lending market is fiercely competitive and banks offer great incentives for choosing them for your mortgage. Do this even if you plan to use a broker in the end anyway. During your research, there is some information that will be important for you to find out. Be sure to ask: What options are available? What will my repayments be? How much deposit will I need? What savings do I make with a larger deposit? What are the fees associated with the loan? What are the loan conditions? Are there any penalties or exit fees? Don’t simply settle for your current bank even if you’ve been a customer your whole life. The one next door might offer better terms or even a more competitive interest rate. Here’s an example of savings you can make with just a small change in interest rates: Based on a $300,000 mortgage over 30 years:
5.8% interest
5.6% interest
$812.00
$794.00
Total Interest:
$333,388.00
$319,705.00
Total you will pay:
$633,388.00
$619,705.00
Fortnightly repayments:
Source: Sorted.org.nz
Loan features There are many different loan options available to you from a wide variety of lenders. It’s important to consider your lifestyle, current and future circumstances, and your budget when selecting what options are right for you. For example, if you plan to start a family and may drop to one income for a short time, you may want to look for a loan that offers an ‘interest only’ option to help ease the stress of your reduced income. Other options available for you to consider may include: Competitive interest rates Fixed or floating rates Loan term (usually 20-30 years) Fees, charges and penalties for various reasons Any options that suit your needs eg. Revolving credit Now that the research is done, time to go loan shopping. Make sure to have your budget in place and know what your limits are. The lender may ask for proof of income such as tax returns and pay slips so have these ready as well. Remember, the industry is highly competitive and banks want your business, but don’t just settle for the first lender.
6
The benefits of using a mortgage broker There are a number of great reasons to utilize the services of a mortgage broker rather than going straight to the bank. The best reason is, contrary to common belief, they are free. The bank pays them a commission so you don't have to. Some of the other benefits are:
A mortgage broker will shop around for the best deal for you. Basically, a broker sells the packages that the banks offer so they are a one stop shop for comparing lenders and advising on current promotions. Just like going to a travel agent who can put together the best deals from a variety of companies. They are a wealth of information when it comes to advising on the most appropriate loan to suit your needs. Using a broker can save you a lot of time and stress by dealing with only one person. Their profession is dealing with lenders so you don't have to and will prevent you being bombarded with calls and advertising from banks competing for your business. Because this is their profession, they are experienced in preparing and presenting your loan application. They will prepare all the documentation, liaise between you and the banks, giving the strongest case for loan approval. The crucial function of a broker is when they submit your paperwork, the banks know there’s a high chance they are competing for your business and are more likely to offer even better deals than normal. Even a 0.1% interest drop makes a difference.
Make sure you use a mortgage broker that is a member of the New Zealand Mortgage Broker Association (NZMBA)
Getting approval Lenders make four main considerations when assessing your loan application. Presenting a weak application in one or more of these areas will likely affect your approval.
Your ability to repay the loan based on your income and expenses Your credit rating to see if you are a good financial risk Collateral in that the property you are buying is worth what you wish to borrow Your capital being any assets you currently own (car etc)
Getting your application approved is the next step with the lender providing a pre-approval certificate’ prior to buying a property. Once you are pre-approved, you will know what your lending limit is. Make sure that ties in with the amount you have budgeted and then enjoy looking through what may be your new home. Keep in mind that your pre-approval is often subject to a registered valuation. If you offer too much for a property, your lender may not provide the money as they will see this as a risk. In the wake of the Global Financial Crisis, it may also be necessary to show a genuine history of your ability to save money. In some instances, particularly for first home buyers, a guarantor may also be required or a larger deposit (at least 20 percent of the purchase price).
7
Finding your new property
Where to start your search Before you start your search, it would be a good idea to find out what the property market is doing today and what impact that may have on you purchasing a property. The easiest way to do this is to contact a local agent. The reality is however, a number of agents may not be prepared to answer this question correctly so it may pay to speak to a branch manager directly. Follow news articles and research a few common property websites for even more information. Bare in mind that the media will report on things that make good news, be it good or bad, and not always the full story. Once you are armed with some local market knowledge, it’s time to begin your search. The Real Estate industry has been revolutionized by the internet with nearly every property advertised on a variety of websites. It is also rated as the number one enquiry source by agents. If computers are your preferred method, there are a number of great websites available for you: www.trademe.co.nz www.realestate.co.nz www.Eves.co.nz
www.open2view.co.nz www.propertypress.co.nz www.sella.co.nz
There are also printed property newspapers available in almost every region. These may simply be your local newspaper or a lift-out. Real Estate offices will usually have their companies print media in a box outside the front door for free. www.QV.co.nz and www.zoodle.co.nz are online providers of property data and information, who are highly reputable and for a small fee will supply you with the same reports agents and banks use to assess property values. It is important to note however that these assessments are statistical based and can only give an indication of price range, not an exact figure. You could check in with your local real estate agent first as they may be willing to provide these reports for you free of charge. Refer to page 14 for more information on dealing with agents. Check the times and dates of local open homes and up-coming auctions and attend as many as you can. The interest in these properties will help you further understand the market conditions and also help you gauge what properties are worth and which are the features that attract the most buyer interest. Talk to local real estate agents about property in the areas you are interested in. They should be able to give you some more information on current market conditions. They are also likely to list your details on their database so if a new property comes on the market you’ll be one of the first to know about it (important in a sellers market).
8
Creating a shortlist Once you have a list of properties that look promising, it is a good idea to refine this search before setting out in the car on a Saturday or Sunday. Try to research each property as much as possible. Speak to the sales agent, ask them to describe the property’s strengths and weaknesses (although they may be reluctant to share too many weaknesses). The reality is though, you will never get a true feel for a property without stepping inside Research the immediate area in which the property is located. Where you buy can often have a greater effect on price than what and when you buy. Consider the close amenities on offer such as schools, public transport and shopping centres. Proximity to these places can have a significant impact on the price of a property and what you can potentially sell it for in the future. Be aware of buying a property under a flight path or on a major arterial road. While there is nothing wrong with buying a home in such a location, just make sure it is priced appropriately. Poor access to a property may also have an impact on price and its resale potential when it comes time for you to sell. If you can, try to buy in property hotspots, particularly if it is an investment property you are buying. Hotspots tend to be close to a CBD, beaches, amenities, family-friend neighbourhoods and plenty of infrastructure. Views are another feature that buyers tend to pay a premium for. If you do buy a property with a view, check that it cannot be built out in the future which could greatly affect your resale value. Ask other real estate agents that are active in the area what they think of a particular property you are interested in. Most agents will be only too willing to share their advice with you as you may be a potential seller one day so forging a relationship may pay in the future.
9
What to look for in a property When you're thinking of buying, your requirements will vary depending on your personal circumstances and on the sort of property you wish to buy. You may be looking for a family home, an investment property or a holiday home. Once you have found the property of your dreams, you may want to pause for a while and reflect before making an offer or signing on the dotted line. Consider the following checklist:
• • • • • • • • •
Before you decide on anything do you have your loan approved? Will you enjoy living in the area? Is the house sound? If you have any doubts at all, hire a building inspector to check Is it in an area likely to hold resale value or benefit from capital growth? Are there any long-term costs or issues such as body corporate fees, jointly owned drive ways? Does the entire house, including alterations, have the required Council permits? Is it built for the climate? Is it insulated? Will it be warm in winter, cool in summer? Have you asked your local council about planning issues like the possibility of any big developments planned or construction of new roads nearby? If big changes are needed to make the property comfortable, then it's a good idea to know the costs before you make an offer Is the house and land suitable for your stage in life - are there too many stairs, is the garden too steep?
Then think about the detail: • • • • • • • • • • • •
Does the house have enough bedrooms? Are you happy with the garden - or its potential? Will you have good access to the facilities you need such as schools, doctor, medical centres and shops? Are there enough bathrooms? Is there enough garage space? Is the garage accessible from inside the house? Will you have problems with traffic or noise? Is the kitchen serviceable? Is it safe for your family, eg. children, the elderly or disabled? Is it suitable for pets? Are you happy with the building's security? Check under the house - is it dry? Is the block well drained? 10
Open homes - be prepared Most of us have busy work, family and social schedules, which doesn’t leave much time for house hunting. On top of this, buyers are often faced with restricted property viewing times and crowded “open homes”, which can make it even harder to get a feel for the property and the agent’s attention. Prior to viewing a property for sale, do your homework first. Look through photos online, floor plans, virtual tours and any other information that is available to you. Call the agent and let them know you will be coming through. Ask them what the price expectations are, land or apartment size and any other key questions (see page 13). If you are viewing multiple properties in one day, take a check list for each as well as clear directions to get to each property. If you are racing from one to the other you don’t want to waste time getting lost. Also make sure you have all of the times correct and neatly listed.
What to look for at the inspection The first thing to remember is to try to remain objective as it is easy to be persuaded by someone else’s nice furniture, music or smell of cookies baking. It is important to look beyond the surface and use a checklist so you can help identify the pros and cons of each property. But remember, no home will ever be perfect or meet all of your criteria. It is about finding the right balance, doing the appropriate research and checks to ensure there are no hidden surprises when you move in.
House buyers should check the land size, survey and sewerage diagram. Any easements or a main sewerage pipe running through the property could prevent you putting in a swimming pool or an extension. Check the council zoning for the property you are buying. This can impact on what can and can’t be done in the future. Consider who will be living in the home, both now and in the future. Is the home big enough for a growing family or is it likely to be too big in a few years when adult children decide to move out? Also try to gauge how your furniture will fit in each room. Does the home’s layout seem functional ? If you want to remove walls to open up the interior, have a builder inspect to see that this is possible. Some supporting walls cannot be removed. If you are planning to renovate, consider whether there is room to extend or whether you are likely to get planning approval for another storey. Looking at other houses in the street will give you a pretty good indication. What is the condition of the kitchen, bathrooms and laundry? Do you need to allow money in your budget for improvements. Are there any cracks in the walls, sloping floors or leaning walls? This could indicate shifting foundations and expensive underpinning work may be required. It is a good idea to always have a professional conduct a building inspection report. Check for mould or any signs of rising damp, particularly walls near bathrooms. Houses that are damp will usually have a musty smell particularly on the level closest to the ground. Rotting wood is also good indication of water damage. Any damp issues will be found during a building inspection. Check the condition of fences, gates, external decking and paving. Replacements can be costly and if necessary, should be factored into the price you are prepared to pay. Check if any large trees that are close to the house could cause structural damage. Trees that have a complicated root system can cause a lot of problems with swimming pools and garden paving. There are strict regulations when it comes to the removal of trees. Refer to your local council website or enlist the services of an arborist to be completely sure. 11
Check the condition of the roof and ask the agent to advise you when it was last replaced. Plumbing and electrics are also important features to consider, however both are usually best left to experts. To check the basics, see that all light switches work, do the power points look new or old as well as the meter box? Test all taps and showers for water pressure and see that the fittings are free of cracks or leaks. What is the property’s orientation to the sun? Is there good natural light in most of the rooms, plus adequate shade from the sun in summer and enough exposure in winter? This can dramatically effect comfort levels in the home, particularly when it comes to the cooling required in summer and heating for winter. Is there adequate privacy from neighbouring homes? If you feel there isn’t, consider what could be done to make the property more private. Planting trees and hedges is a great way of creating privacy in the garden, while inside you can use shutters and frosted glass. If you are interested in the property, ask the agent to send you a contract and keep you informed of the sale process or any offers that may be received. Inspect the property more than once, it is easy to overlook important features the first time. Ask family and friends to come with you, tell them you want their honest opinion. If possible, inspect the property on both a weekend and weekday so you can gauge noise levels. If the property is on a busy road or near a school, ask for a private viewing during peak traffic periods or school pick up. Try to find out what the neighbours are like? Peep over the fence if you can to see how they maintain their garden and front of house. This will give you a pretty good indication if they are house proud or not. Get a feel for the entire street, does it seem like an attractive and friendly neighbourhood... one that you would want to live in? Use an architect or builder to ask for a rough guide of costs if you are considering renovations so you can factor this into your budget.
Compromise If you are searching for a property that matches 100% to your dreams, you will likely be searching for a very long time. Compromise is a reality most of us will face when it comes to buying property. You may need to compromise size for location or vice versa. If you ask an agent, they refer to the 70/30 rule. If the property fits at least 70% of your requirements and you can change the other 30% to suit, keep it on your short list. If you cannot afford the home of your dreams in your desired area, then it may be time to readdress your expectations or save some more money. However, saving money takes time and it may be better to settle for something less than perfect as prices may very well increase while you wait. We’ve all heard that it is best to buy the worst house in the best street, however if you’re about to start a family or not in a position to renovate then undertaking major renovations may not be the best way to go. Consider the following features to help you prioritise what is important to you: Convenience – do you need to be close to your workplace or would you be willing to spend longer commuting to work if you could live near the beach? Proximity to amenities – is being close to schools, childcare, public transport and shopping centres a priority? Would you like to be able to walk to restaurants and cafes? 12
Land and house size – usually the closer you are to the CBD the more expensive land is and the harder it is to come by. The same goes for house size with the suburbs usually offering more house for your money. Maintenance – are you downsizing or do you travel a lot? Perhaps an apartment or townhouse, which requires minimal upkeep is more suited to your lifestyle? Renovations – are you hoping to capitalise on the future potential a property can offer? Perhaps by buying a smaller house with the scope to expand the accommodation, you may be able to afford to live in your dream location? Rental potential – if you’re an investor, then this will be at the top of your priority list. It can vary from market to market so be sure to thoroughly research what features rate highly with your potential tenants.
Commonly asked questions by buyers Why are they selling? Occasionally the agent can not answer this question because of a confidentiality request from the sellers but in most cases they will. Knowing the reasons for selling can help gauge their motivation which has a major play in determining what they may sell for. How long has the property been on the market? If the property is new to the market, the buyer interest is usually much higher than a property which has been on the market for a few months. You are in a stronger negotiating position for price with a property that has been sitting there for a while. However, keep in mind that good quality properties sell quickly so if you find the right property, do not wait or it may very well be gone within the week. What do you expect the property to sell for? Because of the rules governing agents, their response should be that they know the vendor will sell for asking price. Obviously in most cases there will be room for negotiation but an agent should never disclose what a vendor will take. To assist you however, you can ask them what similar properties have sold for and use that as a gauge for determining price. The Ratable Value (RV / GV / CV) is public information so that can also help. However, never take the RV as a sworn valuation as it is solely there for rates purposes and has very little affect on market values. How soon do they have to move? Knowing the answer to this question will help you gauge the urgency of the sale and how to approach negotiating price. For example, if the vendors have bought elsewhere and have a deadline to move, you will be in a much stronger position.
13
Get professional help Searching for the right property can be a time consuming task, browsing through internet websites, paper advertising, looking in agent windows or even driving around your desired area. While different generations tend to prefer one search method over another, all will benefit from having a Real Estate professional to call on should they need to, or the assistance of one in searching for the right property on their behalf. There are many benefits of asking a Real Estate agent to help you. To list a few...
Agents are in-tune with current market conditions With inside knowledge of the industry, locating suitable properties can be much faster and more specific to your needs They know what’s hot and what’s not In a market with a lot of properties for sale, enlisting the help of an agent will reduce your search times greatly In any market, enlisting the help of an agent will reduce your chances of missing out on good property that usually gets snapped up quick The agent can phone around and make inspection bookings on your behalf and in most cases, can book inspections with ANY other company. Accompanying you to properties to provide assistance with your questions and help you identify the good and bad. Can provide information not always readily available to you
When dealing with an agent There are a number of key points to keep in mind. The more you follow these, the easier it will be for an agent to assist you and the more you will get out of your time with them. Tell the agent what you need - The more information you provide, the better the agent can assist you in finding the right property. Tell them what you need but also why you need it. By doing this the agent is going to show you “probable properties” and no “possible properties”. Consider joining their database - An agents database often receives regular market updates and notice of their hot new listings before the general public. In a market where listing levels are low, this is vitally important. There’s not much worse than finding the right property and missing out because it’s already got a contract on it after a week on the market. Give honest feedback - Most agents will ask for feedback. They will likely ask you what you liked and did not like about the property and what you feel it is worth. The more you tell them, the easier it will be for the agent to find a suitable property instead of taking you to more that aren't right. In terms of what it’s worth, try comparing it to other properties you have seen (or your own property) and their asking prices. The agent works for the vendor - Where the property is listed with that agent or another agent in the same company, you must keep in mind that the agent works for the vendor. However, don’t think that you as a buyer aren’t important too. An agent can not sell a property if there is no buyer so they will treat you like gold and advise the vendor to do the same. Don’t be afraid to ask your agent plenty of questions, whether it be about the property itself or even the market in general. 14
Tips before you buy Obtain pre-approved for a loan so you know exactly how much you can spend before you even begin your search. Having a loan pre-approved means you will be ready to act immediately once you find the right property and there will be less chance of someone else beating you to it. Make sure you have pre-approval in writing from your lender. You may have fallen in love with a property but be sure to do your research before getting too attached or making an offer. Important factors to consider when determining what you are prepared to pay include the position of the property, the size (how much property are you getting for your money), the condition and if any upgrades are necessary and future capital growth potential. Understanding the real estate market you want to buy in is the key to successful buying. Before making any final decisions, seek professional advice from somebody that has nothing to gain from you buying the property. Talk to an independent agent or visit websites like www.qv.co.nz, www.zoodle.co.nz, www.realestate.co.nz which offer fantastic resources when researching the property market. Understanding the practicalities of buying a home and the sales process prior to making an offer or bidding at an auction can also help your chances of finding the right property sooner. It is a good idea to read up on how auctions work and tips on bidding, the same goes for making an offer on a property for sale by private treaty. It is also worthwhile speaking to friends and family members about their home buying experiences. Creating a list of all the properties you have seen helps to keep track of what you’ve looked at, the features of each property and the asking price. Noting down everything from the number of bedrooms, parking, condition, agent’s details, asking price plus services and facilities in the area will help to paint a clear picture of each property. This is also a good way to compare the pros and cons of each property and what you may need to compromise on. Never buy anything without getting an independent building report done. These reports will highlight significant defects or issues relating to the property. A report will cost a few hundred dollars, however this is money worth spending. You do not want to discover a major structural problem with the property once you move in, which could potentially cost you thousands. Never sign anything you do not understand. If you are unsure, It is best to have your solicitor or conveyancer review the contract before you sign an offer to purchase. Check the inclusions and exclusions and the length of settlement. If you are unhappy with any of the terms, you may be in a position to negotiate with the seller. Remember to look at all aspects of the property. It is about balancing the pros and cons as no property will ever be perfect. Try to make educated decisions based predominantly on common sense. If you are interested in a property, keep up communication with the agent. Make sure they know you are interested so you don’t miss out to another buyer who was more proactive. Give yourself every chance of buying it. 15
Consider who your neighbours are going to be, parking availability if a car space does not come with the property, any repairs or renovations needed, future development planned for the surrounding area, proximity to amenities like shops and transport, noise pollution from traffic and aircraft and the overall street appeal. While you may be willing to live with or without some of these things, they could have an impact on the resale value of the property and will need to be factored into the price you are prepared to pay. Choosing the right area to buy in is important and not just from a capital growth point of view. Where you live becomes a big part of your life and essentially forms the lifestyle you live. Consider the distance you are prepared to travel to work every day, is there a direct public transport route? Are there adequate amenities for your needs and your family? Find out where the nearest hospitals, schools, shopping centres and recreational spaces are all located. These things all have an impact on your everyday life and happiness. Be prepared to act quickly, especially once you have found the property you want. Whether it is the first property you spot or you’ve been looking every weekend for a year, if it feels right, is in your price range and you’ve done the necessary checks then go for it before someone else beats you to it. On the other hand, if you’re not sure then don’t be pressured to act quickly or let yourself get talked into buying a property you don’t like. Try not to let your emotions get in the way, which is sometimes easier said than done. Buying a property can be a rollercoaster ride, particularly if you are buying at auction. The worst thing you can do is to get carried away and go beyond your budget. If you feel you have become too emotionally attached to a property, ask a friend or family member to bid on your behalf. Going beyond your means could have a huge impact on your future financial plans and goals. It is better to play it safe and always consider future events that could impact on your ability to repay your loan, like job security, interest rates rises, health and starting a family. Know when to compromise, when to stand your ground and when to walk away. While compromises will always need to be made when buying property, just make sure they are reasonable and well thought out. Waiting for the perfect property to come along could take forever, settling for less than perfect now could mean moving up the property ladder a whole lot quicker.
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Negotiation Time How to negotiate The first thing to consider prior to making an offer or starting negotiations, is the state of the market as this is likely to influence your ability to “get a good deal”. If you’re in a “buyer’s market” when conditions typically favour buyers because of greater supply and less demand then your chances are going to be good. However, if you’re buying in a “seller’s market” when there are a shortage of homes for sale and plenty of active buyers then it is likely you’re going to have to be more flexible with your negotiations or face missing out to a more competitive buyer. The second factor to consider is your situation. Have you been looking for months with no success or have you just begun your property search? Have you already sold and a looming settlement deadline is fast approaching? In this instance, you may want to make an offer immediately and at the full asking price. If you’re in no hurry and under no pressure, then this is a great opportunity to negotiate the lowest price possible. If you find a home you love it is a good idea to let the agent know you’re interested so he will include you in any negotiations should another party also be interested in the same property. However, it is best to keep your emotions to yourself. Expressing interest and asking questions is the right thing to do. Being too eager and desperate will potentially put you in a weaker position to make a low offer.
Always put your offer in writing to the agent so they can formally present it to the vendor. This shows the vendor you are serious about buying and opens up the negotiations. Ask the agent to get back to you within a designated period of time whether they have a response from the vendor or not, for example within 24 hours. This also shows you mean business and are willing to walk away. If your offer has been verbally accepted by the vendor, this does not mean it is a done deal. Until legally binding contracts have been signed, the property is still for sale and open to other offers. Be sure to ask your real estate agent to give you the opportunity to make an offer if another offer is about to be presented. The agent is not obliged to disclose details of this offer to you. This is when negotiations become difficult and you may need to come in with your top price, as well as be prepared to walk away from the property. 17
Negotiating a private treaty (asking price)
A private treaty sale is when a property is listed with an asking price, the buyer makes an offer to the agent, who then presents the offer to the seller, who can then decide whether or not to accept the offer. Typically negotiations go back and forth between the buyer and seller (via the real estate agent) until an agreement is reached on price, dates and conditions.
The seller lists the property for sale at their desired price or higher to allow room to negotiate and the buyer will typically try to find the lowest price the vendor is willing to sell for.
Deciding on what to offer first up can be difficult. You may wish to start with your best offer, especially if there is a lot of interest in the property or you could start with a lower offer and be prepared to negotiate up. The risk with starting lower is that you may lose the property to another purchaser who comes in with a higher offer. If you start very low, you run the risk of offending the seller, no matter how good the agent may be at keeping things calm.
It is a good idea to try and find out as much as you can about the seller and their circumstances from the agent. If they are in a rush to sell because they’ve committed elsewhere, you might be in a position to come in with an offer lower than the asking price. Agents are governed by the Privacy Act so they may not be able to answer some questions, particularly if the seller has instructed them not to
If you do not have the luxury of time, perhaps when the market is very strong and there’s a lot of interest in the property, determine the maximum amount you are prepared to pay and make this your first and last offer.
It is best to have your finance pre-approved so the seller knows you are serious and able to act immediately. Always remember though that your pre-approval is only a lending level, it does not mean the lender will give you money for the property you are interested in. With this in mind, always make your offer subject to finance.
Always put your offer in writing to the real estate agent who will then present it to the vendor for consideration and then let you know if it has been accepted. You may need to reassess your offer several times before an agreement is reached.
Unconditional offer versus conditional offer
Conditional Offer is a binding contract to buy a property, subject to certain conditions being met. If these conditions are not satisfied, the buyer has the legal right to back out of the contract. Common conditions may include subject to valuation, subject to finance or subject to a building inspection.
If your offer is unconditional, it is an outright offer to buy a property. You should be 100% sure that this is the property you want and that you have access to the money to buy the property. Once the vendor has accepted your offer, you are legally obliged to go through with the sale or risk forfeiting your deposit.
Whether you are negotiating a conditional or unconditional offer, it is advisable to speak with your solicitor or conveyancer about your rights and all terms of the contract before you sign anything. 18
How to buy at auction Preparation
Speak to the real estate agent who is looking after the sale of the property you wish to buy. Tell them you will be attending the auction and ask them to advise you of the relevant legislative and financial requirements.
Obtain a copy of the contract of sale prior to auction day so you can ask your solicitor to review it. It is important to check the settlement date, the minimum deposit required, as well as the inclusions and exclusions of the property. This way you can go ahead and bid with confidence.
Make sure you have pre-arranged finance in place, this will help you to bid within your means. You will be able to obtain a pre-approval letter from your financial institution so you will know exactly how high you can bid to.
It can be worthwhile attending other auctions so you get a feel for how the process works. Try to go to an auction that is being held by the same real estate agency representing the sale of the property you want to buy. They are likely to use the same auctioneer and it will give you a feel of the pace and style to expect.
Make sure you have conducted all the necessary checks on the property, such as building and strata report if you are buying an apartment. Buying at auction is unconditional. Make sure you are able to pay a 10% deposit (typically) on the day of the auction if you are the successful bidder.
Auction day
The auction will either be held on-site or in a room with a number of other auctions. If it is an on-site auction, arrive early so you can take the opportunity to have one last look at the property and ask the agent any final questions you may have.
If you are unable to attend the auction yourself and a friend or relative will be bidding on your behalf, then you will need to speak to the agent to see what, if any, legal requirements will need to be adhered to. It is a good idea to notify the agent a few days prior so that they can assist you as much as possible.
If you are worried about your emotions or nerves getting the better of you, it is a good idea to have a friend or family member there with you for moral support. They can pull you away if the bidding goes over your budget, particularly if you’re worried about getting carried away on the day. It can also be helpful to have a plan or strategy in place so you know when to walk away rather get caught up in a storm of emotions and stress that sees you paying a whole lot more for the property then what you originally intended.
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The vendor will set a reserve price prior to the auction commencing. The reserve price is the minimum amount the vendor is prepared to sell for. Once this reserve price is reached the auctioneer will usually state that “the property is on the market”. This may kick start fierce bidding as buyers now know that the vendor will sell at any amount called from this point. If the bidding is slow and reserve has NOT been met, the auctioneer is able to submit a “vendor bid” to help get things moving. If the property does not meet the reserve and the vendor does not accept the highest bid reached, the property may be passed in. The highest bidder will usually be offered the first right to negotiate with the vendor.
The auctioneer must call the sale three times prior to the hammer falling, for example going once, going twice, third and final call, SOLD! If you are the successful bidder, you will be required to pay a 10% deposit at the fall of the hammer (unless you have negotiated otherwise) and sign the paperwork.
Remember that at an auction, one person’s tactics can be quite different to another person’s. Some may sit back and wait till the final moments to place a bid, while others might jump straight in from the start. It is best to do bid in whichever manner is most comfortable for you. Try not to be intimidated by the other bidders so you can remain focused and confident. While a plan is good, remember anything can happen on the day. Treating the auction process like a business deal can help you to remain objective and make rational decisions.
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FINAL REMINDER When buying property, information is the key to success. Research the market and be prepared before you go looking. Being ready to act and knowing how to proceed when you find the right home will save you a lot of time and stress. Most importantly, enjoy the process!
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An introduction to Keenan McNeil… Raised in rural Hawkes Bay, Keenan spent his school years in Napier before embarking on a career with the Royal New Zealand Airforce at age 17. Trained in the diverse Logistics trade, he travelled all around the world in support of the Defence Force. After serving 9 years in the Airforce, Keenan moved to Tauranga in 2009 to live close to family, and volunteered to coach football at Bethlehem College. He is heavily involved with the club as a committee member, a selector, and the only independent coach. He is a committed father and admits providing for his daughter is the driving force behind all he does. Keenan's first experience in real estate was in 2006 when he purchased his first home and has confessed to being hooked since then. With a family of property investors and enthusiasts, it was clear to Keenan what his next career move would be and without a second thought, Real Estate was the answer. Keenan completed his training in May 2010. His enthusiasm and drive are unquestionable. With Keenan's military background, it is obviously apparent he takes a disciplined and structured approach to Real Estate. Why choose Keenan to market your home? Keenan is building a reputation and not relying on one. This means you know he will leave no stone untouched to achieve the best possible result for you.
Testimonials “...Keenan located many homes that we may have been interested in and always maintained a positive attitude and a smile even when we said no. One morning Keenan phoned us about a home that had just been listed and we were there that afternoon. A few weeks later we were the proud owners of our lovely new home. Keenan eliminated a lot of the stress out of our relocation by simply providing an exceptional service…” Dave Beckett & Diane Dawson (175 Cambridge Road, Cambridge Heights) “Keenan’s professionalism in getting our house sold has been awesome. His expertise in the area of sales and marketing have produced a result for us that we are happy with and I would have no hesitation in recommending him to friends and family who may be considering buying or selling property. He has been patient and understanding of the reasons for selling our house…” Hayley Fletcher (12 Seaforth Grove, Greerton) 22
“After 9 months on the market with 2 companies I was feeling put off by Real Estate agents. From the first meeting with Keenan my confidence was restored. Finally an agent who listens to my needs. Compared to my previous experiences, the service he provided was far superior. I felt comfortable with the advice he gave, his negotiating skills and importantly, keeping me informed with weekly reports and phone contact. Keenan achieved a great result in a short period of time, allowing me to move on with the next step of my life.” Debbie Thomas (45 Westminster Drive, Cambridge Heights) “... Keenan’s personal approach and understanding of Jane’s needs was our initial reason for choosing him. Keenan achieved a great result in a tough market and did so in less than a month. His weekly reports, ability to explain and communicate with Jane along the professionalism he displayed was outstanding.” Rod & Sue Collins – on behalf of Jane Akenson (13 Greerton Road, Greerton) “We really appreciate all the work you have put into marketing our property. Your service has been far superior to what our previous agent provided and we regret that you have not benefited from a sale on our behalf. It has been a pleasure working with you and we will be sure to recommend you to others.” Charrissa & Stephen Knightly (8b Solomon Street, Brookfield) “This young real estate salesperson grabbed my attention enough to literally write home about it! By adding value through the use of the communication technology available, Keenan is able to market himself globally. This simple, easy to use blog lead me to recommend that my mom list with this salesperson and this company.” Chantelle Shmoorkoff (Vancouver, Canada)
Keenan McNeil Licensed Salesperson REAA 2008 Residential Consultant Eves Papamoa Mobile: (021) 02678552 Office: (07) 5728318 DDI: (07) 9269099 Keenan.mcneil@eves.co.nz www.keenanmcneil.co.nz 23
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