The three ways to buy
This is where things get really exciting. You’re ready to buy your first home, and you need to get that deal done. Here’s the buying process in a nutshell.
There are three main ways to buy a home:
- By bidding at auction.
- By offer and negotiation.
- By submitting a written offer by written tender, or by set date of sale.
1. Buying at auction
In a buoyant property market, auctions are often the preferred way to sell a house. Everyone who’s interested in the property bids against each other until only one bidder is left. Hopefully that bidder is you!
You need to be thoroughly prepared, and arrange full approval and do all the checks beforehand. You also need nerves of steel.
When you buy at auction you’re making an unconditional offer. This means that, once you sign the agreement, you’re legally bound to buy the property for the agreed amount, on the agreed date - no matter what. This is a huge commitment, so you should always take legal advice first.
Before the auction
- Watch a couple of other auctions to get a feel for how they work.
- Register your interest with the agent.
- Get a copy of the auction contract.
- Do your due diligence with your lawyer (property titles) and the council (LIM), and get other reports, such as a valuation and building inspection, done.
- Decide on your absolute top price.
- Arrange your finance with your lender and have the money ready to pay a deposit on the day of the auction, if you’re the winning bidder. This is really important, and sometimes first home buyers get caught out when some of their deposit is tied up in KiwiSaver until settlement day. Talk to us and we’ll work with you to get it sorted.
On the day of the auction
- The auctioneer runs the auction and tells you what amounts they will accept.
- The seller generally sets a reserve price. If the final bid is over the reserve price the home is sold and the buyer pays a deposit, usually 10%, to the auctioneer. Settlement (the day you get ownership) is usually set for 20 days later, but can often be negotiated in advance.
- If the reserve isn’t reached, the home is passed in, meaning it didn’t sell at auction. It can sell by negotiation straight afterwards. If you're the highest bidder you’ll be given the opportunity to negotiate first. You can add conditions to the contract at this stage if you need to.
Read this article for more ideas on how to prepare and be the winning bidder on the day.
2. Making an offer
When you make an offer through the real estate agent, the seller may accept your offer straight away. It’s more likely, though, that you’ll enter into a negotiation process, until both you and the seller are happy. Your offer can be “conditional” – you put in conditions that let you check the place out before you’re fully committed. Or, your offer can be “unconditional” – you and the seller simply need to agree on the price.
Negotiations might be done and dusted in a few hours, or take days or even weeks. Stick to your guns: make sure the final price is one you believe is fair and can afford.
The big plus with making an offer is that you can take time to think.
Conditions you could add
- Finance. This gives you time to arrange your loan. Make sure your offer specifies “finance on terms satisfactory to you”.
- Title search. Your lawyer can check there are no problems with the title, or any restrictions, covenants or easements you need to know about.
- Valuation report. The report shows the market price and what other properties in the area are selling for. As your lender, we may also require a valuation report as part of the loan agreement.
- LIM report. This details what the council knows about the property, and lets you make sure there are no problems with things like consents or flooding.
- Building inspection report. The report will confirm whether the building is sound and identify any problems that might cost money.
- Engineer’s report. This highlights any structural or land issues.
Sale and purchase agreement
The sale and purchase agreement sets out, in writing, all the agreed terms and conditions of the purchase. It can vary, but most transactions will use a standard legal contract created by the Real Estate Institute and the Auckland District Law Society.
It will include:
- The agreed price list of chattels.
- The type of title.
- A list of conditions you and the seller want fulfilled.
- The date the agreement will become unconditional.
- The settlement date.
- The deposit you’ll pay.
It also covers other things like responsibilities under various laws and what happens if settlement is late.
Your lawyer will review the agreement before you sign it, and each time any of the conditions change during negotiation. The agreement becomes binding once both you and the seller have signed it and initialled all the changes. You can stop negotiating at any time up until then.
As your lender, we’ll also need to see the sale and purchase agreement. Talk to us first to see if there are any specific clauses we’ll want added in.
3. Buying via tender or set date of sale
With a tender or set date of sale method, you make a written bid for the property. It needs to be your best and final offer, as everyone else who’s interested in the property will put in their offers at the same time. And you're unlikely to get a chance to negotiate.
The seller may accept the highest offer, or decide to negotiate with the person whose offer they like best. Or, frustratingly, they could reject all the offers, including yours.
Give yourself the best chance of success
- Register your interest with the agent.
- Get a copy of the tender or set date of sale document. It tells you how offers must be made, and gives details like the settlement date.
- Discuss the tender or set date of sale document with your lawyer and prepare a written offer.
- Get a valuation and other reports, like a LIM, first, so you know the market value.
- Give it your best shot – put in the top price that you’re comfortable paying.
If your offer is accepted, you're committed to buying the property, and have a set amount of time to meet all the sale conditions.