The buying process

There are three main ways to buy a home:

  1. By bidding at auction
  2. By offer and negotiation
  3. By submitting an offer by written tender (by tender) or similarly, by set date of sale

Buying by auction

At an auction, everyone interested in the property bids against each other until only one bidder is left. If you buy at auction it’s unconditional (legally binding), so you need to arrange your finance and do all the legal and other checks beforehand.

How does the auction work?

  • the auctioneer runs the auction and tells you what amounts they will accept. They’ll try to start high but towards the end they may accept bids of $1,000, or even $500 or less
  • the seller usually sets a reserve price and tells the auctioneer what it is. 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
  • if the reserve isn’t reached, the home is ‘passed in’, meaning it didn’t sell at auction. Often it sells by negotiation straight after the auction. If you're the highest bidder you have the first chance to negotiate and can add conditions to the contract at this stage if you need to.

Before you buy at auction

  • go and watch a couple of 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), the council (LIM) and get other reports done (valuation, building inspection etc)
  • arrange your finance with your lender and have your money ready to pay a deposit
  • A conditional approval* is important here as it means you've been approved as a borrower providing nothing changes for you, and the home you choose meets the loan provider's lending conditions.
  • decide on your top price
  • the seller may consider offers before the auction. If an offer's deemed to be potentially acceptable by the seller, the real estate agent may contact all potential buyers who have registered their interest and invite them to also put forward their offers for consideration. Or the auction date may be brought forward, with the initial offer becoming the opening bid.

We may be able to help with your deposit

If the money you need to give the agent or auctioneer as your deposit is tied up – perhaps as equity in your current home or in an investment you can’t break yet – talk with us. We may be able to help by lending you the money you need for a short time, or by guaranteeing your deposit.

Making an offer

Making an offer

Many homes are sold through offer and negotiation, although auctions and tenders are often used in sought-after areas, in Auckland or if the home has special features (where it can be challenging for sellers to set what they feel is an accurate price). When you make an offer through your real estate agent, the seller may accept your offer straight away or there may be a negotiation process until both you and the seller are happy with the price and the conditions.

What’s good about this way to buy?

The big plus about buying by offer is that you can take time to think – and you can put in conditions that let you check the place out before you’re fully committed.

Common conditions added to an offer

  • Finance – this gives you time to arrange your loan. Make sure it says “finance on terms satisfactory to you” or you could be forced to borrow on terms you don’t like
  • Title search – so your lawyer can check there are no problems with the title, or restrictions, covenants or easements you need to know about
  • Valuation report – so you can check the market price. Your lender may also require a valuation report as part of the loan agreement
  • LIM report – so you can check what the council knows about the property and make sure there are no problems with things like consents or flooding
  • Building inspection report – so you can check the building is sound and find out about any problems that might cost money
  • Engineer’s report – so you can check any structural or land issues
  • Sale of another home – if you need to sell one home to buy another.

You might also want to add other conditions covering things like repairs the seller has said they’ll fix or extra items they’ve agreed to leave. Your conditions need to state that the report, finance or repairs must be satisfactory to you. Otherwise you’ll still have to go ahead even if you’re not happy with the results.

About your 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, type of title, list of conditions the buyer and seller want fulfilled, date the agreement will become unconditional, settlement date and deposit the buyer must pay. It also covers other things like responsibilities under various laws and what happens if settlement is late – and lets you set out obligations you want the seller to abide by (for example access to the property).

You’ll need to have it checked by your lawyer 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.

Your lender will also need to see the sale and purchase agreement after the deal is done, but talk to them beforehand to check if they have any specific clauses they want added.

What if my offer is unconditional?

If you make an unconditional offer you need to sort out your loan and everything else beforehand because once the offer is accepted, you have to go through with the sale. If you break the contract you can be sued, so think carefully before going unconditional.

How the money is paid

Once everything’s agreed, you pay a deposit of 5-10% of the sale price to the agent. The agent pays the money to the seller when your offer becomes unconditional. Your lender pays the rest of the money to your lawyer on settlement day.

Tender or set date of sale

Buying by 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 offer, as usually everyone who’s interested in the property puts in their offers at the same time – and you're unlikely to get a chance to negotiate. You can put conditions in your offer if you want, but it’s better if you check things out before hand instead because the more conditions your offer has, the less attractive it will be to the seller.

The seller may accept the highest offer – or decide to negotiate with the person whose offer they like best. Or they could reject all the offers. You don’t get the chance to find out what the other offers are.

How do you go about it?

  • 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
  • when you put your offer in you may have to include a deposit – this is returned/refunded if your bid is not successful (this is usually the case with tenders, but not always with set date of sale)
  • 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
  • often the seller is prepared to look at offers before the tender or end of the set date of sale, so if you get in quick you may be able to make an offer before other buyers are ready. 

Closed and open tenders, set date of sale – what’s the difference?

Tenders or set date of sale are usually arranged through real estate agents. If the tender is ‘closed’ it means offers have to be in by a certain date and won’t be considered before then. An ‘open’ tender means there is no time limit. With a set date of sale, the seller can sell the property before the specified date.