More buyers are making their offers conditional on selling their own homes first — but risk missing out if vendors counteract with a ‘cash out’ clause.
Tommy’s Real Estate Sales Director Nicki Cruickshank says buyers who include a “subject to sale” clause would never have been able to secure a property when it was a sellers’ market.
“But now I would suggest close to 50 percent of offers on property have a subject-to-sale clause.
“Buyers insert this clause now because they can. Previously we might have averaged six offers on one house but now, because there is little competition, buyers can afford to chance their arm at a house without risking owning two houses.
“If their offer is accepted, it gives them an opportunity to then sell their own.”
Another factor behind the subject-to-sale upsurge is the credit crunch fallout from the Government’s new lending rules.
“Banks have got very strict on ‘bridging’ loans to buyers in order for them to have that security of lending if their house is not sold by the settlement of their new purchase,” Nicki says.
“Under the new rules, even with a lot of equity, most people do not qualify for a bridging loan.”
She points out inserting a subject-to-sale clause “does not absolutely secure” the home for the buyer.
“Vendors should insist on a ‘cash out’ or escape clause, in the event a cash buyer was to come along and make them a better offer, then the original buyer will generally have five days to confirm the agreement or not.
“If they can’t, provided the vendor has accepted the back-up offer, then the property will go to the other buyer.
“Buyers who are not subject to sale to buy a house are by far in the best position. Owners may be prepared to settle for a little less to have the certainty of sale rather than being in a chain relying on two-to-three other properties having to sell for their one to confirm.”
Nicki also encourages buyers to do as much due diligence as they can on a house.
“While you can now secure homes with conditional offers, make sure you are happy with builders’ and LIM reports, and that you can get insurance on the new property,” she says.
“Previously you needed to do all of this prior to offering at your expense, and still had a high chance of missing the property.
“The great thing about the market now is that there is a lot of choice and you can buy the house you want not just what you could afford.
“Stock numbers on the market are decreasing so therefore those on the market that have been sitting a while are now starting to move.”
That’s why Nicki would encourage homeowners to list over winter.
“I think if I was selling I would be doing it sooner rather than later,” she says.
“Any market is all about supply and demand, and I think in the new year supply will well outstrip demand.
“A lot of people who decided to take their properties off the market earlier this year because they couldn’t get what they wanted will return to the market, along with the normal higher numbers in summer who tend to want to move.
“Plus, with signs of lots of people wanting to exit New Zealand, and new demand not coming in, owners may be in for a long sales process!”