Part 4: Offer, Negotiation, Acceptance and Settlement

April 23, 2015

In this last instalment of the guide to buying a house, we’ll look at the process that you will follow around the negotiation period and in having your offer accepted.

There will be a slight difference depending upon the sale method used – private treaty, deadline sale, tender, or auction. In this article we’ll focus on the process around making an offer and having it accepted.

 

The offer

When you’ve made the decision that the home is the right one for you, you’ll need to make an offer.

Here the assumption is that you have a pre-approved loan or you have finances in order to allow you to make an offer on the property.

There are a number of things that will come in to the equation in terms of what value you will place in an offer. You potentially may start low and build-up to your top dollar through negotiation – which is the more common method of negotiation, or alternatively go straight in with your best offer.

There is always an opportunity for a bargain, and if you don’t ask (or put an offer on the table), you don’t get – or give yourself the opportunity. Don’t think you can’t offer what you’re able to pay – even if a listing is “buyer enquiry over”. You don’t know the position of the seller, they may just need a quick sale!

As part of your offer there may be some potential conditions that you will associate with it. Conditions can be numerous and varied but there are generally three common conditions. The most common is the offer which is dependent upon finance. This means that the offer is accepted on the basis that the purchaser can get the finances together – this generally refers to the bank approving a loan amount.

For more information and services around finances and mortgages, and the potential to utilise the skills and services of a mortgage broker to broker a better deal for you, we recommend Scott and his team at Advanced Mortgage Solutions. Give them a call.

Similar to above, another common condition is that the offer depends upon the sale of another home. If you already own a home, your equity will be tied up in this property. You may make an offer that is accepted but it solely depends on the ability of being able to sell your own dwelling first. The acceptance of the two conditions mentioned doesn’t reflect that it is a one horse race. If another offer came in that was of a cash basis, the seller has the opportunity to take this offer at the expense of your offer.

The third common condition is that of a LIM or building report. This means that the offer still stands as long as the building report or LIM report comes back in a favourable manner.

Based on the above, the real estate salesperson will then put your offer in writing through a Sale and Purchase Agreement in the latest edition format published by the Auckland District Law Society. The agreement will note:

  • Your offer
  • Any conditions
  • The settlement date – this refers to the date in which you get the keys and take possession of the house (and when all money is transferred)
  • The date when you need to have your finances arranged – this may also include the time in which you need to sell your own home if the sale is dependent upon it
  • And finally, any chattels that are included in the purchase price i.e. curtains, spa pool etc.

 

The negotiation

If the offer isn’t accepted first up, the negotiation process begins. This period is characterised by to-ing and fro-ing where the salesperson will be move back and forwards between buyer and seller looking to find the middle ground, through counter-offers.

The negotiation period can be time consuming, stressful for some, and of course disappointment if your offer (or counter-offer) isn’t accepted. At this stage, it is important to remain true to your budget. Over extending yourself during the negotiation phase may cause further issues in the long-term in regards to being able to honor repayments.

The salesperson will work towards closing the gap between the acceptance and the offer, so you can expect plenty of conversations and discussions with the salesperson as they work towards the best outcome.

 

Acceptance

On acceptance of an offer, the offer then becomes a contract. You haven’t quite bought the property – this officially occurs once the money has changed hands, but the resulting signed Sale and Purchase Agreement from the negotiation period is legally binding.

A copy of the agreement is sent to the solicitors for both parties.

At this stage, both parties are required to meet the conditions set out in the agreement. Failure to uphold a condition means that the agreement becomes null and void. If your checks, such as a builders report come back unsatisfactory, there is room to withdraw from the sale if the issue cannot be resolved.

 

Settlement

At the point that all conditions have been met, your offer then goes ‘unconditional’. At this point you are legally obligated to purchase the house. A deposit for the home is then payable to the real estate agent who holds this in a trust account. This money is returnable to you if the seller cannot meet all of the conditions of the agreement; it also means that it is unlikely that you would receive the deposit back if you backed out of the deal.

You need to do a pre-settlement inspection usually a day or two prior to settlement to make sure that property and chattels are as they were when you viewed the property.

Once the settlement date arrives, your lawyer begins the final part of their activities. They’ll ensure that the funds are transferred and received, and once this has all been approved by both party’s lawyers, the keys to the house will be exchanged.

 

Conclusion

The process of purchasing a home can be extremely daunting for someone that hasn’t been through the process before, and can be extremely stressful. If you have any questions at any stage, be sure to talk with both the real estate salesperson and your lawyer to understand your obligations.

This wraps up our four part series on looking for a property, right through to purchasing your new home. Have you got anything else to add or a question? We’re happy to answer any questions you might have, so give the team at First Avenue a call or alternatively leave a comment below and we’ll be sure to be in touch.

 

 

Photo Credits

Contracts, by NobMouse, CC BY 2.0

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Filed under Property management \ Real Estate \ Real Estate Investment

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