Developers and investors in South Auckland are threatening to pull the plug on house sales unless they get a discount, a real estate chief has warned.
Tom Rawson, the director of Ray White Manukau, one of Auckland’s largest real estate franchises, told OneRoof that a number of his vendors were facing financial stress as result of bullying and predatory behaviour in the market.
He said buyers were contacting vendors ahead of settlement dates to tell them that as a result of tighter credit laws they didn’t have sufficient funds to pay up.
In one extreme example, a buyer asked for a $200,000 price reduction because the property market had cooled since he had bought unconditionally in November.
Start your property search
“This buyer said that since the market has dropped and he wasn’t getting lending on the November price, which was over $1.2m, he was now asking to pay just over $1m,” Rawson said.
“My vendor is blown away by it all, asking ‘What’s a contract worth?’ It’s completely stuffed up her retirement plans.
“Buyers are trying it on. They’re just hoping to weaken the vendors, but vendors shouldn’t be facing this and developers shouldn’t be doing this, they’re business people.
“In this market, it’s the least capable, most vulnerable sellers being bullied.”
Rawson is aware already of several cases where developers have failed to settle on their 2021 purchases. The vendors have managed to re-sell this month but for $200,000 to $300,000 less than the original sum of last year’s market.
Another South Auckland agent, who preferred not to be named, told OneRoof that while established developers had no problems settling on deals, some first-timers were being caught out.
Ray White Manukau director Tom Rawson: "“Buyers are trying it on. They’re just hoping to weaken the vendors." Photo / Fiona Goodall
“You don’t know what other commitments they have. We had one guy who’d bought five or six properties with a 5% deposit each,” the agent said.
“He had four or five months to settle, but he still defaulted. I think he thought he could sell some and develop some.”
The agent added that a few smart developers were now looking for bargains, knowing that the best option for jilted vendors was to sell again and settle as soon as they can, at a much lower price.
“About 70% to 80% of my business since November has been home owners.”
Lawyers told OneRoof that under the sale and purchase agreement, the buyer was responsible for any loss on a re-sale as a result of cancelling a deal, but pursuing them in court could be costly.
Joanna Pidgeon, who is a member of the Property Law Committee, said: “A purchaser certainly has no right to a reduction in price.”
While a vendor does get to keep the deposit paid at the time of sale – usually minus the real estate agent’s commission - they “will need to make a decision as to whether to pursue the purchaser in the court”.
“A vendor would need to make an assessment as to the costs of the process and the assets of the individuals who were purchasing and failed to settle.”
She added: “Given current court delays due to Covid, this process could take well over a year to see through, and likely come with legal costs of more than $20,000.”
Lawyer Joanna Pidgeon says buyers don't have a right to a reduction in price once they've bought. Photo / Supplied
Other lawyers said litigation costs could climb to high as $100,000, although the settlement would include the addition of penalty interest on top of the claim.
Alex Sheehan, a senior solicitor at Pidgeon Judd, said that many sellers would be in a position to afford litigation. “There’s definitely inequality. Sellers would need to find a barrister or specialist lawyer to go through the whole complicated and expensive process. There is no guarantee that the developer will have any money to pay and the sellers could be worse off in terms of the legal fees paid versus the return from the developer at the end.”
Barrister Tim Jones, who is frequently called as an expert witness on property matters, said that even where there is nothing controversial in a sale and purchase agreement – the contract is signed, price and settlement date agreed, default penalties – luck may not be on the sellers’ side.
“There are buyers who would be trying it on, trying to dupe some lay people out of a genuinely negotiated contract and scare them into a lower price on threat of a default, which would leave them high and dry.”
Jones said that some developers – not all – know that vendors can’t pursue a $100 “phantom company” as there’s nothing to sue, and that many buyers, and hence sellers, have been caught in this changing market.
“When it is booming, people are not too worried, they can get another buyer. But now developers are facing more constraints, they can’t get lending, and the seller is caught in the middle.”
Belinda Moffat, chief executive of the Real Estate Association of New Zealand, said that issues arising from the terms of a sale and purchase agreement “are not directly regulated by us, unless they are connected in some way to the conduct of the real estate professional”.
“It is not our role to advise or comment on the implications between buyer and seller where one person elects not to settle,” she said, adding that consumers need to take their own legal advice.
The Commerce Commission, which, among other things enforces fair trading and consumer credit contracts laws, said through a spokesperson that matters arising from a failed house sale deal were unlikely to be matter for the authority.
