Ever had that delightful emotional rollercoaster of an experience when you see a property you love, but have to sell your existing home before you can buy it, so you put in an offer "subject to sale" and cross your fingers that the deal doesn’t fall over?
But, the thing is, that does happen.
Talk to any real estate agent and they’ll have heart-break stories of people who were highly emotionally attached to a property that ticked all their boxes, yet missed out on it because their existing home couldn’t be sold in time - or worse, the vendors chose a more reliable offer ("subject to sale" deals almost always have an "out" clause for the vendor, enabling them to take a better offer if it comes along).
More often than not, they can’t find another property because the one they fell in love with was their reference point.
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”Subject to sale” clauses used to be commonplace in property transactions a few decades ago - in fact, when we spoke to John Ross of The Professionals, he recalled a situation from the 1980s with a "chain" situation involving five individual property deals, each connected through consecutive buyers having to sell their current home before they could buy their desired home.
"That’s the stuff of real estate agent nightmares! But it was a very different time back then - the property market was in crisis really - banks were a lot more restrictive in their lending in the face of a frightening global financial situation," Ross said.
But the clause has been out of vogue for quite some time now, primarily because market dynamics have ensured that that there’s been plenty of competition for offers, so purchasers have needed to put their very best foot forward.
A "subject to sale" clause just introduces certainty and risk, for both vendor and purchaser.
Nicki Cruickshank, of Tommys, in Wellington, says: "These offers were much more common before the market increased two years ago, but even then it was only have been about 4-5 percent of all successful offers with a ‘subject to sale’ clause.
"It’s never been a big thing in Wellington, largely due to the shortage of stock. Now, you might see 1-2 percent of offers being successful with that clause in then. But they are the unique properties, such as lots of steps up to the property, or a very high-end price tag. Perhaps if it’s been on the market for over six weeks and the offer is good in all other regards."
John Ross, of the Professionals, in Hutt Valley, agrees. “Simply put, if you present an offer with a ‘subject to sale’ clause right now in the Hutt market, you will absolutely miss out," he says.
"That applies at all levels - from the most affordable, right through to the top end. If a home is listed for sale, and it’s marketed well by a good agency, the vendors will typically be receiving 4-6 offers, so a ‘subject to sale’ offer won’t even be in the running, let alone being the winning offer that the vendor accepts. We’ve certainly not seen that clause in any successful offers for a very long time”.
To be successful in today’s market, Cruickshank believes buyers need to have an unconditional offer at the time of tender or deadline.
"It’s easier now, because it’s more common for relevant documentation (such as the LIM Report, a copy of a builder’s report, title search, insurance details etc) to be provided at the time of sale. This allows the buyer to do their due diligence prior to putting in an offer."
When the volume of homes on the market is low, it’s best be a cashed-up buyer or risk losing out.
Nick Goodall is head of research at CoreLogic NZ
