Ever had that delightful emotional roller coaster 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 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.
”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 80’s 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 crises 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 uncertainty and risk, for both vendor and purchaser.
According to the latest quarterly CoreLogic Property Market and Economic Update report, total listings (all those properties currently on the market, irrelevant of how long they’ve been on the market) remain at low levels across NZ, although they’re 3% higher than a year ago. Waikato, Auckland and Bay of Plenty have seen total listings climb over the past year. Canterbury and Otago have been flatter, but it’s the capital’s listings that are looking decidedly average: they’ve fallen by 9% over the last month AND year on year too. In fact, it’s the only region to be in the negatives for listings change year on year.
Wellington’s new listings (those that came onto the market within the last three weeks) slumped over the past three weeks, perhaps with the slowdown in values prompting potential sellers to instead stay where they are. Elsewhere, things are looking up. NZ’s new listings are a modest 3% up on last year, Bay of Plenty has recorded a strong rise, and Canterbury, Otago and Waikato are also all increasing.
Given Wellington’s listings are, shall we say, somewhat embracing the concept of hibernation, we spoke to some leading Wellington real estate agents to get
Nicki Cruickshank of Tommy's has seen the city property market through its last three cycles, in what she describes as “1-2 years of good growth, then 5 years of flatness, with a 5% variation up or down during that period. We’ve just had over two years of good growth and are starting to see a slight market softening”. On the subject of supply and demand, Cruickshank notes that “Good houses will always sell in Wellington, regardless of the state of the market - for example, there are never enough family homes with four bedrooms. There’s also a huge shortage of high quality new builds and those suitable for people downsizing for lifestyle change. The market is pretty steady across all property types, and at all levels – there’s a very strong demand for the more affordable end of the market, but the high end is holding up too. The current extreme shortage of supply is helping to drive multiple offers for most listings, even those at $2Million+”.
Talking about ‘subject to sale’, Cruickshank comments: “these offers were much more common before the market increased two years ago, but even then it was only have been about 4-5% 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% 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”.
In Cruickshank’s opinion, to be successful in today’s market: “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”.
As Wellington home-buyers get priced out of the market, the Hutt Valley - slightly further out from the city centre is booming, so we spoke to John Ross of The Professionals, who has seen every market cycle possible from his start in the industry aged 21 in 1981 “Right now in the Hutt Valley, there is an all-time record low volume of homes for sale at any one time, partly due to less coming into the market in a particularly wet Winter, but also due to the speed at which they are selling. In terms of market dynamics - more vendors are opting to go to auction, it’s the perfect environment for that. We are also noticing the usual spring uplift for listings, with a really good selection of new homes just coming onto the market across most price brackets.
In terms of what it takes to have a successful offer in the current market, Ross advises: “Simply put, if you present an offer with a ‘subject to sale’ clause right now in the Hutt market, you will absolutely miss out. 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”.
So there you have it.
When the volume of homes on the market is so low, it’s best be a cashed-up buyer or risk losing out. For a solid overview of the pros and cons of making an offer subject to sale, read this.
And to make sure you’re across the latest property market trends, download the latest free quarterly property market and economic update report or check out the latest research page on our website.