New REAA booklet - NZ Residential Property Sale & Purchase Agreement

Just got off the phone with the REAA and this is quite an important post so I hope you buyers out there are reading!  Feel free to pass this on also - spread the love...

As the Author of Young & Singles Guide to Property Investment, a book I wrote and designed specifically for newbies to the property market, (you should REALLY think about ordering yourself a copy if you don't have one by the way, especially if you are buying anytime soon), I feel a sense of duty to advise you of your rights as a buyer in regards to this booklet that the REAA have put out.  You, as the buyer, need to read this booklet if you are making an offer on a property, you will then need to sign a form to say you have received and understood the contents of this booklet.

So, with that said, on page 5 of this booklet, I found the wording to be a little bit unclear.  All's I will say is I have researched it and my findings are as follows (always chat to your solicitor though before you sign the agreement - please):

The wording in the REAA booklet reads that you pay your deposit on Acceptance and the commission is then paid to the Agents when the contract goes Unconditional.  Let me start by saying, you DO NOT have to pay a deposit on the Acceptance of the Sale & Purchase Agreement.  In my opinion, I would advise you to pay the deposit on the Unconditional day, you can even hold the whole amount and pay all of it on Settlement day if you really wanted to (might be a bit tougher to get the Vendor to agree to that though).  

Please keep in mind that you as the buyer can be in just as much control as the vendor, you can negotiate the terms of sale too.  So for example, if you only want to pay $10,000 as your deposit on Unconditional day and the rest on Settlement day, as long as the vendor agrees, then you can do that.  This example is common, especially when you have a smaller deposit to start with.

If you have comments to add, please do, be good to get the feedback on this issue.

Right, now I can sleep easy.

;-)

The new Real Estate Agents Act and what does this mean for you as a buyer?

Ok, thought I'd explain a few of the changes in this new Real Estate Agents Act (2008) that came into effect last Tuesday on 17th November 2009 after going unchanged for 33 years.

The nitty gritty of the new act is explained in Alistair Helm's blog who is the CEO of Realestate.co.nz, well worth subscribing to his blog by the way.

There is also good information in Ross Brader's Blog, a successful Agent in Pt Chev.

Of course you can also go to the actual REAA website (Real Estate Agents Authority).

Few bullet points as to the key changes:

1. Cost for agents to stay working in the industry are going to increase. They now need to be individually licensed, this wasn't the case in the past. They had to be qualified of course, but not individually licensed as either a sales person, branch manager or licensee.
2. Agents need to now disclose to the vendor all discounts off marketing/advertising they might be privy to; and the commission they receive from the sale.
3. As a buyer you will need to sign a disclosure confirming you have received 'The New Zealand Residential Property Sale & Purchase Guide' BEFORE you sign the Sale & Purchase Agreement. The vendor will also need to sign one similar.
4. Licensee's now need to produce a market appraisal on each property listed. The price they come up with must be supported by comparative sales and must meet expectations of the Vendor.
5. Fines toward Agents or Agencies are now not in the hundreds they are in the thousands and tens of thousands.

My take on the new Act is that it's definitely been needed. It is going to professionalize the industry even more than it was which can only be a good thing. It is basically going to make everything very transparent, which again, is a good thing.

One thing I would mention is, think really hard if you are going to make a formal complaint to REAA about an Agent... not only will they be taken through a very lengthly battle of paperwork and drama, but they could be fined thousands and thousands of dollars. Ok, absolutely fair enough if what they did was purely wrong and the mistake is valid, but just keep in mind what you could be ruining by making that complaint.

Real Estate Jargon - what does it all mean?!!

Real Estate jargon that is commonly used on listing adverts can confuse and annoy buyers who are searching for the most basic piece of information on a property such as - PRICE. The price in my opinion should be on all listings, especially as people who often search for properties do not live in the area and won't know that the property they are searching for (and possibly fell in love with), is out of their price range. We could all be saved a lot of time, frustration and hassle if prices were on listings!

I must admit that when I am searching for property, I do tend to skip the ones that don't have a price, and I know a lot of other people who do the same.

I would like to shed a bit of light on the following common phrases and acronyms used by Real Estate Agents, instead of putting the price on their listings:

POA - Price on Application

This means you just need to make contact with the Agent to obtain the price or price range. It is sometimes said that POA is used when the vendor is testing the market so therefore may not be too motivated to actually sell.

Buyer Enquiry Over

Obviously this is what the Vendor would like the buyer enquiry to be over and at least with this one, Agents usually give you a figure to work off. However, being me, if I was going to offer, I would still probably offer just under the 'Buyer Enquiry Over' figure, you never know what vendors are willing to accept.

Tender

Tenders are a very good way, from a Vendors perspective, of drawing out the very best offers from potential buyers with minimal mucking around. As the buyer, you will need to make contact with the Agent to find out what the Vendors expected sale price range is. The Agent won't give you an exact figure but should at least give you a range so you have something to work off. If after asking the Agent you are still a bit unsure of the price - go to Zoodle - and purchase a sales report to find out what other like properties in the area are selling for. At the very least, download the free report on the property from Zoodle and check out the Capital/Rateable Valuation.

As a buyer, you need to go in with the leanest offer you can muster. What I mean by that is you need to have your offer look the most attractive to the vendor, so while a cashed up offer would be best, it is sometimes not possible, so what I mean by lean, is having minimal conditions on your offer and going in with your highest price. So, as a buyer, you have ZERO control of this situation and that is why I really really don't like it.

Auction

Auctions are a great way of Vendors relying on emotional buyers competing on Auction day which of course pushes the price sometimes well in excess of the valuation figures. Same goes as above in Tenders, for Auctions, you will need to get in touch with the Agent to discuss prices or check out Zoodle.

As a buyer, you need to have all your reports organised before the Auction day, such as valuation, building reports, LIM etc. Your 10% deposit needs to be on hand too. If you win at the Auction you are expected to pay your 10% deposit that day. If, you decide later that you don't want the property, you may find that you don't get your 10% back, so be very certain when you are bidding at Auction!

Negotiation

Another frustrating one as you will need to get in contact with the Agent to obtain the price expectancy of the vendor. At least with Negotiation you have a bit more control than Tenders and Auctions as it is a Offer and Negotiation process.

All this stuff and more is in my book, Young & Singles Guide to Property Investment - feel free to order yourself a copy.

UK Immigrants unknowingly entering into NZ Sale and Purchase Agreements

A new Blog Post by Steve Koerber regarding new immigrants purchasing homes with major leaky home issues, got me thinking; I back Steve up completely on this stuff and there is also another key issue when it comes to new immigrants buying NZ property, specifically people from the UK.

According to Statistics NZ - 18,361 people came to live in NZ from the UK from July 2008 - July 2009.

The house buying process in the UK is somewhat different to NZ. In the UK, a 'Offer of Purchase' is made to the vendor from the buyer via an Estate Agent. Ok, so you may be thinking, this is not too different to the NZ way of putting in an offer on a property via a 'Sale and Purchase Agreement'; but here is the difference: The UK offer is not a legally binding contract like the NZ one is. You can walk away from the UK one at any time and you are also at risk right up until the day of Exchange (our Unconditional day) of being Guzumped or Guzundered.

So, my issue is that UK immigrants are at risk of unknowingly making offers on NZ property and not understanding at the offset that the offer is a legally binding document and they are at risk of losing their deposit or worse.

To aid in this issue, I think that NZ Real Estate Agents should at all times ensure that Immigrants are made aware of the risks of an unconditional Sale and Purchase agreement and advise to set conditions especially a full building report in support of Steve's blog post as mentioned above.

Retirement - Are you saving for yours?

I've been thinking about doing a blog like this for a while... It is such an important topic that people, especially the under 30's, just don't even think about, letalone plan for!

I've been doing a bit of research, which was not actually that easy as I couldn't find the stats that I was after, especially in NZ pages, but, I did have some interesting findings I thought i'd share.

One wesite I came across had the following:

A survey commissioned by the BBC has revealed that saving for a pension is not a top priority for many UK adults.

The report revealed that half of adults in the UK aged between 20 and 60 are not putting anything towards a pension with the situation being worst for those under the age of 30.

The reason for not saving towards their retirement is a lack of funds with the priority being paying off their debts.

Furthermore, younger adults said they felt retirement was too far away to be worth planning for.

Meanwhile, 45% of the 41 to 60-year-old category are not paying into a pension fund with a number of reasons being cited such as redundancy and women who never joined a pension scheme because of giving up full-time work to have children.

This explains that basically HALF of people are not doing anything about their reitirement - that is pretty staggering in my opinion!

This website explained componding interest quite well I thought http://www.sheknows.com/articles/807585.htm.

Both money and years factor into how well your retirement account will do over time. The sooner you start, the more your money will compound or grow, even if you begin by investing only a small amount each month. The interest you earn will continue to compound over time, growing the value of your account substantially as the years add up.

Example

The earlier you start investing, the more time your money has to compound, which earns you a higher reward in the end. Here’s an example of consistently investing $100 per month at 5% compounded quarterly until age sixty.

Starting when you're 20... By age 60... $152,410

Starting when you're 30... By age 60... $83,525

Starting when you're 40... By age 60.... $41,175

Sorted.org.nz did have some good information for when you actually want to start the planning phases and working out how much you will need. See http://www.sorted.org.nz/home/sorted-sections/retirement

Even if it just $100-$500 per month, it's something. Or even if it is just kiwisaver, it's something. Maybe even a rental property perhaps? At least then you can claim on the tax losses and offset them against your personal 9 - 5 income. My mix at this stage is property and kiwisaver, it's not much but it's something. Sounds all very cliched but honestly a little bit of planning now can save a hell of a lot of hard work and unnecessary stress later.

You are eventually going to get to retirement age one day, and I don't know if anyone agrees with me but the older I get the quicker the years are going.

Unfortunately we don't live in Never Land. The one thing you can 100% depend on in life, is time.

Cross Securing vs Stand Alone Mortgages

I wanted to offer some clarification on cross securing vs stand alone mortgages when obtaining finance for a new property.

CROSS SECURING
This means the bank you are mortgaging your property with is taking security over A) the property you are purchasing AND B) your existing property or potentially your whole portfolio of properties if they are all with the one lender. The danger with this is people are unknowingly getting themselves into a tangled web and when it comes time to liquidate and sell off one property, issues arise. One of the issues with cross securing is explained in a NZ Herald article I read recently, where Liz Brown from the Banking Ombudsman was interviewed.

"When people buy two or more properties, they think one loan belongs to each property and, if they sell one, only that loan has to be repaid." she says.

"But normally the bank will have taken security over all their properties for all of their debt. And, particularly if they don't have much equity left in the properties, the bank is within its rights to ask the customer to reduce that debt as well as pay back anything they took out in the first place to buy the property they have now sold."

Brown says while this is legitimate, she is concerned that banks are failing to tell people they plan to do this until long after they have made their plans and commitments based on the expectation of getting more from the sales than the bank leaves them.

STAND ALONE
If possible, always try to insist new mortgages are only secured against the new property. Sometimes this will not work due to cashflow or lender criteria reasons but wherever possible, re-finance existing properties to pull out enough cash so you can use this as the deposit (work off 20% needed here) to purchase the new property. That 20% deposit you have pulled out from the existing property/ies will grant the new property its very own mortgage at 80%, meaning no cross securing is done and the properties are stand alone.

Some lenders only have the cross securing option and you don't actually get a choice in the matter. However some lenders do have this option so it certainly pays to ask the question up front.

This is all more reason why you should spread your mortgages around different lenders so again, you don't end up in a tangled mess like you can if you have all your eggs in one basket.

Bankruptcy v's No Asset Procedure (NAP)

I thought after my last blog I would explain a bit further on the specific details of the options available to you if you find you are in a position where your debts are out of control. After all, nothing in life is that big of a deal that you can’t get out of, it’s just knowing how to deal with difficult situations when they arise. As my mother always told me, “being overwhelmed is all in your head so just get on with it!”

Bankruptcy

Bankruptcy is a way of dealing with debts you have no means of repaying. A clean slate.

There are two ways to become bankrupt:

1. The individual applying for bankruptcy, a No Asset Procedure or a Summary Instalment Order now applies for these options online via the Insolvency and Trustee Service website or by sending a completed statement of Affairs and application form directly to the Insolvency ad Trustee Service.

2. A creditor can apply to the High Court to have a debtor adjudicated bankrupt.

Becoming bankrupt is a serious decision and it should only be viewed as a last resort. It is recommended that anyone considering making themselves bankrupt should get professional advice on how bankruptcy might affect them.

Information above collated from Ministry Of Economic Development - http://www.med.govt.nz

The bits I found really daunting about bankruptcy was the fact that you needed permission by someone I a likened to a parole officer (actually called an Official Assignee) if you were leaving NZ at all, even for a holiday. Failure to do this can result in fines or being chucked in prison or both – so, it’s recommended that you really do not screw with the system and you follow their rules. Of course there are a bunch of other rules around bankruptcy you can find here but I thought the holiday one was pretty severe as bankruptcy can last up to 7 years.

No Asset Procedure

A debtor who is unable to pay their debts may have an alternative to bankruptcy through the No Asset Procedure (NAP). Unlike bankruptcy, the NAP lasts one (1) year. Creditors cannot pursue you for debts included in the NAP.

1. To qualify you must:
2. have no realisable assets (realisable assets exclude cash up to $NZ1,000, a motor vehicle up to $NZ5,000, tools of trade, and personal and household effects)
3. not previously been admitted to the no asset procedure
4. not previously been adjudicated bankrupt
5. have total debts (excluding student loan) not less than $NZ1,000 and not more than $NZ40,000. (Please note that your debt level when applying for entry to the No Asset Procedure will be calculated including all unsecured and secured debt)
6. complete a means test showing you have no means of repaying any amount towards your debts.

The Official Assignee can refuse entry into the NAP if:

1. your creditor(s) object to entry or
2. bankruptcy proceedings have been initiated and the likely outcome for the creditor would be materially better if the proceeding continued or
3. you have concealed assets or
4. you have committed an act that would be an offence under the Insolvency Act 2006 were you bankrupt or
5. you have incurred debts knowing you had no means to pay them.

Information collated from - Bankruptcy & No Asset Procedure

In summary – if you own property or have debt in excess of $40,000 bankruptcy might be an option for you (lasts 5-7 years). If you do not own property and your debt is less than $40,000 NAP might be an option for you (lasts just 1 year).

For goodness sake though, do not enter these decisions lightly, do your own research, get professional advice and try all other avenues before taking one of the above steps.

What to do when things go bad!

The last six months have been the worst of my life in a financial sense. I have lived through the terrifying prospect of filing bankrupt and even when I accepted the fact that I might have to file bankruptcy, it didn’t have the effect on me that you would think it would. I was relatively calm about the ordeal as it just seemed too far out of my hands. One thing that I did have a realisation on was that bankruptcy, although wasn’t going to be a fun thing to go through, really wasn’t the end of the world. It was to be a step back, but it wasn’t going to kill me so I just needed to get on with life and that is precisely what I did. In the end I didn’t go bankrupt and a few months on I am starting to recover financially; I personally faced the worst case financial scenario, and I recovered. Nothing much scares me now.

The financial issues I faced was due to loss of daily income from my employer who quite simply didn’t pay me throughout the whole time I was employed by them (approximately 4-5 months); I continually gave them the benefit of the doubt and brought into the excuses they continued to make and as it turned out, it bit me severely in the arse! In the meantime I had mortgages, personal loans, car loans, rent and food to pay for and with NO income, this was rather difficult as you can imagine. Also emotionally I was a wreck and pretty highly strung due to the constant phone calls from creditors. All I really wanted to do was bury my head in the sand and not look up until the coast was well and truly clear.

The coast wasn’t going to clear on its own, so from my experience if you are in a financially tight or unstable position, step up and TALK TO YOUR CREDITORS, they want to help you, they need to know what is going on, they are actually bound by the Credit Contracts Act to consider helping you if they can. The person on the other end of the phone is human too. Just explain your situation, advise you are not abandoning your debt but you need some help. Don’t be afraid to ask for help, people generally are willing to help if asked.

So in summary – I have two offerings of advice if you find your financial situation is getting out of control:

1. If you choose bankruptcy – it won’t kill you. Don’t panic, just go through the steps and get on with life. Of course research this; It is not necessarily the easy way out by any means!
2. Talk to your creditors – they must be kept in the know.

Debit v’s Credit Cards

Well I have crawled out from under my not-so-cosy rock and am back into my blog, so you can expect honest, truthful and unorthodox blogposts going forward from me – apologies for the lack of contact!

I was watching TV the other day (a rare occasion with all of my dance practice lately), and an advert came on for sorted.co.nz. There was a woman going on about her credit card and how much interest she was charged “for using her own money in advance”. My initial thought was ‘durh’ are you kidding me, what, you think you get to use that cash for free? Moreover, the advert didn’t make a huge amount of sense as generally you are only charged interest if you haven’t repaid the card in full within your interest free period (usually between 30 – 45 days), and if the lady in the advert was using “her own money in advance” then she would have (in theory) be repaying the credit card in full each month and not being charged interest, obviously she wasn’t and there lies the problem.

Most of us will probably have a credit card, or at least know what one is, and most of us with them probably don’t pay it off every month like we are supposed to and quite possible push the boundaries with them by buying those shoes we didn’t really need, or that holiday that we just had to have now. This got me thinking. Now that there is Debit Visa cards like the ones Westpac have recently put out to the market; why do we, the average Joe Bloggs, need a Credit Card anymore? And are they just accidents waiting to happen for people without great financial discipline?

For those of you who need a brief explanation on the difference between Debit & Credit, here it is; a Credit Card is your standard Master Card, Visa American Express and is basically a line of credit you can draw on with the intention of paying it back at some point. You are charged quite a high interest rate (anywhere between 14%-22%) on the balance and if you “max out” your card there is a minimum payment that you generally have to make on the card per month; so really, it becomes like any other standard monthly expense you have if you max it out and can’t repay it. This minimum payment figure varies from 3%-5% of the balance – varies from lender to lender. So, for example if you have a $4,000 maxed limit and your lender has a 3% minimum payment, your monthly payment will be $120.

The Debit Card, although still a Visa card that allows you all the ‘good’ benefits of a standard credit card, enables you to use your own money already in your bank account; so this eliminates the need to repay the bank back as you are not using their money, you are using yours. So, there is no risk of maxing out a credit card and having yet another expense to pay at the end of the month.

I thought I’d go over some of the pros & cons of Debit Cards v’s Credit Cards:

Debit Card – Good Idea

Credit Card – Bad Idea, unless you can repay it each and every month without fail, hassle or most importantly, leaving you short of cash. Also, as far as obtaining mortgage finance goes; if you owe money on your credit card the bank will take into consideration the limit, not the amount you owe as to what they calculate to be your credit card expense. For example (same as above); If you have a $4,000 limit and you owe $1,000; the bank will take 3% (varies from lender to lender) of the $4,000 (limit); not 3% of the $1,000 (what you owe). So, My advice; either get rid of your credit card altogether, reduce your limit right down or repay your credit card every month.

I agree that Credit Cards are good for those “emergencies”, no argument from me there; if I had a friend in need and I needed to get to London or somewhere to see them then a credit card might come in handy. But then this is where a-whole-nother blog could be written on ‘Financial Planning’ as to what you should at least always have in savings; just briefly, an intro to a basic financial plan is that you should have at least three months of your expenses in a savings account for emergencies, such as, losing your job (quite a possibility in the world today) or emergency trip overseas for a friend/family member in need.

Comments are welcome....

Jod :-)