Failure to settle on property costs buyer over $200k

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#3217619 13-Apr-2024 07:48

That's interesting to read, @handle9 (and rather amusing too). Both purchases we have made have been without deposit, no issues.

Correct me if I'm wrong, but doesn't the deposit just sit in the agents account gathering them interest until settlement? I can't really think of any reason to give them any more money than necessary.

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#3217622 13-Apr-2024 08:40

Ge0rge: That's interesting to read, @handle9 (and rather amusing too). Both purchases we have made have been without deposit, no issues.

Correct me if I'm wrong, but doesn't the deposit just sit in the agents account gathering them interest until settlement? I can't really think of any reason to give them any more money than necessary.

If the developer is seeking funding from a first tier bank then the bank will require a certain level of qualifying presales. To qualify there will be a number of conditions e.g. 10% minimum deposit to be held in a solicitors trust account, sunset clause timeframes, arms length transactions etc...

If you offer a 5% deposit then it may not count as a presale for funding so it may not be an attractive offer.

The bank would want to know that the buyer has enough skin in the game to go through with the purchase. Too small a deposit and the buyer may just walk away from it leaving not enough sales to repay the bank.

SATTV

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#3217624 13-Apr-2024 08:46

Handle9:

You can offer a minimal deposit but it makes your offer unattractive. If a purchaser offered me less than 10% deposit I’d be inclined to reject the offer. 5% and I’d invite them to investigate sex and travel.

Why does it make it more unattractive?
When you settle you get exactly the same ammount of money, the real estate gets their comission and legals cost the same regardless.

not every has a spare $200 000 sitting in the bank doing nothing for a deposit on a house.

I know enough to be dangerous

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#3217631 13-Apr-2024 10:45

mentalinc:

Better recent example, with over twice the cost to the purchaser: https://www.nzherald.co.nz/business/failure-to-settle-116m-manurewa-house-deal-cops-429000-court-penalty/FA2DEIYH2JG2PAPJNMODW3B27I/

many years ago there was one where the house sale was conditional on the old house selling, which is common. however the buyer stuffed around selling their house, failed to sell and pulled out of the sale. the seller took them to court and won, because they didn't try to sell their house to fulfill the contract. the would be buyer lost a large amount of money.

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#3217633 13-Apr-2024 10:52

Ge0rge: That's interesting to read, @handle9 (and rather amusing too). Both purchases we have made have been without deposit, no issues.

Correct me if I'm wrong, but doesn't the deposit just sit in the agents account gathering them interest until settlement? I can't really think of any reason to give them any more money than necessary.

usually lawyers account and often with a big amount of interest.

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#3217635 13-Apr-2024 11:40

SATTV:

not every has a spare $200 000 sitting in the bank doing nothing for a deposit on a house.

… and not everyone is buying a $2m house where 10% is $200k.

Sometimes I just sit and think. Other times I just sit.

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#3217636 13-Apr-2024 11:50

tweake:

Ge0rge: That's interesting to read, @handle9 (and rather amusing too). Both purchases we have made have been without deposit, no issues.

Correct me if I'm wrong, but doesn't the deposit just sit in the agents account gathering them interest until settlement? I can't really think of any reason to give them any more money than necessary.

usually lawyers account and often with a big amount of interest.

Usually deposits are held in the selling Agent’s trust account.

Sometimes I just sit and think. Other times I just sit.

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#3217713 13-Apr-2024 14:52

Ge0rge: That's interesting to read, @handle9 (and rather amusing too). Both purchases we have made have been without deposit, no issues.

Correct me if I'm wrong, but doesn't the deposit just sit in the agents account gathering them interest until settlement? I can't really think of any reason to give them any more money than necessary.

If a vendor accepts an offer with no deposit they are incredibly foolish. The vendor has to pay the real estate agents fees even if the house doesn’t settle.

If a purchaser hasn’t got the funds for a deposit then I’d have real doubts over their ability to settle. After 10 working days of the property going unconditional the deposit is released to the vendor. I’ll have that money in my account as it enables me to make offers on a further property.

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#3217715 13-Apr-2024 15:04

SATTV:
not every has a spare $200 000 sitting in the bank doing nothing for a deposit on a house.

If you haven’t got a deposit then how do I know you have finance or will settle?

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#3217776 13-Apr-2024 16:11

mattwnz:

Kyanar:

If property prices go up it's not unusual for developers to kick the can down the road until they can exercise the sunset clause and cancel presales on the basis they haven't settled prior to the designated date.

I would hope a good lawyer for the purchaser would put in a clause to prevent that happening, if allowed by the developer. But I have read stories in the NZ media of that happening which IMO shouldn't be permitted in NZ.

The situations I am aware of, the developer refused to allow any contractual changes that would prevent them from canceling the deal under the sunset clause and relisting the property. I am aware of a situation where they said that clause was required by their financers, so they were unable to agree to any changes to it.

So all a lawyer can do is advise the client of the risk they are carrying. Majority of new builds have sunset clauses in their agreement's so for the buyer it is really an accept it, or don't buy a new build kinda situation.

I do think we need some central government intervention to ban these types of contracts (like we banned pay when paid contractors for subcontractors).

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#3217777 13-Apr-2024 16:17

When I bought off the plans a few years ago the sunset clause could only be exercised by the purchaser, and only if settlement had been delayed beyond a certain date. There is no way I would sign a contract with a sunset clause that could be exercised by the developer because that would be wide open to abuse.

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#3217778 13-Apr-2024 16:18

On deposit's, it well known that agents push extremely hard to get purchasers to put large deposits in their offers (as this is where there commission is paid from).

If I was a vendor I think I would generally favor overall price more. (noting that a small / nil deposit does increase the odds that the buyer may need to be chased via the courts, so would make the offer a little less attractive).

Handle9:
SATTV:

not every has a spare $200 000 sitting in the bank doing nothing for a deposit on a house.

If you haven’t got a deposit then how do I know you have finance or will settle?

May have a term deposit maturing in a few weeks and not want to carry the break fee.

May have a property sale settling soon which will release the funds.

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#3217779 13-Apr-2024 16:19

alasta:

When I bought off the plans a few years ago the sunset clause could only be exercised by the purchaser, and only if settlement had been delayed beyond a certain date. There is no way I would sign a contract with a sunset clause that could be exercised by the developer because that would be wide open to abuse.

That's great.

There is a long list of where developers have abused sunset clauses too.

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#3217834 13-Apr-2024 16:40

Scott3:

May have a term deposit maturing in a few weeks and not want to carry the break fee.

May have a property sale settling soon which will release the funds.

That all sounds like a (hypothetical) you problem. As the vendor I am not interested in acting as your financier. If you haven't organised funds for a deposit then it's a big red flag.

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#3217843 13-Apr-2024 17:21

Scott3:

.

I do think we need some central government intervention to ban these types of contracts (like we banned pay when paid contractors for subcontractors).

Isn't there already a newish 'unfair contract' law?

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