Buying another house, how is it usually done when you already own one?

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Forums › Finance and wealth management › Buying another house, how is it usually done when you already own one?

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#3119000 22-Aug-2023 13:59

That could happen, but you still get a chance to buy the house of your dreams.

If the buyer of your home signs up subject to conditions, those conditions will have a time frame that they need to be settled by (in working days).

You will also have a timeframe to go unconditional on the house you are buying if the vendor receives another offer (usually 5 working days).

You would be pretty unluck for those two timeframes to not overlap.

Situation - You find a buyer, they make an offer subject to LIM and finance, they have 5 working days to satisfy those conditions and go unconditional.

The same day, the vendor of the house you want to buy gets a cash offer they are happy to take.

Their agent informs you/your solicitor that they are invoking the cash-out clause. You now have 5 working days (or whatever is in the contract) to go unconditional - during these 5 days, they cannot sell the house out from under you.

If/when the buyer of your house is satisfied and goes unconditional, you inform your solicitor that you're ready to go unconditional, they inform the vendor's solicitor, and you've bought a house.

Of course, the buyer of your house may request more time in their offer to satisfy conditions. If that happens (say, they want 10 working days, and you agree, and the cash out happens within the first 5 working days and you've only got a 5 working day cash out clause), then you lose the house unless you take a big risk and go unconditional and hope like hell your buyer doesn't walk away.

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Handsomedan

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#3119001 22-Aug-2023 13:59

David321:

I have certainly learnt a lot here since posting this so thanks for that everyone, one thing I am now curious about is the following possibility and if there is any safe guards in place for it should it occur.

We find a house we want to buy and make an offer subject to the sale with our house within 3 months (or a mutually agreed timeframe), the seller includes the (apparently common) cash out clause, meaning they can terminate the deal should they receive a cash offer better than ours.

Meanwhile we are trying to sell our house so we can go ahead with the purchase of the one we have an agreement to buy, and we find a buyer who makes an offer subject to a few things like securing finance and maybe a building inspection etc, we agree on a deal meaning if they get everything done the house is theirs once they have got their finance etc and the settlement date arrives. BUT after we make an agreement with people who want to buy our house the sellers of the new house we want to buy receive a cash offer better than ours and opt to sell to them instead using their cash out clause. As far as I am aware we would be legally committed to selling to our buyer should they secure their finance etc but would not have a house to move in to as the one we wanted was sold to someone else after the owners used their cash out clause?

I understand this would probably be unlikely, but as I see it as a possibility with some pretty big implications/consequences id like to know more about options in regards to this.

Cash Out clause usually has a reasonable timeframe attached - i.e. you need to go unconditional by X time/date or they take the cash offer. That timeframe is usually pretty short though.

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David321

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Ultimate Geek

#3119002 22-Aug-2023 14:04

cddt:

David321:

We find a house we want to buy and make an offer subject to the sale with our house within 3 months (or a mutually agreed timeframe), the seller includes the (apparently common) cash out clause, meaning they can terminate the deal should they receive a cash offer better than ours.

Meanwhile we are trying to sell our house so we can go ahead with the purchase of the one we have an agreement to buy, and we find a buyer who makes an offer subject to a few things like securing finance and maybe a building inspection etc, we agree on a deal meaning if they get everything done the house is theirs once they have got their finance etc and the settlement date arrives. BUT after we make an agreement with people who want to buy our house the sellers of the new house we want to buy receive a cash offer better than ours and opt to sell to them instead using their cash out clause. As far as I am aware we would be legally committed to selling to our buyer should they secure their finance etc but would not have a house to move in to as the one we wanted was sold to someone else after the owners used their cash out clause?

I understand this would probably be unlikely, but as I see it as a possibility with some pretty big implications/consequences id like to know more about options in regards to this.

The scenario you describe has two contracts - you are buying one house and you are selling one house. In both cases you are describing conditional offers. Your offer is conditional on you accepting an unconditional offer on your house. The offer your buyer makes you is conditional on due diligence, building report, finance, colour of the flowers, whatever. When your buyer satisfies their conditions, they pay the deposit and the contract to sell your house becomes unconditional (i.e. legally binding). At that point you let the selling agent of the house you want to buy know you have secured an unconditional offer on your house and you pay your deposit and the contract to purchase the new house becomes unconditional.

So essentially the two contracts become unconditional contemporaneously.

You should engage a good property lawyer - they can explain this to you at each step and ensure the conditions written in the respective S&Ps mean what you think they mean.

In my opinion you should be both listing your house for sale at the same time as you are looking for another house. Don't wait until you've found a house you want to buy before listing your house.

So basically, even after an agreement is signed for the sale of our house to someone and they are securing their finance etc, I can cancel the sale before they have let me know they have completed everything and it goes unconditional? (if the owners of the house we want to buy have sold to someone else using their cash out clause?). I didn't think that would be possible, and it would certainly be a stuff around for someone trying to buy my house, surely I would be liable for any costs they had incurred when trying to get unconditional, such as building inspection etc?

I figured once we signed an agreement with someone who wanted to buy our house there would be no exiting that agreement unless they also wanted to?

I do plan to engage a lawyer when we do go through all of this, just trying to familiarise myself with as much as possible about the different processes before doing so to make it a bit less stressful.

_David_

cddt

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Ultimate Geek

#3119003 22-Aug-2023 14:06

Handle9:

You can't just walk away and forfeit the deposit. It's an unconditional contract and as the purchaser they are liable for any costs to the vendor by not settling.

Just saw this article pop up today: https://www.oneroof.co.nz/news/44131

"The sale, to a young couple, ends almost 18 months of anguish for the vendors, who lost out on almost $5m when a deal struck in February 2022 failed to settle."

I wonder what happened and whether they will be able to recover the $775,000 difference in purchase price, plus costs (probably ~$100,000), from the original purchaser who failed to settle!

trig42

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#3119005 22-Aug-2023 14:17

David321:

...

So basically, even after an agreement is signed for the sale of our house to someone and they are securing their finance etc, I can cancel the sale before they have let me know they have completed everything and it goes unconditional? (if the owners of the house we want to buy have sold to someone else using their cash out clause?). I didn't think that would be possible, and it would certainly be a stuff around for someone trying to buy my house, surely I would be liable for any costs they had incurred when trying to get unconditional, such as building inspection etc?

I figured once we signed an agreement with someone who wanted to buy our house there would be no exiting that agreement unless they also wanted to?

I do plan to engage a lawyer when we do go through all of this, just trying to familiarise myself with as much as possible about the different processes before doing so to make it a bit less stressful.

I'm unsure about you pulling your house off the market while a buyer is attempting to satisfy their conditions, but why would you want to. You want to sell your house don't you?

If you are cashed out, and your house still sells it makes you a cash buyer for another house - get out and look for another one, and when you make your (pretty much) cash offer on it, make sure you ask for a settlement date that aligns with the settlement on the house you're selling.

But yep, talk to your solicitor, they'll have the legal answers to all of this.

MadEngineer

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#3119007 22-Aug-2023 14:31

Engage lawyer. Follow instructions. Profit.

I promise it’s that easy.

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David321

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Ultimate Geek

#3119008 22-Aug-2023 14:40

So if there was a sequence of events to follow how would it go? particularly around the lawyer? I have never done this before so am a bit clueless about this as you may tell so far.

1 - Look for and find a house we want to buy

2 - Make an offer subject to the sale of our house and finance etc (do the estate agents do this for me? or do I need to find a lawyer to do it for me)

3 - Try and sell my house and ensure the settlement requirements in the sale contract do not have a time limit longer than the amount of time I have to go unconditional on our new house should the owners invoke their cash out clause?

From my very limited memory of buying my first home (the one I am in now) I did not have to find a lawyer, the agent selling the house prepared the agreement for me and had standard clauses as actually stickers, I chose the ones I wanted like building inspection etc and she stuck them to the agreement and I signed each bit she stuck on. Title and LIM were printed as standard, i had stickers put on for building inspection, finance, and securing insurance. There was a lawyer involved somewhere along the way and I remember going in to see them at some stage, but I dont think it was me who engaged them, perhaps the real estate agent suggested them and sent the documents to them. I just went in to their office when they asked me to, the said everything looked normal and got me to sign something. Thats all I had to do with them, the rest of the work was done behind the scenes. I was 21 and clueless but it all went well.

Its a bit different now obviously 12 years later and having a house to sell at the same time to get the money required and not end up homeless.

_David_

cddt

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Ultimate Geek

#3119010 22-Aug-2023 14:49

David321:

So basically, even after an agreement is signed for the sale of our house to someone and they are securing their finance etc, I can cancel the sale before they have let me know they have completed everything and it goes unconditional? (if the owners of the house we want to buy have sold to someone else using their cash out clause?). I didn't think that would be possible, and it would certainly be a stuff around for someone trying to buy my house, surely I would be liable for any costs they had incurred when trying to get unconditional, such as building inspection etc?

I figured once we signed an agreement with someone who wanted to buy our house there would be no exiting that agreement unless they also wanted to?

I do plan to engage a lawyer when we do go through all of this, just trying to familiarise myself with as much as possible about the different processes before doing so to make it a bit less stressful.

You can also insert clauses in the S&P allowing you to cancel the contract at any time before it becomes unconditional. You could also insert one allowing you to accept a better offer should you receive one before it goes unconditional. But this is where you want to be talking through the various scenarios with your lawyer so you're crystal clear, rather than relying on us. :)

cddt

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Ultimate Geek

#3119011 22-Aug-2023 14:57

David321:

So if there was a sequence of events to follow how would it go? particularly around the lawyer? I have never done this before so am a bit clueless about this as you may tell so far.

1 - Look for and find a house we want to buy

2 - Make an offer subject to the sale of our house and finance etc (do the estate agents do this for me? or do I need to find a lawyer to do it for me)

3 - Try and sell my house and ensure the settlement requirements in the sale contract do not have a time limit longer than the amount of time I have to go unconditional on our new house should the owners invoke their cash out clause?

I highly recommend simultaneously listing your house while also looking for one to buy. Otherwise you'll find one, and then miss out on it when you can't sell yours in time.

The agent prepares the S&P but I strongly recommend having a lawyer review it before you sign it, and provide suitable wording for the conditions. Agents can be free and loose with their legal wording, lawyers are much more cautious and accurate. Likewise when you are selling, ensure your lawyer reviews the S&P prior to you signing and explains all the buyer's conditions. The lawyer will also help you review the title and LIM reports.

trig42

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#3119013 22-Aug-2023 15:02

David321:

So if there was a sequence of events to follow how would it go? particularly around the lawyer? I have never done this before so am a bit clueless about this as you may tell so far.

1 - Look for and find a house we want to buy

2 - Make an offer subject to the sale of our house and finance etc (do the estate agents do this for me? or do I need to find a lawyer to do it for me)

3 - Try and sell my house and ensure the settlement requirements in the sale contract do not have a time limit longer than the amount of time I have to go unconditional on our new house should the owners invoke their cash out clause?

From my very limited memory of buying my first home (the one I am in now) I did not have to find a lawyer, the agent selling the house prepared the agreement for me and had standard clauses as actually stickers, I chose the ones I wanted like building inspection etc and she stuck them to the agreement and I signed each bit she stuck on. Title and LIM were printed as standard, i had stickers put on for building inspection, finance, and securing insurance. There was a lawyer involved somewhere along the way and I remember going in to see them at some stage, but I dont think it was me who engaged them, perhaps the real estate agent suggested them and sent the documents to them. I just went in to their office when they asked me to, the said everything looked normal and got me to sign something. Thats all I had to do with them, the rest of the work was done behind the scenes. I was 21 and clueless but it all went well.

Its a bit different now obviously 12 years later and having a house to sell at the same time to get the money required and not end up homeless.

Your sequence should go:

1 - decide it's time to trade up

2 - Prepare your house for sale and put it on the market (get rid of all your junk, make the house look as empty, light and airy as possible)

3 - Look for other houses

4 - when you find one, make an offer. Talk to a solicitor and the agent about what conditions you want to put on the offer. Check the cash out clauses etc.

5 - hope your open homes go well and you get an offer you are happy with - remember - it is probably going to lower than the agent told you it would be when they got the listing off you. They'll hav e a list of reasons that the offer is a bit disappointing.

6 - Get your solicitor to check the S&P before signing if you are not confident about everything in there (can even sign, subject to solicitor approval).

Good luck!

David321

342 posts

Ultimate Geek

#3119014 22-Aug-2023 15:03

cddt:

David321:

So if there was a sequence of events to follow how would it go? particularly around the lawyer? I have never done this before so am a bit clueless about this as you may tell so far.

1 - Look for and find a house we want to buy

2 - Make an offer subject to the sale of our house and finance etc (do the estate agents do this for me? or do I need to find a lawyer to do it for me)

3 - Try and sell my house and ensure the settlement requirements in the sale contract do not have a time limit longer than the amount of time I have to go unconditional on our new house should the owners invoke their cash out clause?

I highly recommend simultaneously listing your house while also looking for one to buy. Otherwise you'll find one, and then miss out on it when you can't sell yours in time.

The agent prepares the S&P but I strongly recommend having a lawyer review it before you sign it, and provide suitable wording for the conditions. Agents can be free and loose with their legal wording, lawyers are much more cautious and accurate. Likewise when you are selling, ensure your lawyer reviews the S&P prior to you signing and explains all the buyer's conditions. The lawyer will also help you review the title and LIM reports.

Thanks a lot for all your replies, very helpful! Seems you have a background in this or perhaps you have done it a few times?

Is it common for people in my situation to find their own lawyers after drafting an agreement with the agent selling the house we want? we could then use the same lawyer to review any agreement we have?

_David_

allio

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Ultimate Geek

#3119019 22-Aug-2023 15:22

David321:

Thanks a lot for all your replies, very helpful! Seems you have a background in this or perhaps you have done it a few times?

Is it common for people in my situation to find their own lawyers after drafting an agreement with the agent selling the house we want? we could then use the same lawyer to review any agreement we have?

In my experience the listing real estate agent will prepare the S&P agreement based on the standard REINZ document. Whether you are the vendor or the purchaser, you will take that prepared document and run it by your lawyer, who will point out any areas where you may wish to insert fishhooks (if you're the vendor) or remove fishhooks the vendor has inserted (if you're the purchaser). If the other side agrees to all the terms, you both sign and then you have a deal.

Your memory of going to see a lawyer that wasn't your lawyer seems very odd to me. The same lawyer can't represent both vendor and purchaser, and I've never heard of a real estate agent arranging for a buyer to see a lawyer. That seems like a recipe for a gnarly complaint if there was anything wrong with the transaction. The agent acts for the vendor and the vendor only - as the purchaser you should be skeptical of anything they tell you, certainly not taking legal advice from them!

You can do the transaction without a lawyer but I would suggest it is money well spent. There's nothing more stressful than a conditional offer going bad and the cost (about $1000) is nothing compared to what you could lose if something goes really wrong. The lawyer also provides their trust account to receive your deposit and generally makes the whole thing feel a lot safer. I would say it's highly unusual to not use a lawyer or at least a non-legal conveyancing specialist.

Lastly - it's a very difficult time to sell a house. Buyers are choosy and, unless your property is really remarkable, they simply may not be interested in dealing with open-ended conditions like waiting for you to purchase another a house. You will certainly limit your pool of buyers even further. On the other hand it's probably a great time to make a conditional offer to purchase - many sellers are desperate and may well agree to an offer contingent on you selling your house. In boomier times, an offer like that wouldn't even get a look in. I missed out on a house in 2016 because we asked for five days to sort our finance and that was considered too choosy! So - the rough order you described is probably the correct one. Conditional purchase first, then secure an unconditional offer on your house as quickly as possible. Your risk is that your purchase falls over because you can't sell fast enough, but at least you're not out on the street as you will be able to exit your conditional purchase agreement.

Senecio

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#3119031 22-Aug-2023 16:17

Is your current home the type of home that would appeal to an investor or first time buyer?

Granted, this was back in AU but when my wife and I sold our first home we listed it for sale and had a lot of interest. One of the interested parties was a first home buyer who was still living at home with her parents. We agreed to sell it to her and in return she agreed to rent it back to us for 12 weeks (option to extend for another 6 weeks). In the end it only took us 4 weeks to find our next home and we settled within 4 weeks so we only needed to rent it from her for 8 weeks.

it was a win-win as otherwise we wouldn't have considered her offer as it was quite a bit below another offer. But we chose to negotiate with her as it avoided expensive bridging finance or having to find a short term rental elsewhere and move twice.

Handle9

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#3119033 22-Aug-2023 16:29

David321:

Is it common for people in my situation to find their own lawyers after drafting an agreement with the agent selling the house we want?

It's common but stupid.

Get a lawyer up front who can represent you for both transactions. Lots of people don't. Lots of people get into bad situations because of poorly written clauses.

It might cost you an extra few hundred dollars to have a lawyer involved the whole way along but it protects you from poorly drafted clauses from you or a real estate agent.

A lawyer will give you properly written due diligence clauses for your purchase and advise you of the implications of accepting a purchasers clauses. Getting these wrong can cause you needless problems. They can also advise you up front of the implications of buying certain property types like a cross lease.

Property lawyers will generally have a fixed fee structure for transactions, plus disbursements etc.

Handle9

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#3119034 22-Aug-2023 16:31

Just to add the REA works to get a deal mutually agreed. That is their primary concern and everything they give you to sign will say you have had the opportunity to get independent advice. You should take that opportunity.

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