House sale and purchase, clauses to use

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Forums › Finance and wealth management › House sale and purchase, clauses to use

David321

485 posts

Ultimate Geek

#315219 24-Jun-2024 07:29

Hi all,

First of all, I do plan to check this with my conveyancer but I am also looking for other people opinions/experiences as I have seen information from lawyers and conveyencers also varies between them.

My wife and I have found a place in Rolleston we really like, we had been looking for a while and even had an offer on another place we like get declined as it was subject to sale of our house, so we have decided to get our house on the market and sell before making more offers on other places we like.

Our plan was to get our house sold unconditionally then start looking for a new place again and make offers without the subject to sale clause, which should make our offers more appealing to sellers. The deadline on our house sale is tomorrow and we already have an offer we are happy with, and possibly two more offers coming according to our agent. The potential buyer will obviously want 10 or 15 days to satisfy their finance and lim etc.

The house we like had a deadline 1 week after our deadline, so our house sale would not be unconditional by then and obviously there is a chance the buyer of our house may not be able to go unconditional if they dont get finance or something like that. This leaves us two choices for the house we like, we put our offer in with a subject to sale clause and explain that our house is conditionally sold anyway and hope that would be appealing enough to the sellers, or, as the selling agent has suggested, put an offer in without the subject to sale clause but use the subject to finance clause to fall back on if our buyer is unable to go unconditional as our pre-approval require an unconditional sale of our house.

I would never trust 100% what a selling agent tells me, but this is something I never thought of and there does seem to be some sense in it? I am just curious if there is any pitfalls/risks in relying on a subject to finance clause rather than a subject to sale clause in our situation? as mentioned already my pre-approval is based on an unconditional sale of my existing place anyway.

_David_

cddt

1548 posts

Uber Geek

#3252302 24-Jun-2024 07:50

First things first, speak to a lawyer you really, really trust.

You can put in an offer subject to due diligence, and have your lawyer word it so it's as broad as possible. That will give you the 10 days you require. The clause can be wide enough to cover not only finance and building reports, but also suitability for your future use and any other criteria you may consider.

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David321

485 posts

Ultimate Geek

#3252309 24-Jun-2024 08:15

cddt:

First things first, speak to a lawyer you really, really trust.

You can put in an offer subject to due diligence, and have your lawyer word it so it's as broad as possible. That will give you the 10 days you require. The clause can be wide enough to cover not only finance and building reports, but also suitability for your future use and any other criteria you may consider.

I have heard about the due diligence clause, but to me that would be a massive red flag for the seller, it gives the buyer a lot of options to walk away from a sale, I would be better to include a subject to sale clause and subject to finance clause rather than just a due diligence clause (in my opinion).

_David_

eracode

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#3252311 24-Jun-2024 08:20

Due Diligence clauses are extremely common and are not a massive red flag to sellers. Such a clause could possibly trip you up only if the seller has a competing offer that has no DD clause.

Do as recommended above and talk to a trusted lawyer. You're second-guessing yourself and the posters in this forum by trying to work it out for yourself from a position of inexperience.

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

cruxis

480 posts

Ultimate Geek

#3252321 24-Jun-2024 08:59

Ask you lawyer to explain to you about using a "subject to due diligence" clause on your offer. It is like a safety net.

plas

453 posts

Ultimate Geek

#3252331 24-Jun-2024 09:31

Been through this in the last month buying and selling in Rolleston pretty much same situation.

Subject to Finance is not the get of jail card it use to be, the vendor can now request proof.
We sold with a blanket DD clause, but it was a cash buyer and we had confidence in what we were selling.
Subject to lawyers approval - Saved our ass on one place we had an offer on, our lawyer loved this one they just ended the contract no questions asked.
Subject to sale. Lost out on two places due to this, one they took another offer the other they used a cash out clause 5 days later. The place we bought still had this but we made it clear we had a cash buyer and avoided a cash out clause. Helped that both Agents knew each other.
The higher end of the market was pretty active not unusual to be multi offer, the house we were selling was a FHB no where near as active.

If your nervous about anything run your first offer past a lawyer, they will help with the clauses and wording, answer any questions. We used Meares Williams in Rolleston and they were very helpful and understanding, also completely understand when you ring them up stressed and freaking out :)

David321

485 posts

Ultimate Geek

#3252338 24-Jun-2024 10:06

plas:

Subject to lawyers approval - Saved our ass on one place we had an offer on, our lawyer loved this one they just ended the contract no questions asked.

If your nervous about anything run your first offer past a lawyer, they will help with the clauses and wording, answer any questions. We used Meares Williams in Rolleston and they were very helpful and understanding, also completely understand when you ring them up stressed and freaking out :)

Thanks for the reply, I have contacted my mortgage manager (I don't have a broker as I'm using kiwibank). He has confirmed in my situation using a finance clause would be fine and no need to go subject to sale, he diddnt offer much other explanation, but I'm going to ask if they can provide proof I couldn't get funds if my house sale falls through, to be sure.

How much did you lawyer cost? I am think of using streamline conveyancing out in Rolleston, they seem a lot cheaper than lawyers and provide the same service as long as there is no big complications in the sale and or purchase?

_David_

Scott3

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#3252348 24-Jun-2024 10:42

David321:

I have heard about the due diligence clause, but to me that would be a massive red flag for the seller, it gives the buyer a lot of options to walk away from a sale, I would be better to include a subject to sale clause and subject to finance clause rather than just a due diligence clause (in my opinion).

Yes, it gives the buyer the ability to walk away from the deal, But the due diligence time period is typically fairly short.

As Such if the seller is happy with the rest of the offer (& unless the seller has another offer that will expire during your DD period) the seller has basically nothing to loose from letting a prospective buyer have some exclusive time to do their due diligence. The house will remain on the market, looking for backup offers in the event the first prospective buyer cancels under due diligence. The odds of any such backup offer insisting on such short validity that the seller doesn't have time to wait out the due diligence period of their first offer is low.

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plas

453 posts

Ultimate Geek

#3252382 24-Jun-2024 11:30

David321:
plas:

Subject to lawyers approval - Saved our ass on one place we had an offer on, our lawyer loved this one they just ended the contract no questions asked.

If your nervous about anything run your first offer past a lawyer, they will help with the clauses and wording, answer any questions. We used Meares Williams in Rolleston and they were very helpful and understanding, also completely understand when you ring them up stressed and freaking out :)

Thanks for the reply, I have contacted my mortgage manager (I don't have a broker as I'm using kiwibank). He has confirmed in my situation using a finance clause would be fine and no need to go subject to sale, he diddnt offer much other explanation, but I'm going to ask if they can provide proof I couldn't get funds if my house sale falls through, to be sure.

How much did you lawyer cost? I am think of using streamline conveyancing out in Rolleston, they seem a lot cheaper than lawyers and provide the same service as long as there is no big complications in the sale and or purchase?

$1800 + GST, plus the extras LIM, registration etc. All up about $2.6K which was all covered by the banks cash back.

nzkc

1571 posts

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#3252404 24-Jun-2024 11:56

We're going through a house purchase at the moment too.

I would recommend your "subject to finance" clause has something like "subject to finance from an institution of our choosing". Without that you're potentially leaving yourself open to the seller financing you or "helping" you find finance. That said; the sale and purchase agreement the agents gave us had this clause already in it - so perhaps its become standard since we last built.

My advice is don't feel pressured by the agents. Its very much a buyers market at the moment so you can afford to take your time. We've been doing our due diligence before putting in an offer at all - though we can tell we're more or less the only interested party at the moment.

decibel

315 posts

Ultimate Geek

#3252406 24-Jun-2024 12:04

Make sure that the apparent boundaries are the real boundaries.

I know that this may be awkward to confirm, but my wife and I once bought a piece of apparently empty land only to discover that the house next door was sitting on the boundary.

The plans we had drawn up were not going to fit. As the neighbour had bought their house in good faith, it was going to be very messy and very expensive to sort out.

Fortunately, the neighbour decided to boot his tenants out (the place was a dump) and rebuild. (in the right place)

All happiness in the end.

Geektastic

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#3252419 24-Jun-2024 12:20

Just ask a solicitor. That is why they exist. The cost of getting things like this wrong is potentially ruinous.

cddt

1548 posts

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#3252478 24-Jun-2024 12:45

David321: Thanks for the reply, I have contacted my mortgage manager (I don't have a broker as I'm using kiwibank). He has confirmed in my situation using a finance clause would be fine and no need to go subject to sale, he diddnt offer much other explanation, but I'm going to ask if they can provide proof I couldn't get funds if my house sale falls through, to be sure.

You are taking advice from a mortgage manager on contract law - with all due respect they are not qualified to provide this advice and you should consider it worthless.

Clause 8.7 of the ADLS Agreement provides that the party for whose benefit the condition has been inserted “shall do all things which may be reasonably necessary to enable the condition to be fulfilled by the date for fulfilment.” [source]

Simply failing to get finance approval from one institution is not sufficient for the "subject to finance" clause to be used to cancel a S&P contract.

...[the Court] held that an agreement can be worded so as to make satisfaction of a condition entirely a matter for the subjective determination of a purchaser and this was the effect of the above clause. [id.]

This is why you want the wording to come from your solicitor. If you want a the ability to cancel the contract based on a subjective determination, then you need your clause to be clear on that (subject to finance is not going to allow cancellation based on subjective determination).

If you want the ability to cancel because the sale of your house doesn't go unconditional, then that's the clause you need. If you put in subject to unconditional sale by XX date, given XX date is only 1-2 weeks away, and you communicate via the agent to the vendor that you are waiting on your own purchaser's due diligence, then that is unlikely to scare them off.

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Handle9

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#3252589 24-Jun-2024 16:08

David321:

How much did you lawyer cost? I am think of using streamline conveyancing out in Rolleston, they seem a lot cheaper than lawyers and provide the same service as long as there is no big complications in the sale and or purchase?

Conveyancers are great for simple transactions when you know what you are doing. This thread and your previous thread suggest you need a lawyer not a conveyancer.

Cheap advice gets very very expensive. Pay good people a reasonable price to do their job and you'll get a lower overall cost of ownership.

Handle9

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#3252591 24-Jun-2024 16:10

cddt:

David321: Thanks for the reply, I have contacted my mortgage manager (I don't have a broker as I'm using kiwibank). He has confirmed in my situation using a finance clause would be fine and no need to go subject to sale, he diddnt offer much other explanation, but I'm going to ask if they can provide proof I couldn't get funds if my house sale falls through, to be sure.

You are taking advice from a mortgage manager on contract law - with all due respect they are not qualified to provide this advice and you should consider it worthless.

Clause 8.7 of the ADLS Agreement provides that the party for whose benefit the condition has been inserted “shall do all things which may be reasonably necessary to enable the condition to be fulfilled by the date for fulfilment.” [source]

Simply failing to get finance approval from one institution is not sufficient for the "subject to finance" clause to be used to cancel a S&P contract.

...[the Court] held that an agreement can be worded so as to make satisfaction of a condition entirely a matter for the subjective determination of a purchaser and this was the effect of the above clause. [id.]

This is why you want the wording to come from your solicitor. If you want a the ability to cancel the contract based on a subjective determination, then you need your clause to be clear on that (subject to finance is not going to allow cancellation based on subjective determination).

If you want the ability to cancel because the sale of your house doesn't go unconditional, then that's the clause you need. If you put in subject to unconditional sale by XX date, given XX date is only 1-2 weeks away, and you communicate via the agent to the vendor that you are waiting on your own purchaser's due diligence, then that is unlikely to scare them off.

I couldn't agree more. Trying to get cute with conditions is stupid. Just put in the contract what you need to execute the deal.

Sellers aren't all stupid. If they are doing any sort of diligence on the buyer they will ask the agent what they need to secure finance. If the answer comes back "they need to sell their existing house" then you look like you are playing games.