Author: Yvonne Bryant

If you’ve ever thought about selling your home, you will probably have heard the term ‘appraisal’. But what exactly does an appraisal entail? And what can a first-time seller expect when they ask an agent to come around and appraise their home?

Even if selling your home is a distant, far-off future venture, and you don’t want to start a serious sales talk yet—or commit to anything—a home appraisal is an excellent way to uncover your home’s value in the current market. Knowing this will at the very least help you plan and prioritise any future renovations or improvements.

How does an appraisal work?

Essentially an appraisal is just an informative chat with a licensed real estate agent. An agent will come to your home, at your convenience, and talk you through a few points about your home and its place in the market. This is a great time for you to:

• Find out the value of your home.
• Discover ways to boost its value.
• Learn about the future of your suburb.
• Find out what selling method best suits your property.
• Get all your home selling questions answered.

Lastly, an appraisal is a chance to get to know a local agent and decide if they are someone you could work with in the future.

What information will I be given?

The value of your home

To start off your home appraisal, the agent will provide you with an estimated value of your home. This likely won’t be an exact figure, rather a price range that your home might sell within in the current climate­. This price range is based on comparable properties and relevant market statistics (see below).

Remember: if you aren’t looking to sell immediately, this figure may fluctuate with the changing market.

Comparable properties

The agent will also show you comparable properties that have either recently sold or are currently on the market. These properties will be similar to your own in a number of ways; location, size and condition for instance, and can further guide you on the value of your home.

Market statistics

You’ll also receive property statistics relevant to your area to back-up the information the agent shares with you. This can include:

• Number of homes for sale in your area
• Average sale price for your area
• Auction clearance rates
• Exclusive clearance rates

Different home selling methods explained

Next, the agent will explain the various selling methods to ensure you know what your  options are, should you decided to sell. A few commonly used methods are auctions, tenders and exclusive listings. The agent will discuss the pros and cons of each method and recommend the best one for your property.

How to market your property

Options to market your property may also come up, but if you aren’t close to selling yet, you don’t need to discuss marketing at this stage. The agent may show you some differently priced packages that could suit your home, but don’t feel pressured to make any decisions this early on.

Information about the agency and agent

Lastly, the agent will tell you a little bit about themselves and the agency they work with. You’ll learn what their agency strives for and why they believe they are the best candidate to sell your home. Here at Lodge, we also provide a number of resources to help you get to know us.

Can I ask for advice on how to prepare my home for sale?

Absolutely! In fact, we encourage you to. A home appraisal is an excellent opportunity to ask an agent for help to get your home ready to sell. As an expert on property value, they’ll know the best ways to increase the amount potential buyers are willing pay. Simply ask for some pointers and they will outline areas that could do with some work.

Moreover, in asking these questions at an appraisal, you’ll also have time to implement the recommendations before listing your home on the market.

What other questions should I ask the agent appraising my home ?

Whether you’re a first time or experienced home seller, you’ll always have questions or worries weighing on your mind. Agents are available to address all of these. Remember, there is no such thing as a silly question when it comes to selling a home. It’s best to know all the facts up front, so always ask about any points you are unsure of.

Here are a few questions to get you started:

• What properties have you recently sold?
• Do you specialise in my neighbourhood?
• How will we communicate? And how often?
• How do you handle potential buyers’ questions?
• Do you have any testimonials or reviews from past clients?

What should I do after the appraisal?

You (and any joint owners) should look over the information the agent has shared with you. Consider how you felt about the agent and their approach to your property. If you are ready to sell and feel comfortable with the agent you spoke with, then contact them to discuss the selling process in more detail. Remember, this doesn’t have to be an immediate decision and any good agent will be perfectly happy to give you all the time and space that you need.

Key points to remember:

1. An appraisal is not a commitment and you should come away feeling informed, not pressured.
2. Ask any questions you have, no matter how trivial you think they may be.
3. Take things at your own pace; if you aren’t ready to start the selling process let your agent know you want some space. Good agents work to vendors’ needs and will still be happy to sell your home years down the track.

Nothing can derail your buying and selling plans quicker than a sale and purchase agreement mishap. To keep your plans on track, it’s important to be aware of a few caveats that can catch sellers and buyers out.

Important note: A sale and purchase agreement is a binding document. Always run this agreement past a solicitor before signing it.

1. An inconvenient settlement period

If you’re selling and buying at the same time, try to work the settlement dates in your favour. For example, you may ask to extend the settlement to 90 days rather than the more standard 30 to give yourself time to find and purchase a new property without the need to find temporary accommodation.

While it’s easier to negotiate settlement dates on listed properties, you can still request a variation of settlement terms before an auction. If the owner agrees to this variation, you will need to get it in writing before the auction.

2. Conditional on sale of purchaser’s property

Conditional offers are relatively common for listed properties. Buyers use them as a means to register their intent to buy, while giving themselves time to conduct due diligence, get their finances in order and, in some instances, sell their current property. This last instance is known as “conditional to sale of purchaser’s property”.

Both buyers and sellers should keep in mind that these conditions come with provisions. Moreover, breaching these provisions can have serious consequences; one Auckland couple were fined $300,000 for failing to meet the provisions of their conditional offer.

Conditional offers are not applicable to auctions.

Tip: If your buyer introduces additional sale and purchase agreement conditions, ask a seller’s solicitor to review them.

3. The cash out clause

Otherwise known as the escape clause, the cash out clause gives the seller the right to cancel a sale and purchase agreement if they receive a better offer.

 A “better offer” does not necessarily mean better price. A seller might use it to switch to a buyer who offers a faster settlement, or if they tire of waiting on a purchaser to sell their property.

How it works

According to Henderson Reeves Lawyers: “Once the cash out clause is operated, the purchaser is given a few days to declare their offer unconditional or else have the agreement cancelled. The seller can then proceed with the back-up agreement.”

Keep in mind

As a seller:

• If it is a slow market, this clause can make your property less appealing to buyers.
• Be careful not to sell your house twice.

As a buyer:

• If a cash out clause is invoked on you, don’t take unnecessary risks and change your offer to unconditional before you are ready—especially if you are still undergoing your due diligence. Try to expedite the due diligence process, but do not forsake it.

The cash out clause is not applicable to auctions. 

4. “For Auction: Unless sold prior”

While less of a clause and more to do with advertising, this term informs buyers that the seller is willing to negotiate before an auction and could opt to withdraw a property for sale if a suitable offer is made. If an offer is made with an acceptable price and conditions, the seller can also choose to bring the auction forward from its scheduled date. The offer then becomes the opening bid.

 “The seller is in complete control,” says James Walsh, residential sales agent at Lodge Real Estate. “They can choose to bring the auction forward, or accept an offer before the auction. It’s really up to them.”

 The major benefit of moving an auction, as opposed to settling, is that the offer-turned-opening-bid starts the auction off on a strong foot. What’s more, since it’s an auction, the offer is unconditional.

 If you see this clause as a buyer, remember to register your interest in a property with the agent so you can be notified if the auction is brought forward.

Important note: To make a pre-auction offer on a property, it must be an unconditional offer.

5. Alterations

If you make any alterations to the Sale and Purchase Agreement—on the price for example—the change must be initialised by all parties. Failing to do so can cause an agreement to fall through, as GellertInvanson Lawyers report:

“It is not uncommon for an agreement to collapse because in the heat of the negotiations the agent overlooks getting a party to initial an alteration and the party then has a change of mind and decides s/he does not want to proceed with the agreement.”

In the case of a price change, also make sure that the final price is made clear in the Sale and Purchase Agreement.

6. The “sunset” clause

If you’re planning to buy an off-the-plan property, buyers should check that their pre-sale agreements include a “sunset” clause. In the case of a property development, this clause allows contracts to be voided if the development isn’t completed by a certain date.

“The sunset clause is really for the purchaser’s benefit,” says James. “It stops them getting stuck in a contract they can’t get out of.”

Unfortunately, with rising house prices, materials and construction costs, the sunset clause has enabled developers who have missed their deadlines to reprice properties to cover the extra overheads, and then ask off-the-plan buyers to pay the difference.

In several reported cases, purchasers have been given the option to either agree to the higher sum, or have their contracts cancelled. One instance in Auckland saw buyers asked to pay 15 per cent more than initially agreed to. 

Note: Most (but not all) pre-sale agreements will state whether or not the buyer’s deposit is refundable under the sunset clause. Always get a lawyer to clarify this! 

Before you purchase an off-the-plan property, talk to your lawyer about the potential risks, get them to approve your pre-sale agreement and thoroughly research the company managing the development.

To help you determine whether you’ll need to pay a property tax, here’s a run through of how Zealand’s tax laws have changed—and what they could mean for your home sale.

Important! Before you put your property on the market, always consult a tax specialist regarding your property tax obligations.

Property tax laws in New Zealand

New Zealand property tax is subject to the intention rule and the bright-line test.

According to the IRD, there are four checks that will determine whether you will need to pay tax on a residential property:

1. Your intent when you bought (the intention rule).
2. Your history of buying and selling.
3. Whether you’re in or associated with the property industry.
4. Whether you buy and sell a property within ten years, or five years if the property was purchased on or after 29 March 2018 through to 26 March 2021.

The bright-line test

In November 2015, the New Zealand property tax laws were updated to include a bright-line test (often referred to as capital gains tax in all but name) on any residential properties bought and sold on within two years. The rule was intended to stop property speculators—namely investors—from buying up property and flipping it later for a profit.

It was hoped the new law would help take some of the heat out of the New Zealand housing market, particularly in Auckland.

In early 2018, this rule was extended from two to five years, then in 2021 this was extended to 10 years.

Are there any exemptions?

While the bright-line test applies to all residential properties, there are exemptions. These apply if your house:

• Is your main home.
• Was inherited.
• Is now under your ownership as part of a relationship break-up.

However, if your intention is to resell the home, you may be required to pay tax under the bright-line test.

Read more about the bright-line test exemptions here.

Let’s not forget the intention test

The intention test is all about the reason why you initially purchased the property. Specifically, if you purchase a property with the intention of selling it off later at a profit then you are required to pay tax on that.

For example, if you purchased an investment property and plan to rent it out while you wait for house prices to rise, you will be required to pay tax when you come to sell—regardless of when you bought the property.

Like the bright-line test, there are exemptions to the intention test, such as if the property is your main home. However, if you have a history of regularly buying and selling properties, you may be required to pay a tax. These circumstances are typically assessed on a case-by-case basis.

Case study A

Melissa buys a property with the intention of living in it until house prices rise in her area, where she will then sell it for a tidy profit. She has done this several times before. Seven years later, house prices rise in her suburb and she sells the home.

In this situation, Melissa will have to pay a property tax because she has a history of buying and selling property at a profit.

What if I have more than one intention, or if my intention changes?

Often there’s more than one reason for buying a property, and more than one reason for selling—and the IRD does take this into account.

As the IRD states: “It’s only when one of your specific reasons for buying a property is to resell it that any profit you make from the sale is taxable.” However, the intention to resell does not have to be the primary reason for the purchase.

Case study B

John buys a property with the intention of making it his family home and reselling it for a profit when the time is right. He has done this before with other homes he has lived in.

Four years later he changes jobs and decides to sell the home and move closer to his new workplace. However, because he bought the property intending to resell it—and is a habitual seller—he will likely have to pay a tax, even though he is living in the home.

If John did not have a history of buying and selling, or if his intention at buying was not to resell the property, he may not have had to pay a tax. However, because the resale was within five years, the bright-line test may still apply.

Case study C

Mary bought an investment property with the intention of renting it out for the foreseeable future. However, a change in circumstances means she has to sell the property off three years later. Because Mary did not intend to sell the property and is not a habitual seller, she is unlikely to have to pay tax under the intention rule. However, the bright-line test may still apply.

How does the IRD determine what my intention is?

The IRD can determine your intent by examining:

• Your buying and selling history.
• Discussions with your bank.
• Discussions with your real estate agent.
• Rental agreements.
• Any plans submitted to your local Council.
• Community involvement (for example: did your children attend the local school? What local club memberships did you have?)
• Utility bills (internet, power, water) as proof of residence.
• Whether the property is providing you with a source of income.

Summary

Selling a home is not always a clear cut affair when it comes to New Zealand tax law. Some situations are assessed on a case-by-case basis, so if you’re thinking of selling a property, always check with a tax specialist about what your tax obligations will be.

Spring has seen new residential property listings in Hamilton jump up to over 614 listed for sale according to realestate.co.nz, but empty sections remain hard to come by for buyers.

Lodge Real Estate Managing Director Jeremy O’Rourke says on any given day you can count on one hand the number of empty sections available within the Hamilton city boundaries, with the scarcity of sections particularly hitting the north of the city.

“While there are plenty of house and land packages available in Hamilton, it’s difficult to secure a section where a buyer can build their own dream home.

“Last week Lodge released 1876A River Road to market, a seven-section property that will be sub-divided in sought-after Flagstaff. Within hours we had 110 people register their interest for the upcoming auctions. These sections are prime, flat land ranging from 450sqm to 503sqm – there’s nothing like them in the city at the moment.

“This instant demand shows what people are looking for: a piece of land in the right location, where they can build to their own specifications,” says O’Rourke.

With the auction for 1876A River Road scheduled for Friday 26 November, O’Rourke explains it will be a first of its kind in Hamilton.

“The sections will be sold on the basis that the highest bidder chooses the lot they want, rather than the lots being named and auctioned separately. The sale price of these sections will be a good barometer for where pricing is currently landing for Hamilton sections, with expectations over $650,000 for each.”

The Real Estate Institute of New Zealand (REINZ) announced last month that the October 2021 median house price was $829,000 for Hamilton.

O’Rourke notes that properties over $1 million continue to see the most activity, but the general increase in spring listings has meant Lodge’s midweek auctions are booked out for the rest of November, with a second day per week being scheduled.

“$1.5 million in the north-east of Hamilton doesn’t buy the same calibre of property it would have a year ago, and properties in the seven-figure range are seeing up to ten bidders registered ahead of going to auction.

“While that end of the market has continued its hot streak, properties under $850,000 have cooled off with first home buyers becoming less active at auction and investors looking for new builds.”

O’Rourke says that rising interest rates and barriers to bank funding could be to blame for this, with property market forecasts on the former ‘spooking’ first home buyers.

“We’re also preparing ourselves for what might happen once the Auckland border re-opens. Our agents have been working with several Aucklanders who send a Hamilton-based representative to view properties but are essentially buying sight unseen.

“What might happen once Aucklanders can view in person is anyone’s guess, but the signals point to a possible influx. That’s certainly what has happened in big cities overseas – metropolitan residents are fleeing to provincial cities to escape any potential lockdowns or other pandemic-related restrictions in the future.”