Real estate is full of jargon, and it can add layers of confusion to an already convoluted process. Whether you’re buying or selling a home, investment property, or piece of land, we created this resource to help you learn some of the vocabulary and terms, and make your move as seamless as possible, without the headache.
Body Corporate
What is a Body Corporate and what is a body corporates function?
First of all, when you purchase a unit, you automatically become a member of the body corporate alongside all the other unit owners in the building and have a vote on how things are managed.
A Body Corporate is made up of a Body Corporate Company and the appointed Body Corporate Manager, elected members of the ‘owners committee’ and ‘chairperson’ of the owner’s committee (owners, elected by owners, who meet quarterly and address upcoming maintenance and any building-related matters), the building manager (oversees day-to-day management of the building) and all other owners.
Basically, a Body Corporate is the collective voice that looks after your home…
You should also know that you pay an annual fee (a levy) that goes towards budgeted expenses such as maintenance services (i.e. cleaning, lifts, rubbish collection, etc.), long term maintenance, legal framework, insurance, amenities (i.e. water, gas, electricity, etc.), building management services, fees for any contracted professionals, and any ongoing maintenance. Basically, all the things that as an owner you’d have to do but don’t want to manage yourself!
Pre-contract Disclosure Statement (PCDS)
A Pre-Contract Disclosure Statement is also known as a S146 (under unit title) or; Form-18 (as per Body Corporate).
Basically, under Unit Title law, an owner must provide a PCDS to any purchaser prior to an agreement being reached.
The vendor (the seller), provides a PCDS, with information issued by the Body Corporate, disclosing all the important things a purchaser would like to know. Things like details about the annual levy, current financial position of the building, any upcoming maintenance, and whether the building has any pressing issues. Things like that.☺️
Adam’s Tip:
Skip straight to paragraph 4 and read through to the end. Property-specific information starts there. Read the first 2-3 pages and you’ll understand why.
Land Information Memorandum (LIM) Report
A LIM report is issued by the council and provides a summary of a property and the land it sits on.
A LIM report usually includes, but is not limited to:
- Zoning information
- Information on services such as stormwater, wastewater, electricity, and gas lines.
- Information on any building/resource consents applied for, approved, and whether a CCC (Code of Compliance Certificate) was issued or, required.
- Information on any environmental impacts on the property (such as flooding, wind risk, erosion, etc).
- Details of the current rates and any outstanding rates.
REMEMBER: A LIM report is not your one-stop shop to obtain property information. In other words, it contains vital information on the land and the property you’re interested in buying, but it will not contain ALL the information on any given property. A LIM is typically an integral part of any suburban property information pack. If it’s not provided, then it will come at a cost to the purchaser.
Relevance to Residential Property Types:
- Freehold (Separate Title): A must-have, and should be part of any information pack provided by an agent for a property.
- Cross-lease (Freehold): A must-have, and should be part of any information pack provided by an agent for a property.
- Unit Title (Apartments): A not so must-have. The Body Corporate Issued documents, usually provide a much more detailed and up-to-date summary of the goings-on at the address.
Adam’s tips:
1. The Resource Management section (usually starts on page 4 or 5), provides insight into the history of the building.
2. Apartments – It’s not always necessary to get a LIM report, though, it could be a good idea to get a LIM for an apartment if there has been any mention of seismic strengthening, a weather tightness claim, a re-clad, or any recently completed remedial works, which have required a CCC (Code of Compliance Certificate). Along with a copy of the CCC, a LIM report will help shed some light on the scope of the works.
3. On the front page of a Sale & Purchase Agreement, there is an option for a purchaser to buy a property, conditional on gaining a LIM report and being satisfied with the LIM report. It makes reference to paragraph 9.3.
If that box is ticked as a condition, and you don’t make reasonable changes to the standard timeframes set out under 9.3, that condition has the potential to drag out a negotiation for up to 6 weeks! It also means the difference between a $415 LIM Report and a $307 LIM Report…
Conditionally Sold
What exactly is a Conditional sale, and when is a property Conditionally sold? This is a common question that arises amongst first-home buyers or people new to the property market.
Adam’s Tip:
Think about a negotiation between buyer and seller, as a CONVERSATION, the Sale & Purchase agreement, as the PLATFORM to communicate, and the agent, as the head speaker/mediator.
Conditions are additional terms that can be written into a sale & purchase agreement, for a variety of reasons. The primary purpose of having sale conditions is to ensure that each party is able to comfortably finalize a sale. A condition can be added by a seller or a buyer, which is then either agreed to, removed, or changed to suit either party. The agent, of course, mediates and communicates the purpose behind any particular condition, with the overall objective to reach an agreement.
Basically, a conditional offer becomes a binding contract 🖊 once all the conditions are satisfied. You are then legally bound to proceed with the purchase. Therefore, it’s always a good idea to seek advice from a lawyer before entering into an agreement.
Conditions often relate to securing finance, search, and approval of title, receipt of a satisfactory builder’s report, or the unconditional sale of the purchaser’s current home in order to complete the sale.
Conditionally sold means that the offer made by a purchaser of a property has been accepted as long as the set conditions have been fulfilled by a certain date. The more specific, the better. The more conditions you have in your offer, however, the less attractive it will become to the seller.
Agency Agreement
An agency agreement is a contract between you, the seller of the property, and a real estate agency.
For a really helpful link and guide to Agency Agreements, follow this link https://www.settled.govt.nz/…/signing-an-agency-agreement/
A Sole Agency is the most common agency agreement an owner would use when embarking on a marketing campaign to sell their property.
After you’ve selected a salesperson to work with, you’ll be given an agreement that outlines the details of the working relationship between yourself and the agent. It should include:
- The property details
- Ownership details
- Type of agency (e.g. sole or exclusive. In other words, one agent versus multiple agents)
- A start date and end date of the agreement or; a clearly defined length of time. (Without it, it is essentially illegal)
- Estimated sale value (based on the appraisal the agent provided)
- The commission rate (based on the higher end of the appraised range)
- Additional costs such as marketing investment
- Method of sale e.g. tender, auction or negotiation
A series of declarations about the property from the owner so that everything material to the property is declared from the get-go.
Details of the property, including the items that’ll be included in the sale e.g. blinds, lights, and furniture.
Remember: If there is anything you don’t understand, don’t sign it until you do. It is a legally binding contract after all. There is also a 24-hour cool-down period for you to change your mind if there is something that you’d like to change.
A guide to the Agency will always be provided for you and you’ll be recommended to seek legal advice.
Adam’s Tip:
Before entering into the agreement, make sure your voice is heard loud and clear. The agent works for you, on behalf of you, and it’s up to you to advise the agent about all the good things that you like about the property, that you think the new buyer would like to.
Comparative Market Analysis (CMA)
When you’re in the market for a new home or looking to sell your current one, figuring out how much to expect can be a challenge. The all too familiar question, “what’s my property worth?” is a question that is almost never answered with an objective response 😆
PERSPECTIVE + MOTIVE = SUBJECTIVE!
Owner – Sees the value incomparably high (can you blame them?)
Buyers – See the property incomparably low (can you blame them?)
Agents – Need to formulate an estimated market value, supported by concrete sales statistics from directly comparable properties. (A 10% sales range is the largest an appraisal value should ever be)
There are a lot of factors to consider when selecting when providing an accurate market appraisal or; CMA. Pricing property is a science; & that is why real estate agents conduct a comparative market analysis (CMA).
Comparable sales are selected based on location, age, size, construction, style, condition, and other factors. Real estate agents create CMA reports to help sellers set listing prices for their homes, and also use them to help buyers make competitive offers.
Although a comparative market analysis uses similar housing market indicators to compare and identify regional home values, it’s not considered an official valuation.
Taking Market Conditions Into Account
Market conditions are a wild card with comparative market analysis and price setting in general. That’s why it’s best to use homes that have sold as close in time to the home currently being priced. A strong buyer’s or seller’s market might upend CMA values.
Adam’s Tips:
1. Be open with the agent and tell them what you think it’s worth
2. Be wary of the appraisal that suggests an unsupported really high estimate or, a really broad range e.g. $1,000,000-$1,500,000.
Leasehold Properties vs Freehold Properties
When you’re looking at the Auckland property market, especially the apartment market, experience is priceless. It’s really important that you’re engaging with an agent that understands the complexities and diversities of the market – someone who’s transparent and will take the time to explain things
Put simply, freehold (fee simple) is where you own the land the property sits on and leasehold is when you don’t.
Stratum in freehold (apartments) is where you own a piece of the land the apartment complex sits on.
Stratum in leasehold (apartments) is where you simply own the improvements (dwelling).
Leasehold Land Must-Know Facts:
- Leasehold properties are much less expensive than freehold because you aren’t paying for the land
- The landowner owns the land freehold.
This results in an additional annual expense in the form of your scheduled lease payments or; ‘Ground Rent’ payable to the lessor (land-owner)
Freehold Must-Know Facts:
- Cross lease in Freehold is still free-hold, though, any other owners that own properties on the shared parcel of land, must be considered at all times. Ownership is governed by restrictions imposed under the ‘memorandum of lease’.
- Council restrictions mean that just because you own the land, doesn’t mean you can do what you want on the land.
- Freehold is more expensive and that’s because of one simple truth… The land is an ever-appreciating commodity. The world’s population continues to grow, though, the earth doesn’t get any bigger…
Adam’s Tips:
1. If you’re looking for a first home, a leasehold property is probably not the way to go.
2. Leasehold property does work, it just needs to be understood. Take the time to understand the lease structure and how it works.
3. Leasehold property is often a great investment as it can offer great cash returns.
Building Code & Code of Compliance Certificate (CCC)
Is your next home your dream purchase, or your dream nightmare…
What is the Building Code?
The current Building Code is the rules and regulations set out under the Building Act 2004.
What does it do?
It governs the building sector & also sets out the rules for the construction, alteration, demolition, & maintenance of new and existing buildings in New Zealand. All building work in NZ must comply with the Building Code, even if it doesn’t require building consent. This ensures buildings are safe, healthy, and durable for everyone who may use them.
Why so important or; what’s so different from the previous Building Acts?
It was the Building Act 1991 that first introduced the concept of a code compliance certificate (CCC) being issued. This is a formal statement, that building work carried out under a building consent complies with that building consent, & the completed work is up to standard.
It was 2004, when retrospective COA’s (Certificate of Acceptance) were introduced properly for previous unconsented works that had been conducted on a property, & required council approval. More importantly, a much more rigorous series of Auckland Council inspections/approvals are now required under the Act, & a requirement for ‘as-built’ drawings to be submitted at each stage of construction are required from contractors.
After 1992, and before 2005, an architect might walk onto a site, sign off some changes, yet the changes weren’t included in the final flats plan/property file. It had been granted a final CCC, though the record of changes simply doesn’t exist on file!
What if your dream home doesn’t have a CCC…now what?
So, finally, you’ve found your dream home, and it ticks all of your boxes……It is within your price range, and it’s in a great location.
You do your homework and read the sale and purchase agreement and the LIM report, but one little thing jumps out at you – it’s missing a Code Compliance Certificate or Code of Acceptance for the huge sun-filled deck that was built last year. So what does this mean?
Either go through the rigmarole of submitting an offer conditional upon a COA being obtained for the works prior to settlement, or go back to sleep & dream up another dream home 😴💭💫🏠 – the bank won’t be looking at it as good security and won’t be happy lending on it.
Adams tips:
1. If you’re not sure, get your lawyer to check the LIM.
2, If there are things that look newly renovated, particularly extensions or; anything requiring new wiring or plumbing, then check it against the LIM. If it’s not there, get your lawyer or a builder to check.
3. Get a building inspection done. It’s about Peace of Mind after all.
4. Just remember, it’s not pennies you’re dealing with when you buy property
Valuations
Again, that age-old question of; “What’s my property worth?”, comes into the spotlight. Funny that… 😂
IMPORTANT NOTE – A property is only ever worth what the market is willing to pay for it… FACT!
If you are one of a tiny minority that looks at the value of their property with an ‘objective view’, based on facts alone, then credit to you, because the majority of the population really struggle with this one. After all, who wouldn’t want the most money for their primary asset?
Some of the most common forms of property valuations that we deal with day to day are:
1. Council Valuation or; Rateable Valuations (CV, GV or; RV)
2. E-Valuations
3. Registered Valuations (Conducted by a registered property valuer)
4. Comparative Market Analysis (CMA); otherwise known as a market ‘Appraisal’.
How is my Property Valuation Calculated?
CV – This is, for the most part, generated by a computer algorithm and is broken down into Land Value and Improvements Value, which produces a combined ‘Capital Value’. It’s what your rates are calculated from.
Are these a true indication of market value? Not a chance…
Firstly, the land value is probably a pretty fair indicator as per the time of issue (2017 most recent). What the land value doesn’t factor in, its development potential, which plays a big role in market value. Also, all the renovations and improvements that didn’t require council approval for building consent, are not going to be reflected in your improvements value, simply because the council has no idea about the LED’s marble tiles and state of the art surround sound system.
When you’re looking at apartments, the same calculation will be applied to an apartment on the Southern side of the building, which looks straight at a neighboring car parking building and never sees the sun, like the beautifully presented North Facing apartment of the same size, with spectacular harbour views. Also, most car parks in buildings have a CV value of around $50-65,000, when in reality, depending on the location, could be worth up to $130,000!
The same logic applies to E-Valuations
For the most part, it is a simple computer-generated valuation, based on sales figures, and how they compare to the CV.
I’ll ask a simple question… Would you live your life and make life decisions based on a computer-generated horoscope reading? If the answer is no, then don’t take these as gospel.
Registered Valuations are certainly the most formally recognized means of establishing an idea of valuation. A valuer inspects the property, takes into account size, condition, zoning, recent sales, development potential, suburban sales statistics, and historical capital growth, as well as market conditions and how vulnerable the property may be to market changes. They are, however, not entirely objective all of the time. For example, if every property owner was able to sell their property based on a Registered valuation that they had paid a valuer for, the average price in Auckland would now be around $57,000,000, and if the same was said for every valuation a purchaser had gained, the average sale price would be cheaper than a can of Coke. (Note: Previous examples may be less or more and are based on individual opinion).
This brings me to my initial statement, “the true market value of any property, is how much the market is willing to pay for it. A CMA is often one of the most accurate indicators of market value. If they are created the way they should be, based on directly comparable ‘recent sales’, and by an experienced salesperson, then the range shouldn’t be too far from the money.
Adam’s Tips:
1. Get a thorough CMA conducted by a good Agent. Get them to visit the property and when making the comparisons, look for the way the most recent sales are used, compare to your property, and try to look at it from the buyer’s perspective. If possible.
2. A CMA is FREE!!! It’s a damn sight cheaper than the $1000 you’ll pay for a Registered Valuation and it’s conducted by a professional as opposed to a computer.
Due Diligence (DD)
What is due diligence in Real Estate? It means, “time to do your homework”!
DD in real estate refers to a buyer’s research & investigation into the various aspects of a property, either before making an offer or after entering into a negotiation to buy a property by inserting a DD clause into an agreement as a condition to the sale. It’s a good idea to do your homework prior to entering into an agreement, though, if you’re really keen on the property & you just want some extra time to do all your appropriate checks before having the agreement go unconditional, then that’s where a DD clause can be utilized.
A DD clause essentially covers everything there is about the property, & for this reason, it can be used to encompass a range of other clauses such as: obtaining a LIM, a toxicology report, a building report & gaining lawyers’ approval, etc. It can also provide a buyer with the opportunity to reach a sale figure through negotiation, before spending money on conducting professional checks, obtaining reports, and employing experts.
HOWEVER… because of it being so ambiguous, specific clauses that list the things you’d like checked, are often a lot more effective during a negotiation, as the seller can clearly see the reasoning for the conditions.
You’re only able to enter a clause like this if you’re able to negotiate i.e. listed with a price, by negotiation, deadline sale, or through tender.
If you’re buying a property via auction, you need to do all your homework before auction day. It’s a good idea to get your lawyer to review the auction documentation so they can make sure you’re well informed before bidding, because once the hammer falls, if you win, you legally have to buy the property, so you don’t have a chance to do your DD afterward.
Adams Tips:
1. Always do your homework prior to entering into an agreement.
2. If you know what you want to check, then incorporate those things specifically instead of using a DD clause.
3. If you’re 80% sure of the property, but just need a little more time, then enter a DD clause into the agreement. It’s always better to be safe than sorry.
Official Cash Rate (OCR)
What is the OCR?
How does it work?
Why does everyone obsess about the changes?
REMEMBER:
1. The OCR is not a tool used to influence the property market!
2. The RBNZ does not care about property or your ability to service a mortgage!
3. It effectively influences our perception of money, the way we spend it, and the way we live our lives.
The OCR or Official Cash Rate is the interest rate that the Reserve Bank of New Zealand sets which defines the wholesale price of borrowed money. I.e. The rate that the banks can borrow money from the RBNZ. It’s a blunt tool used by the RBNZ (Reserve Bank of New Zealand) to influence economic activity and the rate of inflation.
Basically, the RBNZ watches things like the balance of ‘settlement accounts ‘. These are our day-to-day bank account balances with the RBNZ. Most of our well-known banks hold them. These balances show the RBNZ how much money you and I (customers) are spending or saving on a daily basis. So, if we save more and less money going out of our pockets and into the economy, the OCR comes down to make it less attractive to keep money in the bank and encourage spending. In turn, it directly affects the rates the banks are able to borrow at, therefore what rate they will lend money to us, and the rates they offer for savings products and Term Deposits. It’s not the only reason our mortgage rates and interest rates might change, but it’s a pretty reliable one! Hence why everyone obsesses about the OCR announcements which come around 4 times a year.
Adam’s Tips:
1. If you don’t want the OCR to go up… STOP SPENDING MONEY! 😝
2. As a nation, If we collectively agree not to buy anything other than bare essentials for 3 months, it’ll make for a cheaper summer!