How are some buyers able to make unconditional offers?
Why does my bank insist I have a finance condition even when I have pre-approval?
Why do I keep missing out to buyers who are unconditional?
What does ‘unconditional’ even mean???
Our last podcast with local mortgage broker Jenny Cheevers was so popular we decided to do a follow-up chat. Listen to Jenny talk here about how she helps her clients make unconditional offers, even when they are using KiwiSaver. Please also read the info below…
To get in touch with Jenny:
Call 027 244 6686
Email jenny@jennycheevers.co.nz
Check her out on facebook
To listen to our first podcast, on why you should be using a mortgage broker, click here.
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What does unconditional mean?
Before we go any further, you might be asking what unconditional actually means? In regards to real estate, an unconditional offer describes one with no conditions or clauses, no ‘out’ if you change your mind. An offer that is not subject to a builders report, finance, title search or anything else. This is the cleanest type of offer you can make. To make an unconditional offer you need to be completely satisfied with the property you are buying and be completely confident that any finance you need to purchase the property will be provided before you sign the offer and before you have that offer accepted.
And the opposite?
A conditional offer, on the other hand, is where you offer a certain price, subject to 5 working days (or similar) for a builders report, finance confirmation, title search, valuation, LIM report, or any combination of these. With a conditional offer, you essentially have an ‘out’ if you find something you don’t like or your bank doesn’t approve finance. Having conditions on their offer provides a safety net for most people, allowing them time to do their due diligence after their offer has been accepted, rather than spending money beforehand and possibly missing out.
Sellers love unconditional offers as it gives them peace of mind knowing their property is sold and they can move on with confidence. Owners will often accept a lower price (eg. not the top offer) if that lower price is unconditional.
Buyers love making conditional offers as it means they don’t have to do any work before making their offer and they avoid the risk of investing time and spending money on a property when they might still miss out. Conditions give them a ‘safety net’ which allows them to pull out of the deal if they find something wrong with the property.
Why does it matter so much if you have conditions?
- At the time of writing this article, we have sold 28 properties over the last 6 months. 18 of those were won by unconditional buyers. That is a whopping 64%. This ratio becomes higher the more popular the property. Eg. The more offers received, the more likely it was won by an unconditional offer.
- However, out of the last 100 offers we received on properties where a LIM and Builders Report were provided (includes all those offers that were not accepted), only 35% were unconditional.
- Owners will often accept the 2nd or 3rd highest tender if it is unconditional (and the top one isn’t).
- What this all means is that if you make a conditional offer on a property in the current market you are at a distinct disadvantage.
- If you make a conditional offer on an extremely popular property, you have almost no chance of having that offer accepted (our office recently sold a 3 bedroom home in Newlands that received 28 offers!).
The vast majority of buyers out there are making conditional offers on houses they have little chance of owning. I don’t tell you this to scare you into making unconditional offers (please read below). I bring this to your attention simply to give you the facts so you can make informed decisions going forward.
What you need to know…
Now, before you go racing off and start throwing unconditional offers around, here are some critical ground rules (a disclaimer if you will):
- Do not, under any circumstance make an unconditional offer on any property without speaking to a solicitor first, BEFORE you sign your offer or bid at an Auction. Discuss the property with them and ask them to review the Title for you. I personally use Peter Jones from Jones Law.
- Do not make an unconditional offer or bid at an Auction until you are absolutely satisfied with the condition of the property. Eg. A current LIM & Builders report have been thoroughly examined and you have obtained any specialist advice needed. Note: Owners will often supply a builders and LIM report which is extremely useful. Best practice is that you should also obtain your own builders report in addition to this.
- Before you offer, have someone who is not emotionally connected to the property look at it on your behalf. Either a friend, parent, relative or just an advisor or co-worker. Someone who won’t look at it through rose-tinted glasses and will spot the things you didn’t see as you walked around only looking at the good points.
If you still like the house after all that, then you are in business!
The final hurdle…
More and more owners are providing LIM’s and Builders Reports up front these days, and we strongly encourage you to do your own builders report or get advice from the appropriate specialists as well. Once that is sorted it mainly leaves finance as being the last hurdle buyers have to climb over before making unconditional offers. Most banks you talk to will say things like:
“We give you pre-approval for you to you spend up to $450k subject to our sighting and approving of the Sale & Purchase agreement”
Sometimes your bank will want to view the builders report & LIM before confirming finance.
This means you have to put a finance condition in your offer in case the bank doesn’t approve the property you are trying to buy. So how is it that some buyers don’t need that? What if you have KiwiSaver, doesn’t that make it impossible to make an unconditional offer?
Have a listen to my mortgage broker, Jenny Cheevers as we discuss how she helps her clients make unconditional offers, not subject to finance…
To get in touch with Jenny:
Call 027 244 6686
Email jenny@jennycheevers.co.nz
Check her out on facebook
In Conclusion:
Please don’t do anything stupid out there and get the right advice before you offer. This is a tricky topic to discuss as we don’t want to encourage you to make an unconditional offer and then find something wrong with the property later on, so it is critical you complete the appropriate due diligence before you offer, or insert appropriate conditions to protect yourself. We feel that it is important to have this discussion though as it seems like a number of buyers would like to make unconditional offers but they don’t think they can due to financial constraints put forward by their bank.
Above all, protect yourself first and stay safe out there!
To listen to our first podcast, on why you should be using a mortgage broker, click here.
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To find out more about Jenny, check out this video:
Is there a topic you would like me to write about? Please make your suggestion in the comments below.
Other articles that might interest you:
5 things you must do before you sell
So You’re in a Deadline, now what?
27 Moving tips to make your life easier
Don’t buy a home without speaking to these 5 people first
How to negotiate like a pro, what most agents don’t want you to know
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Best wishes!
Andrew Duncan – Real Estate Blogger
