The Rise of “Contemporaneous Settlements” and the Shifting Sands of Property Flipping
A concerning trend is gaining momentum in the New Zealand property market: contemporaneous settlements, often used by property flippers to quickly profit from transactions. This practice, where a property is bought and immediately resold on the same day of settlement, is raising questions about transparency and consumer protection.
What are Contemporaneous Settlements?
Essentially, a contemporaneous settlement involves a flipper securing a property with a long settlement period. They then find another buyer willing to purchase the property on the same day they are obligated to settle with the original vendor. The difference between the two prices becomes the flipper’s profit. Cotality’s head of research, Nick Goodall, noted a significant increase in these transactions last year, almost doubling the numbers seen in 2024 and exceeding levels observed during the Covid-19 property boom.
The Deceptive Tactics at Play
The concern isn’t necessarily the flipping itself, but the methods employed. IFindProperty co-founder Maree Tassell describes a pattern of deception, where flippers present themselves as genuine buyers to vendors, and agents. They may feign due diligence – claiming to bring builders or valuers – when, in reality, they are showcasing the property to potential buyers from their network, adding substantial markups.
“You’re getting these people reach along, they get the property under contract, they act like they are the buyer… they will pretend they’re bringing a builder through or pretend they’re bringing a valuer through and it will be a potential buyer,” Tassell explained. This creates a situation where vendors are potentially misled about the true nature of the transaction.
The “No Money Down” Mentoring Problem
Fueling this trend is the proliferation of property “mentoring” services. These services often promote “no money down” deals, teaching individuals with limited property knowledge and financial resources how to tie up properties and sell the contracts, rather than the properties themselves. This raises concerns about the lack of consumer protection and the potential for financial loss.
Legal Loopholes and Lack of Regulation
Property law expert Joanna Pidgeon highlights a legal loophole: property traders who buy and resell properties personally are exempt from the Real Estate Agents Act. However, companies using unlicensed sales agents to represent them may be engaging in illegal activity. Crucially, buyers dealing directly with these unlicensed traders lack the protections afforded when purchasing through a licensed real estate agent.
Pidgeon warns that purchasers could lose their deposits if the trader encounters financial difficulties, as deposits may be released before the vendor is legally able to settle the onward sale.
Transparency as a Solution
Some businesses, like iFindProperty, are advocating for transparency. They clearly disclose their role as buyers’ agents, ensuring vendors and their agents are fully aware of their intentions. This contrasts sharply with the deceptive practices employed by some flippers.
Protecting Yourself in a Changing Market
The increasing prevalence of contemporaneous settlements and aggressive flipping tactics necessitates caution for both vendors and buyers.
Pro Tip:
Vendors should thoroughly vet potential buyers and ask direct questions about their intentions. Don’t hesitate to seek legal advice if you experience pressured or uncertain about a transaction.
Did you know?
Purchasers dealing with property traders who aren’t licensed real estate agents have significantly fewer legal protections.
FAQ
What is a contemporaneous settlement?
It’s when a property is bought and resold on the same day of settlement, often used by flippers to quickly generate profit.
Are contemporaneous settlements illegal?
Not necessarily, but the tactics used to facilitate them can be deceptive and potentially unlawful.
What protections do I have when buying from a property trader?
Fewer than when buying through a licensed real estate agent. It’s crucial to seek independent legal advice.
How can I avoid being caught out by a flipper?
Vendors should ask probing questions and seek legal counsel. Buyers should ensure deposits are held in a trust account.
Want to learn more about navigating the New Zealand property market? Visit Cotality’s website for expert insights and data-driven analysis.
