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Buying a House in New Zealand

As Americans who have bought and sold two houses in the US, buying a house in New Zealand was a whole new experience. In some ways it was a lot easier, but that made it a lot scarier. The US realty and banking industries regulate themselves much more stringently than the NZ equivalents.  A US buyer is protected to some degree by government and industry regulations. Here, we found that the entire process was “buyer beware” and it was our responsibility to ensure that the mortgage, the property and the companies we were dealing with were legitimate.

We will outline the buying process in contrast to the US process, focusing on those elements that are the most different from our past experience in these areas:

1. Finding a House
2. Evaluating the Purchase Price
3. Making an Offer
4. The Mortgage
5. Closing dates
6. Foreigner Restrictions

1. Finding a House

In the States, we went to a realtor and contracted with a buyer’s agent. We depended upon this agent to help us find available properties through the Multiple Listing Service (MLS) and arrange viewings. They also provided resources such as comparable pricing lists to helped us determine the value. The fees for this agent were paid by the seller in the closing costs.

In New Zealand there is no MLS, so there is no role of a buyer’s agent who could access and sort those for us. Most properties are listed exclusively with one selling agency, and so to find available properties you need to review the listings of each agency, such as LJHooker or Harcourts or one of many local agencies. They might also list their properties in online property sites like TradeMe Property and Realestate.co.nz, in newspapers or in local weekly property listing publications, but not necessarily. We were able to identify all of the sources in this area by noting the agencies from yard signs, then finding where they listed their properties. Even searching in a fairly small market area, we had to be vigilant to find new listings by checking all of the sources listed a few times a week and visiting the neighborhoods we were interested in.

Unfortunately, these listings are sorely lacking in detail. Typically, the size of the house is not listed, just lot size and the number of bedrooms and baths. In our area, land is often subdivided so that you can’t see the house without trespassing up a private drive, so drive-bys aren’t always helpful. When we found mildly interesting properties, we had to attend the open houses (often as short as 30 minutes!) or call the selling agent and arrange a visit to get any real sense of the property.

We found that houses here aren’t prepared for sale in the way they are in the US. Paint is very expensive, so it doesn’t make sense to brighten a place with a quick coat when the new owners will likely want to choose their own colors. The same is true for flooring. This means that very nice properties often looked quite shabby to our eye.

More importantly, the US was decades ahead of New Zealand in regulating residential building requirements. New houses here are being built to fairly “normal” modern standards (see the Department of Building and Housing site for more details), but even moderately older houses may startle you with their lack of basic features such as central heating, insulation, dampness protection, safe wiring, full pressure hot water, and so on. Be sure to spend time in a number of NZ houses to experience these quirks before you start shopping so that you learn what questions to ask.  Also, spend plenty of time on the ConsumerBuild site, an excellent consumer education resource run by Consumer.org.

2. Evaluating the Purchase Price

Pricing here is much more variable than in the US. Typically a US house is listed with a sale price, and the expectation is that the buyer will make an offer somewhere in the range of that price. Here, about half of houses are listed in this manner. The remainder are listed either as PBN (price by negotiation), Tender, or Auction. All of these methods rely upon the buyer to offer a price, which might be countered by the seller, or outbid by another buyer. And yet even with so much riding on the buyer being informed about the general market, you don’t have a buyer’s agent or the MLS to get comparable pricing data. You might be able to get the selling agent to get you a list of recent sales, but only if they feel it’s to their advantage.
 
You can pay an agency like Quotable Value to perform a valuation. Unfortunately that costs several hundred dollars and takes several days, so you don’t want to do that unless you are very likely to buy. (Your mortgage lender might also require a formal valuation before giving final approval.)

Fortunately, we did have one resource not available in the US. In Nelson, as in many NZ communities, the tax rated value of every property was available in an online database. While this is not directly tied to the sale price of a house, it is much more accurate than property tax values in the States. The local city council adjusts these prices every two years based on average market data, last sale price and the rate of price changes in the specific neighborhood. So, while you might not buy a house for the rated value, you can at least see how the rated values of two properties compare, which direction they changed (up or down) last time, and the values of the houses on the block. This is of course very tedious work, because you have to search each property and note the values to compare. In our case, we estimated that houses were typically selling for about 7% above the rated value, so that gave us some sort of baseline.

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This article was written on Thursday, January 8th, 2009 and is filed under Mastering Skills. For more articles about: Living Abroad (5), New Zealand (10)

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