Buying a House in New Zealand
3. Making an Offer
Once we had found a house that we wanted, we were in new territory again. We were used to our buyer’s agent helping us draft our offer, including the terms and conditions that were legal and common. Here, you work out the agreement with the selling agent, and then send it to your solicitor (a property lawyer) to ensure it’s all legal. We’d already learned that contingency on property inspections and a title search through the council were crucial, since no form of seller disclosure is required. Contingency on financing is also normal. It’s also quite normal to add a contingency for a LIM (Land Information Memorandum) Report from the council that tells about any known geological, permitting, or zoning issues. This report, however, takes up to two weeks, which is a long time in a NZ home sale. We were made to feel that although we had the right to request it, our offer would probably be passed over due to the delay it would cause.Our offer had to be accompanied by a significant down payment. Unlike an earnest money deposit, you must be ready to pay around 10% to the seller via their estate agent (realtor) at the time the offer is signed. We had to get an extension just for the time it took to wire funds from the US. We have seen that in some rare cases, if the seller backs out after you have paid the deposit but before you settle, it can be very difficult to get that money back, so be wary of sellers or developers who don’t seem completely straight forward.
We had another shock when we got our property inspection back and it uncovered some fairly significant structural issues. We estimated the costs to fix the issues at around $3000. When we checked with the solicitor and the selling agent, it seemed our choices were to back out of the deal, or go ahead as written. Unlike the US, there is no process of renegotiating based on the inspection results. In the US we would have asked for the seller to repair or reduce the price and they might have negotiated to split the costs. Here, everyone acted like that idea was insane. So, here people accept that the purpose of an inspection is simply to go in with your eyes open.
4. The Mortgage
When we bought, NZ banks were quite loose with lending, since interest rates were hovering around 10%. We didn’t have to do much to prove we could pay the mortgage, but we wish we had understood that mortgages here are constructed very differently. The full details are an article of their own, but basically while mortgages are typically 30 year agreements, the rates are almost never fixed for more than 5 years. So basically, a typical home loan is the equivalent of a US adjustable rate mortgage with a fixed period up front. When that period is over, you renegotiate a new fixed term or refinance with another company, although fees can be hefty for moving companies too soon.Splitting mortgages is a common feature here that we hadn’t experienced before. This involves having a portion that’s variable from the start and a portion that’s fixed for up to 5 years. The fixed portion is amortized, and payments are static for the full fixed period, with no ability to pay off extra principal. The variable portion has a typically higher rate, is not amortized, and you can pay any amount from interest only to a large principal chunk every month. With such high interest rates, this appealed to us because we wanted to pay down the loan as quickly as we could. The sneaky bit we missed in this is that unlike the US, the rate of the variable portion was not directly tied to any index. Our lender was free to change that rate at will. Our loan agent and some descriptive documents talked about it changing with government rate changes, which it did, but we also experienced an increase due to “market conditions,” long before the recent world financial crisis. Their right to do this was stated somewhere in our dozens of pages of loan documents, but we hadn’t been looking for it since that is unheard of in the US.
This article was written on Thursday, January 8th, 2009 and is filed under Mastering Skills.
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on April 10, 2009 at 4:49 am Paul wrote:
Thanks for the article, good to hear how buyiing a house differs from the USA.
Sounds like you could have had a better agent that covered the basics. Unfortunately they are rare now days as most are just in for the quick buck then move on…
The purchase date is normally flexible as is the right to split the costs or ask the seller toput right any fualts found via the inspection. BUT you need them in the contract first! You can try later but a lot harder.
We have brought a few homes in NZ, most have been easy, all had the subject to inspection clause, a few needed work that the seller sorted as they would have lost the sale otherwise :-)
Yes the banks have a frinedly face but it can be unclear to what fees , charges “MAY ” be impossed. In one case we needed to sale quickly to avoid a squeeze in income due to moving from a regular job to self empolyed. We took the responsible step of down grading house quickly to cope as the new bussiness started to grow.
The bank decided to enforce its early repayment fees of $3500NZD with disregard to the fact that we were refinancing with them on the smaller house……….. At the time that was 6 months of payments!
Have fun in Nelson, it is a magic spot that we hope to move to after a few more years of our OE
on April 11, 2009 at 10:05 pm BeeZed wrote:
Thanks Paul for your thoughts. I think the agent was as helpful to us as he rightly could be, while representing his clients, the sellers. Great idea to be clear in the contract that changes might be made based on the inspection! We are enjoying Nelson!