Avalon’s Money Thread: Buying Houses in New Zealand.
Filed under: Avalon's Money Thread, Mortgages in New Zealand, Property Investing
Many people find the whole process of buying and selling houses here a lot easier than at home (especially in the UK). In many ways it is but you still need to be very careful. Agents here are not angels and they are just as likely to try pulling a fast one as an agent in the UK. Especially once they know you are a “filthy rich migrant”.
Neil Jenman’s book “Don’t Sign Anything” is a really good book explains a lot of the nasty tricks that agents can pull. It’s a bit of a scary read but I figure forewarned is forearmed and it’s good to know when you are about to be sold a lemon! It’s especially good at talking you through the auction process and what to watch for.
My main advice is literally “Don’t sign anything” not without a solicitor looking it over.
You wouldn’t do it in the UK so don’t do it here. Always get your solicitor to check the sale & purchase agreement (s&P) before you sign it. The seller’s agent often draws up the contract and a lot of them are less than trustworthy most of the time. Always remember: they work for the seller, not for you. If you don’t understand something ask your lawyer and not the agent. The lawyer works for you, and will give you the advice that works in your interest.
Be extremely wary of anyone that the agents recommend to you. Whether its solicitors, mortgage brokers, valuers, builders, chief cook and bottle washers or Uncle Tom Cobbley. You can never be sure that they are not paying “commissions” to the agent, so they are not truly independent. If you are not the only one paying then they are not working for you. If you wish to use people the agent recommends – ask the agent upfront if they get a commision. They do not have to volunteer the information, but they do have to tell you if you ask.
Always also get a full builders report and valuation done. I want to know of any problems before I buy just to make sure I’m really not buying a lemon.
You can get a lot of useful info from websites such as QV (Quotable Value) and Terranet on local values. However it’s also worth paying for a proper valuation done especially if you are buying fairly quickly after arriving in the country. It will cost you probably around $300 – $700 depending on the property and where it is, but bear in mind the property is gonna cost over $300,000, so its worth knowing you are not going to pay too much. QV and Terranet do not do proper valuations - the reports that you get from them will not tell you if you are about to pay too much for the house.
Paying Deposits on houses.
Deposits are usually 10%, but you can organise a lesser one if you want. That would go in the S&P agreement as well. We gave a 5% deposit because this was a big house and 10% was a fair whack of money. If you and the seller arrange just a $5000 deposit thats fine – its between the two of you. Agents will probably tell you it has to be 10%, and its a load of rubbish. Bear in mind with deposits, which unlike in the UK the deposit is paid to the Agent, not to the lawyerss because they want to be sure they get paid their commission before anything else!
When you have the S&P drawn up, it’s fairly standard to have a condition in there that says “Subject to finance”. Basically it means if you can’t get a mortgage, you don’t have to go through with the purchase. But just be aware that it should actually read “Subject to finance satisfactory to the purchaser”. This can avoid you being forced to take a mortgage out that is going to cost you more than it should including sometimes being forced to borrow off the seller! This is one of the reasons your lawyer should check the agreement before you sign it.
My best advice is:
(A) Not to rush into anything and do LOTS of research. Talk to as many people as you can who know the areas you are looking at. It may look great but is it? You need to find out what the specific concerns are in each area, especially any sunlight issues, because if the sun doesn’t get onto your property for part of the day or even year, you are going to be VERY cold! (Big problem in Wellington for Eastbourne, Seatoun, and the Eastern Bays)
(B) Get a valuation on any property you are interested in. It will cost a couple hundred bucks – but it tells you what it’s really worth – from someone who works for you not the seller.
(C) Dont use any companies recommended by an estate agent. They may be paying “Commission” (aka Kickbacks) to the agent and are therefore NOT independent. If in doubt ask the agent – they have to ‘fess up.
(D) Check out some auctions and see what happens. Watch out for “Vendor bids” where the agent bids the price up on behalf of the Vendor. It’s totally legal to do that here. We went to one auction where we had been told the house was expected to go for “top 400’s”. The bidding started at 600. There was only one guy bidding (and lots of interested watchers). He bid against the agent only and ended up paying $780K. I cannot for the life of me work out why he didn’t just stop. But ho hum not my money.
(E) Use a Lawyer from the start of the process. Once you sign a Sale & Purchase agreement in New Zealand – it is a Binding Contract and exceedingly difficult to get out of if you change your mind. Be absolutley sure it is right before you sign. This is the biggest difference between the UK and NZ house buying systems.
Updates:
Obviously since writing this about 3 years ago, Ive had a lot more experience of buying houses and dealing with Real Estate Agents. Ive met a lot of agents who are spectacularly good at what they do, and just would not do anything dodgy. Ive unfortunately met one or two for who the word “Ethics” doesn’t mean a whole lot.
You should also be aware that there is a new Sale and Purchase agreement out, written “in plain English” by the Real Estate Institute. That’s a bit like the Immigration agent industry getting a law written that says only they can give immigration advice. If you want to use it – fair enough – but if your lawyer says its a bad idea – please listen to them. Also know that although some agents may claim it is their Company Policy to only accept the new S&P, they are not in a position to do this – they have to accept an offer written on the original S&P whether they like it or not. If you have any problems – speak to your lawyer. I think its worth noting that I don’t know of any Property Investors that will use the new agreement – and its their job to understand how these things work. I wouldn’t touch it with a bargepole!
Avalon’s Money Thread is a series of posts which were originally written in 2007 for an Immigration Forum. They came about by answering questions that forum members asked, about how to cope with the often difficult financial situation they face in New Zealand. They formed the basis of what was eventually to become the book Avalon’s Guide: after another year or so of drinking way too much coffee and finding out way more about taxes, money and investing that any sane person should.
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Related posts:
- Avalon’s Money Thread: What’s all this BBO & BEO nonsence on house adverts?
- Buying a House in The UK – the not so easy way.
- Avalon’s Money Thread: Can I Invest In new Zealand?
Comments
One Comment on Avalon’s Money Thread: Buying Houses in New Zealand.
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Moon over Martinborough on
Tue, 6th Oct 2009 5:58 am
When we moved to NZ we bought a book called ‘How to get the house you want’ by David Hindley. It was a huge help. http://tinyurl.com/ycosafm
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