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.