Buying our House at Auction
One of the many, many differences in the New Zealand real estate market is that selling houses at auction is a popular and common practice. Coming from the US - where an auction is usually a sign that the house has been foreclosed on by a bank and OMG you have no idea what you’re getting - we were very nervous about what going to a housing auction might look like. However, after looking at house after house after house, we finally walked out of a viewing saying, “We could LIVE in this house.” It was the first house that we both loved on the spot and were excited about, so we decided it was worth going down the previously unexplored and unsettling auction path.
Buying a house at an auction has a few important consequences. First, if you buy at auction, the sale is unconditional, meaning there’s no option period for inspections. Secondly, there’s no way to put conditions on your offer after the fact. So if you need to sell a house before you can buy another one, you can’t buy at auction.
Before going to the auction, we had a full house inspection done. This was akin to the inspection you would do during a US option period, but instead we had to take the risk that we might not get the house and fork out money ahead of time. The inspection cost about NZ$800, and I’m glad we did it as our inspector found a couple of minor issues and one major issue. We were able to go back to the sellers (known as vendors here) and negotiate prior to the auction that if we were the successful bidder, they would make the one major repair prior to settlement. The downside of chucking out funds up front for an inspection is that the vendor knows there is a very serious bidder coming into the auction and may choose to raise their reserve price (which is unknown ahead of time.) We had one local Aucklander advise against getting an inspection for that very reason.
In New Zealand, we didn’t find buyers agents and sellers agents. Instead, we hired a real estate lawyer (from Kensington Swan) to review the sales contract before going to the auction. Again, this was an upfront expense that we took prior to knowing whether or not we would even get the house, but it was an important step because there was one unacceptable clause in the contract that were able to negotiate a change to prior to the auction.
No conditions turned out to be a blessing for us. At the auction, we were the only people who ended up bidding, but there were seven other potential buyers who were interested in making offers the next day if the house didn’t sell at auction. This isn’t the case at every auction, however. We learned that each real estate agency has different protocol for their auctions. Some, like Barfoot & Thompson, have a reputation for not actually selling houses at auction. The agent involved with this property sale was with Ray White, which do things a little differently.
When the auction time arrived, we had our completed inspection report, negotiated changes to the sales contract, and a lot of nerves. As I am absolutely terrible in auction situations, I stayed home with the kids while Jon handled the actual bidding portion. There were several houses to be auctioned that day, but ours was first at 5:00 pm. Shortly before bidding began, two more potential buyers walked into the room. The agent told Jon that he was surprised as he didn’t think there would be any other bidders present.
The auctioneer asked for an opening bid, and Jon put out a low, but carefully thought out number. His strategy worked, and the other two people present declined to make any other bids. After a few minutes ensuring there were no other numbers, the auctioneer asked Jon to bump up his number a bit to take to the owners. Jon came up, essentially winning the right to have exclusive negotiations with the vendors. At that point, the auctioneer put the owners in one room and Jon in another room where they did a careful dance until a happy medium on price was reached. We didn’t get the “champagne” price - when we feel like we got a steal and break open the champagne, but we didn’t walk away feeling like we paid too much either. No one was jumping up and down, but no one was upset, either. It was about as good an outcome as you could expect.
Throughout this whole process, I was getting text updates from Jon as I fed the kids dinner and drank a little too much wine to calm my nerves. On the one hand, it is a terrifying way to buy a house. On the other hand, it is a great way to buy a house because there’s no anxiety surrounding what might happen with that inevitable second round of negotiations that happens at the end of a US option period.
We paid a 10% deposit on the house and signed some paperwork that night to seal the deal. After all of the build up and anticipation, it took quite some time to settle down. The New Zealand property market has a reputation for being difficult to crack into, and we had no expectations that we would actually win this house. We’re still pinching ourselves.
When our settlement date approached, we didn’t go to a title office to sign paperwork like in the US. Instead, we went to our lawyer’s office to sign a surprisingly short stack of documents. We did this a few days before our actual settlement date, and the whole process was rather anti-climactic. Our lawyer reminded us that it is a good idea to get a pre-possession inspection to make sure nothing has changed since the auction. On the day of settlement, we received a emails from our lawyer with updates as all of the paperwork was shuffled around.
I have to give an amazing shout out to our vendors who were the nicest, most helpful sellers ever. When it was time for the house hand-off, they answered questions for nearly two hours about how they lived in the house, how different systems were set up, and how they addressed regular home maintenance issues. It was wonderful to have this insight into how the house worked. It was much more personal than the anonymous handoff we always had in the United States - with the one exception when we invited our buyers over for dinner so we could walk them through the house like these vendors did.
Auctions clearly favor the vendors, which is the exact opposite of how things feel in the United States where buyers can essentially hold sellers hostage for the option period and walk away from a contract scot-free. I still find the whole concept of a housing auction unsettling from the buyers side, but I don’t have all of the fear that I had walking into this process. Like many things in New Zealand, there are different pros and cons. Its not necessarily bad - its just different.
Side note: buying a house isn’t an option for everyone in New Zealand. In 2018, new regulations went into place limiting which foreigners could purchase housing. There is a very good guide covering who can buy here.
