As house prices continue to hit record highs, many New Zealanders continue to find their dream of owning their own home getting further out of reach.
1News camera operator Nick Dooner tells his story of trying to help his son into his first home.
Housing and The First Home Buyer
We all know how hard it is for a first home buyer to even attempt to enter the housing market. Working at a news company, I thought I knew. That was until I tried to help my son in his solo attempt to buy a house, our journey eventually turning into a two-year struggle.
There were a myriad of open homes taking up every available weekend - so many that I cannot possibly remember them all. This led to meeting countless agents, seeking building reports, following up on emails, making calls, and so many debates about whether we could even attempt this quest.
My family and I are not wealthy. We do not own multiple properties, nor do we have numerous investments. We are just a normal household like many others.
This is our story on the search for a home, about what we learnt, and how the bank of mum and dad came to the rescue. The result is a significant debt incurred by my son that is required to be repaid, however it may be carried by us into retirement. We parents do what we can for the love of a child.
Looking back with hindsight, we made mistakes, we dithered, we had opportunities that slipped from our grasp, relationships got in the way. Oh, and there was Covid.
The right home will come along
My wife is a positive ‘glass half full’ type. I am the opposite. She would often comment that the right house will come along. I lost faith in that comment as we continued to fail and FOMO (fear of missing out) took hold.
I am not sure there is such a thing as "the right house" more like "a house". My concern was the "right house" by now is something we could ill afford.
Many was the time that I left an open home muttering "how much?" or rocked back from my computer in despair grumbling "this is impossible…it cannot be done!"
Then coronavirus hits and lockdown ensues. Months of uncertainty and unemployment became the prospect, compelling delays and leading to more time and opportunities lost.
Once we were able to regroup and return to viewing properties, these are some of the lessons picked up in our transit into the housing market.
Disclosure - what is that?
A tip I received early on was to ask about disclosure when visiting a prospective property.
You step into an open home and sign in. Then ask the agent if there is anything to disclose about the property. For example, a deck has been added or, an extra bathroom that when built, was neither applied for, nor did not receive council consent.
This affects first home buyers as insurance companies won’t insure the property, leading to the banks not lending due to the risk. This is one of the hurdles faced, figuring out if a house has unconsented work.
From our experience, unconsented work blocks out first home buyers and those relying on finance as the insurance companies and the banks are not keen to proceed, and one can agree with their logic.
Some houses we just had to walk away from as, we knew there was little chance for us under this predicament.
I had no idea just how common or prevalent this is. Our chosen home had one of those, with an extra unconsented toilet. Initially the insurance company turned us down, as did the bank. Thanks to the agent, there was an 11th hour push to bring the toilet to standard just hours before auction.
Every time we came close to a property, we chose to get a pre-purchase building report with a registered practitioner. Each time we did this, the cost ranged from $500-800. I heard about a couple who spent $7000 on reports, before they were able to secure their first home.
I gulped every time I said yes to the email and paid out for another one, though the report is helpful as it may highlight major defects or any faults to guide you in making an informed decision. Also it is a fabulous benchmark on what is needed to improve the property.
The auction process
You have your heart set upon a home and are now thinking about the forthcoming auction date. Pondering what to do, you consider a pre-auction offer to move early to knock others out of the park. The vendor may or may not accept your offer.
Should they consider this offer, there may be grounds for the vendor for seeing if there could be a better offer out there, triggering the auction to be brought forward to within 48 hours. All interested parties are notified of the new auction date. This happened to us.
A couple put in what was considered a good offer on a property and we all had to rush to attend a Sunday auction.
From the start, the offer was above our expectations, and we said goodbye to another $800 building report. The couple who had made the offer stood at the back of the room holding a baby and I watched their reaction of shock, as their offer was quickly swept aside with the home reaching $100,000 more than their bid.
For the home that we eventually purchased, it came to down to auction day. The room was packed with bidders as properties came and went under the hammer, some at eye-watering levels. Then ours popped up on the screen. I paced nervously across the room as my anxiety levels grew, then inexplicably the room emptied. Gosh what does this mean?
I was sure someone would pop out of a room thrusting a hand in the air, or a phone bid would come out of nowhere. Nothing but silence as “passed in” appeared on the screen.
The reality is that the scramble now begins, as buyers start circling, thinking there will be a bargain. I mentioned to the family that perhaps this might be good for us - yeah nah forget that idea – it wasn’t.
We were warned that other players had entered the post-auction competition. By that evening the multi offers were being presented to the vendor. A text appeared on my phone at 5pm while in the changing room at the gym.
“We have just received an unexpected higher offer to be presented to the vendor.”
In disgust that we had lost again, I threw the phone into my bag and headed for the showers. Siting in the sauna, I stewed upon what could have been. We had been so close to ending this struggle.
Returning to my bag, my phone lit up with missed calls and texts.
“Where are you?” “Need to talk to you urgently!”
I call the agent who says a higher offer has been presented however, the vendor wants to talk to you because you are "unconditional". Offer accepted – job done.
This is the moment where the best offer [and some degree of luck] suits the vendor’s pleasure. There were higher offers but those were compromised with added conditions.
As for agreed price? You guessed it – way above what we thought.
What does ‘being unconditional’ mean and how did this influence the sale?
Presenting offers to a vendor that come with contract conditions you have imposed could make them move on to another, less complicated buyer. Those conditions might be:
Subject to the sale of your house [if that even exists in today’s competitive market] or reliant on you being able to secure finance, or reliant on a building report or legal examination.
Being unconditional meant we came with no encumbrances or hold ups. We had learnt from our mistakes and had further researched our position in order to succeed. Too many homes were lost by us on conditional clauses such as being subject to finance.
Have your ducks in a row
Another term I often heard was – ‘have your ducks in a row’. This means line-up everything from the must do of due diligence - check over absolutely everything before making an offer from legalities and council compliance - to having the deposit and finance ready to go.
Having your deposit ready to be paid up front as a sign of good faith to your vendor is advantageous. You must do this at the conclusion of an auction anyway.
What does one offer?
That was made up of what we collectively could afford - how much finance, how much savings and equity is available, and the property estimates and sales within the area.
There are good sites you can visit with property valuation and sale estimates. These are a useful guide and at times we thought, on the mark. Other times we saw prices exceeded by much higher offers.
In the end I found this to be pure guess work. Were we offering too much or too little to be taken seriously?
How does the bank of Mum and Dad work?
Media reports that I had researched suggested that around 50 per cent of property transactions in Auckland involve mum and dad to some degree.
The process requires you to "gift" money, or the equity of your home, which becomes part the financing. In the latter example, you are adding to your own mortgage for the benefit of your child. This must be done through your lawyer and is known as a deed of gift.
If your son or daughter is either going this alone, or as a couple, the banks may require or suggest they have flatmates. This is so that the financial equation can be balanced to cover the mortgage and household costs.
Finally, he’s a homeowner
Yes, he is on the property ladder after successfully purchasing the property, although Auckland's extended lockdown has added a further three months to settlement.
So as one long journey ends, another starts. Welcome to the life of the mortgaged my boy and hold off that planned spending on your 4x4 as, the renovations are next part of your transitional reality.
What I can say is that this quest, like for thousands of other hopefuls, has been protracted, complicated, and one of the most complex and stressful issues we have faced. It tested this tight family to the edge of breakdown. Our collective perseverance and tenacity somehow kept us from giving up.
NB: I am not a legal, financial, or real estate person, therefore as in all cases, you must consult with your own experts. We are purely a parental generation grappling with the housing affordability question that we have handed our descendants.