Buyers get $20,000 payout after bidding in Te Atatū South house auction without pre-approval

A pair of buyers complained they were not advised properly about the pre-approval process and wanted to "recover their losses" on a Te Atatū South house they bid for. Photo / 123rf

By Susan Edmunds for RNZ

A couple who made an unconditional bid at auction for a house, without realising they did not have home loan pre-approval, have been given $20,000 in compensation by their financial adviser.

The women complained about the adviser to Financial Services Complaints Ltd, a financial ombudsman service that deals with complaints that cannot be resolved directly.

It does not identify the people who complain or the organisations they complain about.

The couple already owned a home in South Auckland and a Whangārei rental property but were looking to purchase another investment property.

In February 2021, one of the women contacted a financial adviser who recommended they sign up to a “property programme”.

Through February and March, the couple provided information about their financial situation and talked to the adviser about how much they might be able to borrow.

They were told it should be possible to borrow up to $1.6 million.

In April that year, one of the women informed the adviser that they were going to an auction for a property in Te Atatū South.

The adviser told her there were some issues with the property and the lender might want more information.

Despite that, they bid $1.6m and won the auction. Their bid was unconditional, so they had to go through with the purchase.

But banks were unwilling to lend the money because of the problems with the house and the adviser had to get them a loan from a non-bank lender at a higher interest rate.

They complained they were not advised properly about the pre-approval process and wanted to “recover their losses”.

They said they lost $126,571, including late settlement fees, fees to arrange non-bank finance, additional interest. They also wanted $5000 for inconvenience and stress.

One of the women told FSCL they thought their adviser’s assessment replaced their need for pre-approval.

The adviser said the women had not been told there was no need for pre-approval and had not been told to bid without it.

FSCL investigated and said the adviser had not kept full records.

While the adviser probably did say they could offer up to $1.6m on a property, FSCL said, it was unlikely that the property programme was advertised as a substitute for pre-approval.

The $1.6m figure was based on the property being owner-occupied, FSCL said, and larger deposits were usually needed for investment properties.

Given the women already had experience in the property market, they should have known the risks of bidding without finance.

The adviser offered $20,000 to settle the complaint, recognising that record-keeping obligations had not been met.

“Further, they had not responded adequately to [one of the buyer’s] approach on April 9, 2021. When [she] made contact that day, the adviser was aware that [she] did not have pre-approval and that she intended to bid.

“While the adviser pointed out difficulties with the property, she had not cautioned [her] about the risks and possible consequences of making a bid without pre-approval from a lender.”

FSCL said $20,000 was a fair offer.