Freshwater then rented it for $1100 per week, despite a valuer noting it could command $2000 on the open market.
However, chancellor Scott St John - who is chairman of the university's council of directors - has now tried to distance Freshwater from the deal.
"Criticisms of her in the media are grossly unfair and wrong," he said in an email to university staff.
"It was not her decision to purchase the property. Nor was she party to developing the terms and conditions of the tenancy agreement."
The home's purchase - exclusively revealed by the Herald in January last year - immediately led rankled staff and students to voice their disapproval over its bad look.
The university paid $5.06m for the property - or $1.5m above its council valuation - and then spent $160,000-$170,000 repairing the roof and swimming pool.
Although Freshwater was involved in choosing the property - specifying Parnell as her preferred suburb - the home was not formally considered part of her employment terms.
The education institution said it offered Freshwater discounted rent because the home was expected to host up to 14 university-related dinners and fundraising events.
But NZ Union of Students' Associations president Isabella Lenihan-Ikin asked why the highly paid Freshwater was given an exclusive deal-sweetener when staff and students feared jobs cuts and reduced teaching services.
The deal also caught Ryan's eye, who said it involved "sensitive expenditure".
That meant the partly taxpayer-funded organisation ran the risk of being seen to give "disproportionate" benefit to Freshwater above the university's own business needs, he said.
He also called on the university to consider whether Freshwater's rental discount should be treated as taxable income under the Income Tax Act.
Education Minister Chris Hipkins labelled the deal "very disappointing", while staff and students called it a "slap in the face".
But St John today said responsibility for the deal rested with the education institution.
He said the Auditor-General's criticism "related to the university's failure to comply with requirements to approve sensitive expenditure when it purchased the property".
"This was prior to Professor Freshwater taking up her position as vice-chancellor.
"The university leadership regrets the situation faced by Professor Freshwater. In this matter we failed to prepare a positive environment for her to begin her tenure. We apologise to Professor Freshwater."
Freshwater had since launched "a series of independent inquiries into administrative processes and systems" related to the purchase, he said.
The vice-chancellor moved out of the house in mid-December.
She had not been offered another university-owned rental or rental allowance, a university spokesman said.
The Parnell sale also comes after the university offloaded a boutique Remuera mansion last July at a massive discount.
It was bought as a rental for former vice-chancellor Stuart McCutcheon, who paid rent at discounted rates of 50-52 per cent market value for 15 years from 2005 to 2020.
However, the Loreto Heights home was confirmed to the Auditor-General to be a leaky home with "weathertightness issues" .
It fetched $2.97m at auction last July - $1m below its Auckland Council valuation and barely above the property's estimated $2.87m land value.
That meant the university only profited on the rise in land value but made virtually no capital gains on the home itself despite owning it for 16 years through multiple Auckland housing booms.
