Buyer Beware – What you need to know before buying a property at auction.

You’ve looked around for months and you’ve finally found a property that ticks your boxes and fits within your price range.  The auction date is set – so what now?

There are a few important things you need to know and do before auction day:

Buying at auction is unconditional.  This means you cannot make your bid subject to any clauses, i.e. there is no cooling off allowed, no building or pest inspection clauses and no subject to finance clauses.

Do your due diligence.  Given you cannot make your bid subject to clauses, if a house has structural defects, unpaid rates or a property dispute with neighbours that you are unaware of, this all becomes yours when you purchase.  So, it is important to do your due diligence before bidding at auction.

Get inspections done.  Make sure you get a professional building and pest inspection before the auction.

Review the contract.  Have the contract reviewed by a conveyancer before you make any bids.

Most importantly, get your finances in order.  Ideally, this should be done before you even start going to home inspections because there is no point wasting your weekends inspecting homes that you know you can’t afford.  If you require a bank loan, which most people do, it is important to speak to me and have your pre-approval ready to go.  This will help you know how high you can bid and give you confidence on auction day.

Understand the market value of the property before you turn up.  In the heat of the moment, when all that stress and pressure and emotions take hold, it can be hard to view things objectively, which often leads to paying more than you know is reasonable. 

Know what the property is worth.  If you pay more than the property’s market value, this may impact on your ability to get the finance you need. While you may have pre-approval to a certain amount, if you go over that figure, you will be creating a shortfall you need to fund yourself. To ensure you aren’t spending too much, it’s important to understand the value of the property.  To assist our clients, we offer a free property report service. 

Have your deposit ready.  On auction day, the successful bidder must pay a deposit, normally this is 10% of the purchase price. Once paid this figure is non-refundable.  If you can’t get the finance for your property and can’t complete the property settlement, you are likely to need to forfeit your deposit. 

Under quoting may happen.  The auction process is the quickest way to sell a house, with the full campaign usually only taking 4-5 weeks to sell a property.  It is also designed to get the most money for sellers so many properties are under quoted. 

Auctions can get a little intense.  The auction itself is decide to create excitement and tension and puts buyers under a lot of pressure to compete in a fast-paced environment which doesn’t give buyers a lot of time to think.  To help you get comfortable with the process and pace, it’s a good idea to attend a number of auctions that you have no vested interest in to see how they work and help you navigate potential pitfalls.  Attending a few auctions will also help you get familiar with the jargon used.

Don’t forget to register for the auction.  Depending on which state or territory you are purchasing in, you may need to register yourself as a bidder and potentially show proof of ID.  

Expect the unexpected.  Given their fast-paced nature, anything can happen at an auction.  You may have strong, confident bidders, you may have few bidders.  Depending on the property and bidders on the day, prices at auctions can shoot up very quickly so staying as level-headed as possible is important. 

The property may get passed in.  A property may even be ‘passed in’ which means the bidding at auction falls short of the reserve price which can lead to negotiations between the prospective buyer (highest bidder), vendor and agent. If you are interested and where the highest bidder, you may be able to negotiate with the vendor.

Know the next steps.  If you buy a property at auction, you will be required to pay a deposit immediately, as mentioned, that is usually 10%, which is why it is critical to have your finances in order.  You then sign the contract and the home is yours.  If the property is passed in and you are the highest bidder, you’ll likely have a chance to negotiate as mentioned above. 

Consider all costs.  Buying a house has a number of costs associated with it.  Not only do you need to pay for the relevant inspections and the deposit on the day, you also need to consider additional costs such as stamp duty, moving costs etc. 

If you’re a first home buyer, I’ve created a useful guide to help you understand key aspects of buying your first home

I can also help you obtain a free property report to help you understand the value of the property you are interested in.

Remember, a critical aspect to your success is securing your finance and obtaining pre-approval.  To obtain pre-approval, get in touch today or complete my 5 minute assessment form.