Steps to take before the auction
Unlike private treaty sales, where the price is negotiated between buyer and vendor, auctions move quickly and when the hammer falls the sale is final. Yep, final. No backing out now, you are legally obliged to purchase the property. There is no cooling off period. As a buyer, you may feel under intense pressure to bid, so it takes a cool head and a careful strategy to buy at auction.
1. Do your research.
Property auctions move fast, and people who have not attended these events in the past often get lost in the shuffle. If the property you want will be going to auction, take the time to attend other property auctions and observe how the process plays out.
It also pays to keep an eye on the quoted price of a few auctions even if that means speaking with a few real estate agents. You can see how this quoted price compares with the actual auction price and know what to expect at your own auction.
2. Undertake pre-purchase inspections.
Organise a pest and building inspection report long before auction day. If the report identifies key faults, ask the selling agent if you can take your builder for an inspection of the property to get an idea of likely repair costs.
3. Ask your solicitor to check the contract.
Do not bid on a property until your solicitor has given you the all-clear. Contracts for sale by auction are complex and without the benefit of a cooling off period, you’ll have to live with any nasty surprises about the property if you're the highest bidder.
4. Arrange loan pre-approval.
Making a bid at auction without the certainty of loan finance is a very high risk strategy. It makes more sense to secure loan pre-approval as this will give you confidence as a bidder and set an all-important limit on your bidding.
5. Know your limit and stick to it.
With loan pre-approval you should have a good idea about how much you can afford to pay for a property. But you should only pay what you think the property is worth based on similar homes in the area. Paying more could mean waiting years for your home to grow in value.
6. Register to bid.
Check if you need to register to bid. This is a requirement of some state governments, and where it applies you will be given a bidding number to use. You may also want to consider using a friend or buyers’ agent to bid for you.
7. Get your cheque book ready.
If you’re the winning bidder on the day, you’ll be required to pay a deposit of 5-10% of the purchase price on the spot. A Deposit Bond can often be used in lieu of cash.
What happens on auction day?
Before bidding starts, the auctioneer will give a full description of the property and then invite bidding to begin, usually from a nominated starting point.
Where possible, avoid bidding early - you may push the price up prematurely. It can pay to wait until bidding is drawing to a conclusion (and bids are being made in small increments) before raising your hand.
The best time to place your bid is after vendor bids have been placed.
If the auctioneer declares the property is "on the market", it means the vendor's reserve price (the minimum they will accept) has been reached and the property will be sold when the hammer falls. If bidding stalls prior to this, the property will be “passed in” and you have the option of entering further negotiations with the agent.
Finally, stick to the golden rule - no matter how intense the pressure, resist the urge to bid above your budget. It could mean facing difficulties funding your property once the excitement dies down.
Given the binding obligation to purchase the property should you win the auction, it’s imperative that you have your pre-approval in place prior to the auction. Know your limit. Don’t deviate from your limit. Yes, you may leave disappointed but you won’t leave in unnecessary debt.
As your Mortgage Broker Maitland & Hunter Valley I help my customers prepare for auction. If you are considering purchasing at auction, call Mike Wilson on 0435 945 419 to secure your pre-approval, understand your borrowing capacity and clarify what your loan repayments will be.