Buying At Auction
The auction process may seem daunting, but there are many advantages to purchasing at auction. One clear advantage to attending an auction is you can be confident that the true market price for the property will become clear. Here are some other clear benefits to buying at auction:
- You know who your competition is on the day
- All buyers are given fair opportunity to buy
- Negotiations are open for all to see
- You know you are dealing with sellers who want to sell on the day
- At the fall of the hammer, the auction is final and your successful bid means the property is yours with no further negotiations, and the contract is signed then and there.
Preparing for auction
Once you have identified an auction property that you’re interested in, it’s important to have your finances organised by the auction date. This is also a good time to get all of your other affairs sorted, such as finalising the sale of your existing property, organising a property check and familiarising yourself with all the auction documents.
If you’ve never attended an auction before it’s a good idea to have a look at a few before attending the auction of the property you intend to purchase. This will help you to become more familiar with the auction process.
Inspect the property as many times as necessary and, if you have any doubts, arrange for a builder, plumber, electrician or any other tradesperson to accompany you.
Also check the auction documents. Make sure you’re familiar with and understand all the details and conditions of sale (the deposit, possession date, balance of payment, list of chattels, etc). You don’t want any unexpected surprises come auction day.
Sorting out your finances
If you plan to buy at auction, it’s important to have your finances sorted out well before auction day to avoid disappointment. Buying a home through auction is a little different to buying a home through other methods of sale in that sales by auction are unconditional.
So it’s vital to have finance confirmed before you bid. Make sure you have a clear budget in mind for the property, and ensure you stick to it. If you are the successful bidder on auction day, the only thing left to do will be to sign the contract of sale.
At auction you will need to have up to 10% of the purchase price ready to go at the fall of the hammer.
Doing your research
Once you have your finances in place, you’ve worked out your borrowing capacity, and sought pre-approval on your home loan, it’s now time to get to know the market.
If you have identified the property you intend to bid on, have a look at recent sales in the neighbourhood. A great place to start is online. There are lots of property comparison sites on the web which will give you an indication of the average sale price of houses, land and units in an area.
Take advantage of an open home and use the time to perform a thorough property inspection. Later on, you’ll want to engage the services of a professional to inspect the building’s structure and for pests, again, this must be done before auction day.
On auction day
Auction day will be your last opportunity to ask questions before the bidding begins. You should also have an opportunity to give the home one final inspection.
Most auctions are held "subject to a reserve price" – the price below which a property may not be sold. When this level has been reached, the auctioneer will then announce that the property is for sale.
Be aware that any bid you make over the reserve price could be the one that buys the property.
Passed in is the term used when a property fails to reach the reserve price and negotiations between the highest bidder and the vendor do not result in a sale.
After being passed in, the property will now be open to the market, and everyone will have equal opportunity to submit their offer.
If you’re successful on the day you’ll be asked to sign the sales agreement and pay a deposit. This is normally 10% of the purchase price. You should be aware that there is no cooling off period on the purchase of a property at auction, as there is through other methods of sale. This is why it is important to do your due diligence on the property before auction day.