Buying A Property At Auction

Property auctions continue to be a popular way of selling a home.

Whilst some buyers are wary of auctions, with good preparation they can be a great way to purchase a property.

The difference between an auction and other ways of purchasing a property is that you are in a “high-pressure, one time only” selling situation which can be very emotional. The key to controlling the emotions and achieving a successful result is preparation.

Do Your Homework First

It is important to know what similar properties in the same area have been sold for. There are several Property Reporting Services that will sell you a report of recent sales, capital growth history and projections, etc in the same postcode for around $50.

Nothing beats first hand research, though. Try to attend a few house inspections in the area, talk to the agents, and get a feel for the market.

Attending several property auctions, in your “target area” if possible, will give you more confidence in the auction process and the pressures and emotions you’re likely to experience.

Once you’ve identified an actual property that you’re interested in that is being sold at auction, then it’s important to make sure that the property is inspected by reputable building and pest inspectors and any problems are known.

Depending on what the problems are, walking away now might be the most prudent decision. This is not always easy if you’ve already spent time and money on looking at the property.

Get your solicitor to review the contract documentation before the auction. Whilst this may cost some hundreds of dollars, you could be risking thousands of dollars by not picking up some issue before purchasing.

Get Your Finances Organised

Make sure that you have your home loan approved before the auction day so that you are 100% confident that you can purchase the property.

Also, you will typically need to put down up to 10% deposit on the day. This can be cash or via a deposit guarantee. The guarantee means that the purchaser’s own cash won’t be used at this stage, so helping to manage cash-flow in the short term.

Prior to attending the auction you should determine what your maximum price limit is. This will be based on what you can afford, how much you have saved, and how much you have been approved to borrow from your lender.

This maximum price must be treated as “cast iron” – in other words, you will not bid above this figure. To do so means that you may be putting yourself in financial trouble.

The Auction Day

Allow yourself plenty of time to get there, and arrive early. Take a last look around the property and look again at any those aspects that you have concerns about. Ask any last questions of the agent.

Look at the information on the auction, the rules of the auction, etc. You may be required to register as a potential buyer, so make sure you do so. This gives you the right to bid: it does not mean you must bid.

Prior to the bidding starting you should have an opportunity to ask any questions of the auctioneer. Make sure you use this opportunity: it’s the last one you’ll have.

The Auction Itself

Remember that the property seller will have set a Reserve Price for the property. Bidding will normally start below this figure. Once this figure has been met then the auctioneer will announce that the property is “on the market”, meaning that it will definitely be sold.

Bidding is normally made in similar increments to the previous bids (e.g. $5,000 a time). You will be assumed to be bidding higher by that same amount unless you specifically state otherwise at the time you make the bid.

Remember your maximum price limit. It is easy to get carried away in the heat of the moment, but then regret it afterwards.

If you are successful you will normally be asked to sign the sale contract and pay the holding deposit straightaway, so make sure you have the cheque or deposit guarantee with you. Remember, there is no cooling-off period when you buy at auction.

If bidding does not get above the reserve then the property will be “passed in.” This means that the property won’t be sold at the auction. The highest bidder, and sometimes the other bidders, will normally be given the opportunity to negotiate separately with the sellers to see if an acceptable price can be agreed.

The Right Result

At the end of the day, remember that you’re making one of the biggest financial decisions of your life. By preparing properly, investing a little money upfront with the legal and inspection experts, and keeping a cool head on the day, you’ll end up with the right result.