The purchase of property is often one of the biggest outlays in your life, so it makes sense to protect yourself as much as possible when it comes to such a big purchase.
While many Australians may be familiar with the process of buying a property the more ‘traditional’ way, where the buyer and seller negotiate via a real estate agent, auctions are becoming increasingly popular ways to sell.
There are many common pitfalls associated with property transactions, and the risk of being stung by one of these is often increased where the property is being sold under the hammer at auction.
Firstly, it is important to be aware that when buying at auction, it is usually on an ‘as-is’ basis, which means you are purchasing the property in its present condition (warts and all) and you are usually not able to include conditions in the contract such as a finance clause or a building and pest clause. There is also no ‘cooling-off’ period, so if you are the successful bidder at auction you will likely be bound by the contract and there may be serious ramifications if you are unable to complete the contract.
For this reason, we strongly recommend that if you are interested in buying a property at auction, that you:
- do your research on the area the property is located in prior to attending the auction. This means you will have a better idea of the neighbourhood surrounding the property, including what the property is worth and the likely selling price, and this will assist you in determining how much you are willing to pay for it. You could also obtain a valuation of the property which will provide you with an estimation of its value;
- obtain a copy of the contract from the real estate agent prior to the auction day and have one of our friendly and experienced solicitors review it for you and advise you of the terms and conditions contained therein so you know what you are signing on the day if you are the successful bidder;
- organise a building and pest inspection of the property well before auction day – although this cost will be thrown away if you are not the successful bidder on auction day or the report reveals unsatisfactory problems – it is a small price to pay to ensure you are aware of various issues, faults or problems with the house before being contractually bound to buy it;
- arrange finance pre-approval – if you are needing to borrow money for the purchase of the property, it is very important that you have some idea of how much you can borrow (and the confidence that the bank will lend it to you!) prior to bidding – as indicated above, there are usually no outs in the contract if you are unable to get finance for the purchase, so missing this step could end up costing you hundreds of thousands of dollars if you are unable to complete the contract because you don’t have the funds;
- be aware of the deposit amount and when you will need to pay it if you are the successful bidder at auction – be ready to pay it if it is due on auction day;
- stick to your limit – auctions are fast-paced and intense environments and people often feel pressured to bid or get caught up in the moment. This can be disastrous if you bid over your financial limit or buy a property for significantly more than its worth. After doing your research on the property and considering the building/pest reports and the contract terms carefully, decide what your maximum limit is for that property and stick to it.
On auction day, documentation regarding the property should be on display at least 30 minutes prior to the auction time. This usually includes a full description of the property, a copy of the relevant contract, and relevant parts of the law relating to auctions. Closer to the start time, the auctioneer will introduce themselves and go through the full description of the property. They will also usually briefly touch on the various laws applicable to auctions and any specific rules for the current auction.
If you want to bid, you will need to register to bid with the auctioneer well before the auction time. It is prudent to keep your cards close when speaking to the real estate agent or the auctioneer so that you can avoid paying more for the property than you have to. If they don’t know your true financial position, or how much you are willing to pay for the property, it gives them less leverage and you won’t end up paying more than you have to for the property.
In many cases, the seller will set a ‘reserve price’, which is essentially the minimum amount they are willing to sell the property for. It is a good idea to wait until after the reserve has been met and the property is ‘on the market’ before starting your bidding. If the bidding doesn’t reach the reserve price it will usually be passed in and further negotiations can be conducted with the seller at that time if you wish.
Overall, buying at auction can be an effective way to purchase property or to add to your property portfolio. By keeping in mind the above tips, and being aware of the pitfalls, you can feel comfortable attending an auction and making the winning bid.
Affinity Lawyers’ experienced and professional solicitors can provide you with advice at any stage of the auction process and we are happy to assist you with reviewing contracts prior to auction day. Please contact our friendly team on 07 5563 8970 to discuss your requirements.