Buying a property at auction is different from a private sale. You’ll be bidding against other people in public and if you’re the highest bidder, you have to pay the deposit and sign the contract immediately. There’s also no cooling-off period. So you have to be sure that you’re bidding on a property that you can buy.
From organising your finances to understanding auction terms, here are 10 things you need to know and do before you buy a property at auction.
Before auction day
1. Do your research
Look for the property you want to buy on auction by searching the web and local papers or ask your local real estate agent. Once you’ve chosen a property, compare similar properties in the area that sold recently so you have an idea of the market value of the property you want to buy. This’ll help you determine if you can afford to pay for the property. And when bidding at auction, you’ll know that you’re not paying over the market value.
2. Inspect the property
It’s important to inspect the property you intend to buy so you know for certain that it’s what you really want. You should also check if the water, gas, electricity, taps, windows, doors, and so on are working properly. You can do this by attending viewings of the property prior to the auction. If you like the property, get a proper inspection done by a building inspector or builder. They can inspect the building’s structure and for pests.
3. Review the contract of sale
Get your lawyer to review the contract of sale so they can advise you of any risks and protect your interests by identifying terms that you want changed, such as a lower deposit amount, an extended settlement period, or additional terms and conditions. Showing the contract to your lawyer before auction day can also ensure that any modifications are negotiated with the seller in time.
4. Organise your finances
Get a home loan pre-approval so you know your borrowing limit and if the property you want to buy is within or outside your price range. You also need funds for the deposit, which is usually 10% of the purchase price. If you win the auction, you’ll have to pay the deposit immediately after signing the contract so make sure it’s ready. Your available funds and borrowing capacity can help you decide on the maximum amount you’re willing to pay for the property.
5. Register to bid
You need to register with the selling agent to bid at an auction and then you’ll be given a bidder’s number. You should also show identification that proves who you are, such as your driver’s licence or learner’s permit or a passport. You can also bring documents that show your name and address, like a vehicle registration paper or council rates notice.
6. Understand auction terms
You should understand the following auction terminology:
- Reserve price – It’s the minimum bid or sale price that the seller will accept and is only known to the seller and auctioneer. If the reserve price is reached, the property is regarded as ‘on the market’ and the seller will accept the highest bid from there.
- Passed in – The property is passed in, or doesn’t sell at auction, when it fails to reach the seller’s reserve price. In this case, the highest bidder can negotiate a sale with the seller.
- Vendor bid – The seller makes a bid on the property to start the auction or to help move the auction along if it stalls. In NSW, a seller can only make one bid per auction.
- No cooling-off period – If you’re the highest bidder and become the new owner of the property, you can’t change your mind about the property.
7. Attend auctions
You should attend a few auctions to get an idea of what it’s like, as well as to familiarise yourself with the rules, regulations, and strategies used by the winning bidder. If the auctioneer who’ll be selling the property you want to buy is holding an auction, attend that auction and observe their techniques and the words they use.
On auction day
8. Arrive early
Make sure to arrive early on auction day so you can find a spot that not only gives you a clear view but also allows the auctioneer to see and hear you clearly when you’re bidding. Arriving early can also help you tell apart the bidders from the onlookers. Serious bidders may be inspecting the contract or saying the right things. What’s more, you may have the opportunity to ask questions and inspect the property one last time before the bidding starts.
9. Bid strong and confidently
When bidding, make sure to speak in a loud, clear voice and be confident. This’ll give you the psychological edge over other bidders, who’ll think that you have deep pockets and no limit. Start with a high bid and make your bids fast and assertive. Also, call out your offer in full like $550,000 instead of in increments like $5,000. Make sure you’re the highest bidder if the property’s going to pass in, so that you can negotiate a sale with the seller. And most importantly, stick to your maximum purchase price.
If you think that you may become emotionally attached, get someone else to bid for you, such as a family member or friend who is over 18 years of age or a buyer’s agent. You should give the selling agent a written signed authority, authorising the person to bid on your behalf.
10. Sign the ‘Contract of Sale’ and pay a deposit
If you’ve won at auction, you’ll need to sign the ‘Contract of Sale’ and pay the 10% deposit, as well as provide your lawyer’s contact details to the agent and exchange sale contracts with the seller. You’ll enter into an unconditional and legally binding contract. The signed contract will be sent to your lawyer and then they’ll contact you to discuss what to do next. Your lawyer will attend to the exchange of contracts with a representative of the purchasing party.
Once contracts have been exchanged, the property is no longer on the market — the purchaser has committed to buying the property and the vendor has committed to selling it.
Looking to purchase a property at auction soon?
Getting the right advice, being fully informed and prepared before the auction day is a critical part of ensuring that the purchase of your next (or first) property runs smoothly.
The purchase of a property, at auction or otherwise, shouldn’t be too stressful and our expert team can help guide you through the process and make sure your interests are protected.
If you or someone you know is looking to purchase a property at auction and needs help or advice, please contact us on +61 2 9212 2422 or email firstname.lastname@example.org.