What you need to know when buying a residential property at auction
Auctions can be fun, frenetic and financially dangerous. With several hundred thousand dollars on the line the tension on the day can be palpable. The stakes are high for Vendors and Purchasers, so make sure you understand the process, because it is a battleground that takes no prisoners.
Real Estate Agents will take a property to auction for a number of reasons. It may be because the market is booming and they feel confident of extracting a higher price or that the property has unique qualities making it difficult to ascertain the true value. Sometimes, however, the auction may be forced as part of a deceased’s estate or a liquidation.
It is advisable to prepare carefully for Auctions, and good legal advice before you commit to a purchase may save you ending up with a white elephant that you paid far too much for!
Before The Auction
Consult a Lawyer before the auction Talk to us about the contract before the auction. If changes to the Contract are negotiated, take a copy of the documents to the auction showing the changes.
Finance Finance must be unconditionally approved (on terms you can afford) before the day of the auction.
Property and building Get any building and pest inspection reports you need before the auction. Make sure you know what is included in the sale.
What is the property worth? Do your homework on other properties to get an idea of fair market values. Look at www.domain.com.au and www.realestate.com.au. If the property has unusual or unique qualities it may be prudent to get a valuation report from a registered Valuer.
Purchasing with another person? Decide before the auction: Who will bid? What will be your opening bid? What is your absolute highest bid?
The Auction Process
How is it done? Get to the auction early to watch how it’s done. If possible go to other auctions beforehand to get a feel for how things work. The auctioneer will tell you how bids should be made and the acceptable multiples for bid increases.
Vendor bids The auctioneer is permitted to make one bid on behalf of the vendor.
The reserve price If the reserve price is reached during the bidding the auctioneer will usually say “We’re on the market”, “The property will be sold”, “The reserve has been reached” or similar. If the reserve price is not reached during the auction, the property is passed in and the top bidder is usually invited to stay to continue negotiations.
Attorney to sign contract? If you cannot attend the auction and someone else must sign the contract for you, that person will need a Power of Attorney from you (prepared beforehand by your Lawyer).
At The Auction
Bidder must register The bidder must register before the auction, giving relevant personal details, and will be given an identifying number.
Check for late changes to contract When you arrive, check your draft contract with the actual auction contract.
Someone else bidding for you? If another person is going to bid for you, the auctioneer must be given a written authority from you.
Make your bid clearly We suggest that you make your bid orally while lifting your arm.
After the Auction
Successful bidder must sign contract and pay deposit A successful bidder is expected to sign the contract on the spot. You can pay the deposit by personal cheque. Sometimes a Deposit Bond is used in lieu of a cheque.
What if the reserve price is not reached? If you are the highest bidder or the under-bidder (next highest), you will usually be invited to stay behind and the agent will encourage you to increase your offer. Take care at this stage to stay within your financial limitations!
Negotiating after property is passed in We suggest that if you have not already exceeded your absolute highest bid, you say to the agent: “You have my highest offer” or “I will offer another $…” and, in either case, add “I will give the owner one minute to accept it, otherwise I’m leaving.”
Don’t Stay! If you give the owner one minute to consider and the owner does not accept your offer, you MUST stick to your word and leave. If you stay longer, the agent will assume you have more money with which to negotiate. Remember the vendor will be keen to sell on the day.
No cooling off period There is no cooling off period on a contract exchanged at an auction sale or where exchange of contracts is after the auction but on the same day as the auction took place.
Notify your Lawyer After the Auction contact us to advise the outcome of the auction. If you were the successful bidder then we will provide further information and advice to you.
Buying a residential property at an auction can be scary and daunting task if you are unprepared. If you are going to be buying a house at auction please don’t hesitate to contact our Conveyancing & Property Law Team.