Buying a property can often be an intimidating process, especially at auction where you are competing with other buyers and there is no cooling off period.
Many properties are sold at auction, particularly in a rising market, so it is important for buyers to understand the processes involved so they can bid confidently on the auction day.
There are many things that need to be done before the auction to ensure that your interests are protected and that you are fully informed about the property you are intending to buy.
The most important thing to do is to have us, as your lawyer, review the contract of sale well before the auction date as it cannot be amended after auction and you will not have a cooling off period.
It is no good bidding on a property only to find out that the property will be tenanted for the next 12 months or that the property is affected by an easement preventing the construction of a swimming pool.
We will advise you of any risks and help to protect your interests by identifying any terms that might need to be negotiated on your behalf or that you wish to have altered. For example, longer settlement periods, reduced deposits and/or additional terms and conditions.
We will also make sure you are buying exactly what you intend to, and that it’s in the condition you expect, by recommending pre-auction inspections that should be carried out such as building and pest inspections, any necessary searches and a survey report, if necessary.
If you are the successful bidder at the auction, the reviewed contract can be signed by you with confidence.
Inspect the property
If you are successful on auction day you will be buying the property ‘as is’. Accordingly, you should thoroughly inspect the property before auction day and satisfy yourself that all inclusions are in proper working order and that the gas, water and electricity are functioning properly.
Do your research
Thoroughly research the area and surrounding suburbs prior to auction, so that you are comfortable about the amount you are prepared to pay for the property, and can bid confidently. It may be worth engaging experts to provide appraisals or valuations so you know what “true market value is”.
If you are the highest bidder then you purchase the property with all defects including potential unapproved building works and other items significantly affecting value and title. It’s recommended you have a building and pest inspection carried out prior to auction together with any necessary searches.
Often the vendor will have obtained a building and pest report for prospective bidders, so check with the agent if there is a current report. As this report is prepared for the Seller however, and cannot be relied upon in its entirety, we would recommend that you also obtain your own independent report to confirm any findings.
You should also attempt to undertake a title search, a council building approval search to ensure that all structures on the property have received a final inspection, and Dial Before You Dig searches to ensure there are no undisclosed easements located on the property.
Get your finance in order
One of the biggest risks of buying a property at auction is not being able to obtain finance for it. Make this mistake and the deposit, often 10 per cent of the purchase price is forfeited to the vendor and you may be held liable to pay for any deficiency on the resale.
Before making an offer, if you are obtaining finance, you should have your finance pre-approved. Confirm with your lender the maximum amount you can borrow.
Pre-approval is not confirmation of how much the lender is willing to provide you, it is an indication of what you might be able to borrow depending on the value of the property, determined by a formal valuation after the auction.
It is still possible for your financier to decline to provide finance to complete the purchase for any number of reasons, including a change in your personal financial circumstances or if the value of the property has changed, therefore it is important to ensure that you have adequate funds available to complete the purchase within the timeframe stipulated in the contract.
Register to bid
To participate or bid at an auction, buyers must register with the selling agent and be given a bidder’s number. You can register with the selling agent at any time prior to the auction, such as when you inspect the property, or on the day itself.
Before auctioning a property, the seller will nominate to the auctioneer a reserve price, which is usually not advertised. If the bidding continues beyond the reserve price, the property is sold at the fall of the hammer.
If the reserve price is not reached, the auctioneer may have discussions with the seller who may decide to continue the auction, in which case, the auctioneer will usually advise bidders that the property is “on the market and will be sold”. If bidding continues, the property is sold at the fall of the hammer. Alternatively, the property will be ‘passed in’ in which case, the selling agent will usually commence negotiations with the highest bidder and potentially with other bidders.
Time to bid
Make sure you have a strategy going into the auction and that you set yourself a maximum purchase price. Stick to that maximum price. If you feel as though you may be too emotionally attached to bid at the auction yourself, then organise to have someone, including professional buyers advocates and agents bid on your behalf.
If you are the highest bidder, immediately following the auction, you will be asked to sign the contract of sale and pay the deposit.
You will be entering into an unconditional and legally binding contract, there is no cooling-off period.
The signed contract will then be delivered to both parties’ lawyers and they will proceed with the conveyancing process.
Help at hand
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 goes smoothly.
If you or someone you know is looking to purchase a property at auction and needs help or advice regarding any property issue, please contact Hillhouse Legal Partners to discuss your specific circumstances and obtain advice.
The information in this blog is intended only to provide a general overview and has not been prepared with a view to any particular situation or set of circumstances. It is not intended to be comprehensive nor does it constitute legal advice. While we attempt to ensure the information is current and accurate we do not guarantee its currency and accuracy. You should seek legal or other professional advice before acting or relying on any of the information in this blog as it may not be appropriate for your individual circumstances.