Buying through auction? What are things to consider?
Auction is one of the sale methods where the agent runs the advertising campaign for about 4 weeks and competitive bidding is encouraged in open public. Upon successful bidding at auction, the purchaser is required to sign the contract unconditionally. This means there will no be cooling off period and you will need to accept the property no matter what.
While there are many circumstances (such as mortgage repossession by the lenders when purchaser defaults on the loan, deceased property, sales by trustee, etc) when the auction is the most preferred method of sale but other than this, many vendors try to sell their property through an auction in an attempt to get a higher price for their property and in their terms.
Aa a potential buyer, you are required to carry out full due diligence and prepare yourself prior to bidding at auction to ensure that transaction is settled smoothly. Below are some of the works you can do to prepare yourself for auction:
1. Review the contract of sale
If you would like to consider participating at auction, please ask selling agent for the contract of sale and forward it to your legal representative (conveyancer or solicitor) to review. They will conduct pre-purchase contract review and advise you the clauses and conditions of sale.
2. Negotiate the clauses
After discussion with your legal representative, please ask them to negotiate any clauses (such as less than 10% deposit at the time of contract exchange, an extension of the settlement date, the inclusion of items in the sale etc) with the vendor’s legal representative.
3. Review sewer diagram, title search pages and heritage issues
You need to discuss these issues with your legal representative and seek further clarification if needed. These issues might have some influence on what you can do with this property later.
4. Arrange for inspection reports
Through your legal representative, you need to organise Building and Pest Inspection report (in case of houses) or Strata Inspection report (for strata-titled properties such as apartment/unit, townhouse etc). You need to know the building defect issues, safety and hazard issues and pest infection issues before you decide whether to bid at auction. Conducting these inspections cost you money and you are required to bear these costs regardless of auction outcome.
There are some private companies who might have done the reports already and made this available for sharing at a fraction of costs. You can search for them online and see if this option is possible in your case.
5. Request to estimate the Property Value
You need to ask your mortgage broker or lender to provide their opinion on the property value. These professionals can provide you with reports which can form a starting point for your research about the bidding price. Also, based on their experiences, they can provide valuable insights about the property and its price point.
No matter what, you are buying unconditionally through auction. Chances are that lender valuation might return less than what you purchased at. Please always be prepared for extra deposit contribution just in case this happens to you.
6. Learn auction bidding strategies
If you are bidding at auction for the first time and have not seen any auctions recently, it is important that you consult with experienced people. You can also go through helpful videos or some self-help resources available online.
Capkon has helped thousands of families in securing their dream home and has also helped many clients buy through auction. If you want to use our expertise by your side, you can contact us for obligation free consultation. We help you not only with finance approval but also coordination of whole buying processes.
Wish you all the best for auction!