TIPS FOR BUYING AT AUCTION
We are seeing a huge influx of unconditional auction contracts come through our doors in the current market. We know buying at auction is stressful, so we wanted to provide you with some tips (from a conveyancing perspective) to ensure you are fully prepared and understand the process.
The key thing to understand when buying at auction, is that you will be buying on an unconditional basis, and it is likely you will also waive your cooling off rights. If, after the auction, you find out that the bank values the property for less than the purchase price, or you discover that the building is not structurally sound or does not have approval, you have no right of termination. It is therefore critical that you do your due diligence well ahead of auction day.
The negatives of buying at auction is that you will have to incur outlays on the property without necessarily knowing if you are going to purchase it. Whilst this can be frustrating, we would argue that it is better to spend a few hundred dollars and know what you are taking on, rather than spending hundreds of thousands of dollars at significant risk.
What should you do:
We recommend you:
- Ask the agent for a copy of the Contract and any documents the agent may have relating to the property (the agent may be able to ask the Seller if they hold any documents in their possession showing approvals for recent building works/renovations etc)
- Send us a copy of the draft Contract to review
- Instruct us to carry out our pre-auction due diligence searches – these generally include a copy of the title search, registered plan, building approvals search, inspection of records search, flood search, dial before you dig search and sometimes contaminated land search and main roads searches. Note that some searches can take up to 10 business days to be received (sometimes longer) so it is best to instruct us as soon as possible
- Carry out a building and pest inspection on the property – we have some excellent partners we work with, if you would like a recommendation
- Discuss the purchase with your broker/banker and obtain pre-approval of finance. Note, the bank will not provide you with formal unconditional finance approval prior to you entering a Contract of Sale and your pre-approval will always be subject to the bank valuing the property. It is therefore important that your purchase price reflects the market value of the property, otherwise you may have to find alternative finance to fund any shortfall
- Consider contacting your accountant to discuss whether the property should be purchased in your own names, in one of your names or whether another legal structure should be used. If, for instance, you want to buy the property in the name of a family trust, the trust will need to be established ahead of the auction
- If you are buying a unit, carry out a body corporate records search – we have an excellent partner we can recommend for this service
- Determine the maximum price you are able to afford and the maximum price that you are prepared to pay for the property and stick to it
- Consider if you wish to make a pre-auction offer – there are pro’s and con’s to this approach and this is always something to weigh up
- Register for the auction (in the Buyer’s name) and complete any associated paperwork – eg. authority for phone bid or to appoint an agent to bid on your behalf; and
- Ensure you have the funds to pay the deposit in accordance with the terms of the Contract (this is often required on the day of Auction).
On auction day
On the day of the auction, check that the Contract documents are the same as what has been previously provided.
Generally, the highest bidder will only be successful in buying the property after the auctioneer has announced that the ‘Property is on the market’ or words confirming that the reserve has been met.
It is important to keep a calm mind, stick to your strategy and don’t be distracted by theatrics.
If you are the highest bidder, the hammer will be knocked down. You will then sign the Contract and pay the deposit. Once signed, the agent will send you and your lawyer a copy of the Contract.