We are experiencing that more and more vendors are opting to sell at auction. For a vendor client, this is great, as it assists in driving the price of your property up, but for a purchaser, who is already trying to navigate a high paced market, this can be stressful.
As a purchaser, the most important difference to know about buying your home privately and buying at auction is that when the hammer falls at auction and the auctioneer shouts sold, you have exchanged contracts without a cooling off period.
The cooling off period, found in residential purchases by private treaty, entitles you to 5 business days during which you can change your mind about proceeding with the transaction. If you withdraw, or rescind, you will only forfeit 0.25% of the purchase price. Purchasers commonly use this period to finalize finance and undertake pest and build reports.
Where a transaction proceeds without a cooling off period, the purchaser is locked in from exchange. If you are unable to complete or opt not to, you risk losing your 10% deposit and also paying the vendors damages for any losses.
If you are going to an auction, we always advise that you are confident and educated about the property you are purchasing. We recommend that you consider the following tips:
1. Finance
Make sure you know how you are financing the transaction. If you are taking out a mortgage, you will need to have spoken to a banker or broker before auction day and obtained pre-approval from your financier. This will indicate to you how much you can bid for. You will also need to come to the auction with the 10% deposit usually by way of bank cheque payable to the agent.
2. Review the Sale Contract
The Contract of Sale is the legal document that you will be locked into if you are successful at auction. You obviously will want to know what you are signing up to and how it impacts you and your proposed use of the property. We can help you with this part. The Real Estate Agent will be able to provide you with a copy of the contract which we can review for you and give you advice on before auction day.
3. Obtain a pest and build report or strata report
If you are buying a Torrens title property or unit in a strata complex, you will want to know that the property is in good condition or in a condition you consider commensurate with the property’s appearance and price. The report will tell you whether there is any damage or defects which could require major rectification works later. It is not unusual for vendors to carry out cosmetic works pre-sale to cover up any cracks and faults. We again recommend that you obtain one of these reports before auction day from a professional. We can recommend someone to you if you do not know of anyone yourself.
4. Set yourself a limit
Purchasing a property is a big investment which requires you to remain cool and collected but it is easy to let emotions take hold, particularly if you are hoping to land your forever home.
Prepare a strategy pre-auction day. Set yourself a limit which you stick to. You do not want emotion to cloud your judgment and you sign your family up to an arrangement which is financially crippling. Most importantly, your limit must never exceed your borrowing capacity. It is important to know when to walk away.
Take a friend with you, preferably one who is familiar with the auction process, who knows your upper limit and can rein you back in if you get carried away. A person who is not emotionally invested in the purchase will encourage you to secure the property but will also help you tap out when it’s not the right purchase for you in the long-term.
5. Attend other auctions
Sometimes familiarising ourselves with a process takes (some of) the anxiety out of it. Attend other auctions when you are first starting to dip your foot into the property market. You will be able to familiarise yourself with bidding strategies and also suss out the language that real estate agents and auctioneers use come auction day.
If you are looking at bidding at an upcoming auction, Contact Us on (02) 4943 3988 to speak to one of our property lawyers. We have years of experience helping people with their conveyancing needs throughout the Newcastle, Lake Macquarie and Hunter region.
This blog was written by Director,
David Berryman
David practises in the areas of Wills & Estates, Conveyancing,
and Business & Commercial Advice
