While the thought of bidding publicly for a property might fill your heart with dread, the reality is auctions are becoming more common so, if you can’t beat them, join them!
To help the wary we spoke to experts from the Real Estate Buyers Agents Association of Australia (REBAA) and Real Estate Institute of Australia (REIA) to find out how to tackle auctions head on. Given auction marketing campaigns typically run for around four weeks, it’s important to use this limited time wisely to action your pre-auction check-list so you’re prepared come auction day.
1. Inspect the property
Never buy site unseen. Make sure that either you or someone working for you, like a buyer’s agent, has visited and thoroughly inspected the property.
It’s not uncommon for properties to be oversold in their marketing material, so an inspection helps to ensure the property’s been portrayed accurately and that it meets your expectations. Things can be conveniently left out of the photographer’s frame or might not be visible in photos, so nothing beats seeing it with your own eyes.
An impartial third party inspection can also add a lot of value. Buyers can have tunnel vision or rose tinted glasses, so getting a second opinion from someone else might help pick up potential issues or even just bring some things about the property to your attention which you might not have thought of or overlooked.
2. Do your due diligence
This is one of the biggest purchases you’re likely to make in your lifetime, so make sure you do your pre-purchase inspections to know exactly what you’re buying and prevent any nasty surprises.
In some states, sellers aren’t legally obligated to undertake or supply pre-purchase inspections or reports such as building and pest, council approvals, flood history etc, so it’s important you seriously consider these things and take the time to know what you’re purchasing.
3. Review the contract of sale
Choose a solicitor or conveyancer and get them to review the contract.
At an auction the vendor sells on the published terms of the contract, so you need to work out if those terms work for you. If they don’t or you want something changed it has to be negotiated with the vendor’s solicitor BEFORE auction day so you have a contract both parties are happy to sign if you place the winning bid.
The contract includes the financial aspects of sale, and standard auction conditions typically require a 10% deposit paid on auction day and a four to six week settlement. However your solicitor can request other conditions that might better suit your circumstances, like an extended settlement period or a fixed amount deposit rather than a flat 10%. After all, when you get your bank cheque you don’t know how much you’re going to need to make it out for.
4. Research the market
Know the market you’re buying in.
Do your own research into the market and compare like-for-like properties that have recently sold to get an understanding of how much similar properties have sold for. It’s also worthwhile engaging a bank valuer or buyer’s agent to help you determine the value. Then, if the market’s really competitive, you might need to extend your price range a little to realistically secure the property.
5. Arrange your finance
Know your buying capacity and don’t go to auction without a formal pre-approval.
If you bid and win at auction without knowing what you can borrow, you could end up throwing away a 10% deposit when you can’t complete. Pre-approval doesn’t take long and will give you peace of mind that you can borrow what you need to. You can speak to banks or other lenders directly or compare different lenders through a mortgage broker. Brokers can even help with the paperwork, and good ones will keep you updated each step of the home loan application process.
6. Set your maximum purchase price
Make sure you decide before the auction what you’re prepared to pay for the property.
Once everything else is done it’s time to set your limit. Auctions are high pressure situations, so by working out your limit (and sticking to it) you won’t get drawn into a bidding war and play right into the hands of the auctioneer.
Most buyers will have three prices in mind; what they’d love to pay, what they reasonably expect to pay, and then the highest limit they’re willing to pay.
For expert tips on bidding at auction check back to the blog next week.
Have you recently bought at auction? Did you follow a similar check-list and are there any other steps you’d recommend to other buyers? Tell us in the comments!
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