Buying a home is an incredibly exciting and stressful time, even more so if you’re buying at auction. For many people, buying a home can be their first experience in an auction environment. So before you start bidding, it’s vital that you understand how the process works. Because once that final bid is accepted and the hammer falls, you’re locked into the deal. So you need to understand what you’re getting into and be prepared.
Do your research
Things can move quickly once you’re at an auction, so it’s important to understand what the rules are. Do some research into how auctions work and how to bid. Different states and territories have their own auction regulations. It’s important that you understand the specific auction rules in your area.
Attend as many auctions as you can to get a feel for the events in action and monitor auction results in the areas you’re looking at. Talk to real estate agents about upcoming and previous auctions and try to get as much information about the state of the market as possible. If you have any friends, family or colleagues who have recently bought or sold via auction, find out about their experiences and recommendations.
Get your finances in order
Before you raise your hand to bid, you want to make sure you have all your finances in order. That means having all your loan approvals sorted out and your deposit ready to go. If your bid is successful, you will be required to sign the offer contract and pay the deposit on the day. There are no exact rules about how much deposit you will be required to pay, but it’s usually 10% of the purchase price, so you will need that amount ready to pay on the day. The deposit amount and payment method should be laid out in the contact, which you should have gone through with your lawyer prior to the auction.
Do your due diligence
All appropriate due diligence must be carried out prior to auction day. That includes essentials like pre-purchase pest and building inspections, and more specialised due diligence like fire and flood risk assessments, soil and groundwater testing, surrounding zoning and planning permits, utilities connections and anything else you may want to check prior to purchase. Consumer Victoria provides a free due diligence checklist for home and property buyers.
The purchase contract will be available to look through prior to auction day. It’s vital that you get an independent property lawyer or conveyancer to go over the purchase contract with you. Real estate contracts are complex documents that can outline a range of factors including the settlement period and conditions, what’s included in the sale, deposit details, finance conditions and various other terms and conditions. If you have any issues with the contract, they must be discussed with the real estate agent or the vendor’s lawyer before auction day. Once the final bid has been accepted, it’s generally too late to negotiate or amend the contract.
On auction day
On auction day, there are a number of things you need to do. In most states you need to pre-register before you can bid at auction, although in Victoria that’s not the case. You can simply show up on the day and start bidding.
It’s also helpful to have a bidding strategy in place at a maximum price that you won’t go beyond. There are numerous different bidding strategies that can be useful for ensuring you don’t overpay, as well as taking out other bidders to help you secure the property. It’s also worth reading up on the body language of bidders and the tricks that auctioneers use to push up the price.
Once bidding starts, expect the unexpected. Prices can increase quickly and the bidding can get hot. It’s easy to lose your cool and overbid. Stay calm and level headed and don’t bid beyond your price range. It helps to bring someone else to the auction who doesn’t have a vested interest in the purchase, as they can help to keep you calm and remind you of your limits.
If your bid is successful
If the auctioneer drops the hammer on your bid, then congratulations. You’ve just bought a house! Well, almost. On conclusion of the auction, you will be expected to sign the contract to make a formal offer to purchase the property. At this point, the contract cannot be made subject to any further conditions and must be signed as is.
The deposit must also be paid at this point. The method and amount of payment will depend on the terms and conditions of the contract. The deposit must be held in a trust account until the settlement date.
Once you and the vendor have signed the contract and the deposit has been paid, the property has been sold and the sale is binding and enforceable.
If the idea of an auction is a little overwhelming for you, you may want to consider making a pre-auction offer. Depending on the state of the market or the vendor’s eagerness to sell, they may be willing to entertain genuine offers before the auction. However, in most cases, if a vendor has decided to go to auction it’s because they think they will be able to get a better price on auction day. In that case, you need to start doing your research and due diligence as soon as possible.