A Finance Guide to Buying Property at Auction
More and more, as land becomes more scarce or in a market where interest rates are low enticing greater buying power from different markets, auctions are becoming increasingly more popular. If you have to go to an auction to buy your dream property, or a sound investment, we opt always for the following 3 rules: set a strategy, stick to it and don't buy on emotion or hype!
To potentially avoid Auction altogether, and try and seal the deal before auction by placing in an offer, but if your attempts fail, your best bet is to approach the day itself as strategically as possible.
The second suggestion is, if financially possible, hiring the help of an experienced Buyers Agent, known for purchasing in the area or known for the type and level or property you are after can take the stress away from buying AND the emotion.
While an auction is a nerve-racking, exciting and fast-paced experience, it’s important to balance that with the fact it is one of the most significant purchases of your life and COME PREPARED with the following:
Make sure you have spoken to your Mortgage Advisor, and had your finance, credit assessed and pre-approved too. There is a difference between a standard pre-approval and a credit-assessed pre approval - Our Mortgage Advisors only issue you a credit assessed pre-approval as to place you in a stronger, fully lending assessed pre-approval subject ONLY to a contract of sale. Talk to us today about the difference.
When you buy at Auction you buy a property with no terms and conditions, waiving your right to a finance and building and pest clause.
Get experience of auctions in the neighbourhood or similar types of properties you are looking at purchasing, and get a feel for what happens and know what to expect, the format, the auctioneers etc.
Arm yourself with information before bidding at auction. Make sure you conduct you’re due diligence on the property ahead of schedule, ask questions, get copies of the rates, body corporate, tenancy agreements (if applicable) and get a building and pest inspection before auction day – so you don’t have any nasty surprises (such as structural issues).
Working with us to arrange an independent valuation will help you decide what you’re willing/able to pay on auction day. This prep work could not only save you regrets, but a significant sum of money in the long run, too.
“Get a feel for the prices of comparable properties in your area, over the last six months and it’s also important to understand how long it's been on the market for, how many times has it been listed in the past few years etc.” Is the advice from Ewan Ramsey, our Director. These all play a huge role in the price you set, alongside what you can afford when you speak to your Mortgage Advisor.
Speak to the real estate agent in the lead-up to auction day and ask as many questions as you can. They should be able to provide you with a condition report and a copy of the contract. Ask your solicitor to review this paperwork prior to auction day and tell you if any terms of sale strike them as red flags.
Make sure the required deposit is on hand – if you are the highest bidder you must put down the deposit immediately after the auction. More often than not, this will typically be 5 -10% of the purchase price, sometimes more.
Don’t forget to bring along some picture identification to register to bid, such as your driver’s licence. If you registered in advance at your first inspection, you’ll still need to bring your ID on auction day.
Keep a cool head on the day. Stay calm. Stick to your plan and your budget, and don’t let excitement, nervousness, fear of loss get the better of you. There’s no backing out after the hammer goes down and you are the highest bidder.
Here are some tips for the big day:
- Arrive several minutes beforehand to walk through the property again and just so you have just enough time to settle in to a spot you can see the pace of the auction and all the bidders, but not too far back so you aren't seen or heard!
- Don’t feel the need to place an early bid - watch the floor to see who starts and then join when you feel ready.
- Auctioneer’s job is to encourage the highest price possible. Don’t let them, or other buyers, push you out of your comfort zone.
- Set your price limit at an odd value. A figure like $889,900 will slow the even auction pace down and force others to think about theirs.
- Be seen and heard – position yourself somewhere prominent and say the full amount in a clear, loud voice when making a bid. Reinforcing the amount in this way will help to establish your confidence and show you have the goods to win, hopefully discouraging other buyers.
- Although the sellers settlement terms are read out at the beginning of an auction; negotiate a shorter or longer period if they are flexible, that works for you. Your Mortgage Advisor will then be able to help you through the process of securing a home loan for your new property!
If you’re heading to auction, remember to have your finance approved, get some practice at attending and before heading to auction, get your finance pre-approved by contacting one of our Ramsey Property Wealth Mortgage Advisors today on 1300 001 215.