The Steps to Buying at Auction
The auction system is an increasingly popular method of selling property. Buyers bid against each other, and the one who offers the highest price becomes the owner, assuming the reserve price has been reached.
The advantages of buying at auction are that you obtain a definite result. Contracts are exchanged at the auction and they are binding and unconditional.
It is important to note that there is no cooling-off period if you buy at auction. If the property is passed in at auction but you end up exchanging contracts on that day anyway, the cooling-off period doesn’t apply.
Buying at auction can be a nerve-racking experience so it’s a good idea to familiarise yourself with the process by attending an auction or two as a spectator.
Your first step in purchasing your property is to contact your lending institution for finance approval. You should have written loan approval before the day of the auction.
Inspections of the property are usually conducted in the company of the agent who should know the features of the property and should be able to answer questions about the facilities in the local area. Viewing times are normally specified, giving everyone equal opportunity to inspect the property before the auction. However, getting an appointment for inspections at other times can generally be arranged.
You should know exactly what you are buying, so it is advisable to have the property inspected by a licensed building inspector or architect and a pest inspector before the auction.
Properties are normally subject to a reserve price (unless otherwise advertised). A reserve price is the minimum price that the person selling the property will accept.
The auctioneer will not sell under the reserve price, and if at auction the reserve price is equalled or exceeded, the property is sold to the highest bidder on the fall of the hammer. The highest bidder then pays the deposit on the spot, usually 10% of the purchase price.
Even though the agent will not disclose the reserve price, you can get an idea of what it will be by;
The Agreement for Sale is prepared by the seller’s solicitors. If you are seriously interested, you should have your solicitor inspect the Agreement for Sale which will be held by the auctioneer. Your solicitor may suggest additions or variations to the agreement. These can be negotiated between the solicitors and if agreed, the contracts will be amended accordingly.
At the auction, before the bidding starts, go up to the agent and check that your copy is an exact copy of the auction contract by checking for any late changes.
Ensure you have a clear understanding of exactly what is to be included in the sale. All fittings, furniture and other items to be included should be clearly listed in the Contract.
Buyers are covered by the relevant federal and state trade practices acts. This means that if the seller advertises the property as having features it turns out not to have, you may be able to claim some damages. If the misrepresentation is very serious (i.e. survey shows that house is built over the boundary), you may be able to cancel the contract. Watch out! – It is still a “buyer beware” scenario, make sure you do your homework.
Before starting the auction, the auctioneer will read from something similar to the following terms and conditions (below is for NSW).
If you win the auction, you will be required to immediately exchange contracts (i.e. sign the Agreement for Sale) and provide a deposit, usually 10% of the purchase. The deposit will usually be held in a trust account until settlement, when it is paid to the seller. You are now bound to proceed with your purchase. You will generally be expected to have the funds available immediately (many people bring their cheque books).
Upon exchange of contracts, your solicitor will conduct a number of searches and enquiries to verify that all is in order with the legal title of the property. At the same time, you should finalise your finance with your bank or building society. This process normally takes four to six weeks.
When all arrangements have been attended to, the solicitors for both parties will arrange settlement.
At settlement, you pay the balance of the purchase price, certain adjustments will be made, any outstanding mortgage will be attended to and you will then become the legal owner of the property. Congratulations!