Buying Tips #8: Auctions
Should I buy a house at an auction? While we don’t hear that question top often, the answer is a resounding yes! Auctions are a terrific way to purchase, but they are not without a few ifs, buts and maybes that it pays to be aware of. Let’s flesh some of those out now.
First of all, in a culture where so many homes are sold by private sale, why is the property going to auction in the first place? It could be a number of reasons, but it’s most likely because there’s something unique about that home and the owner/agent know there will be two or more buyers. If they embrace this competitive process, they can relax while the buyers scramble amongst themselves on the day of the auction to outbid each other. So with an auction, be aware that you’re not the only buyer interested – there’s going to be some competition.
The other important thing you need to be mindful of is setting a limit and sticking to it. If you don’t, you’ll regret it. We suggest taking a friend or family member with you – someone who doesn’t have quite the same emotional connection to the process as you do. Let them be not only your moral support, but your accountability partner (once you’ve told them the figure you don’t want to go over).
Our third tip may not be obvious to everyone attending an auction. There’s a reason why an auction campaign often starts one weekend and finishes 4 weeks later. It’s to give buyers time to get finance worked out, a deposit sorted, and a building inspection completed. Sellers want you to get your various ducks lined up so that you can be a competitive bidder on the day of the auction because, when the hammer falls and the auctioneer’s looking at you and your winning bid, you’ve just bought the home.
You cannot then go and talk to your bank or enquire about an inspection. It’s over – that home is yours and it’s an unconditional contract of sale.
If yours is the winning bid, you will need to provide a 10% deposit on the day and will also be settling in 60 days’ time. If you’d prefer, or can only organise, a 5% deposit (or another figure) and/or you want to settle at a different time than 60 days, you need to prepare prior to the auction. Ensure that you’ve informed your estate agent, as they will need to speak to the auctioneer. Otherwise, the default setting of 10% and 60 days kicks in, so just be mindful of that.
The final tip I want to pass on before I close this video is that if the bidding runs out without reaching the vendor’s reserve price, it is advantageous to be the highest losing bidder. If this is you, you’re likely to get the agents approaching you for first crack at the reserve price, first right of refusal, or the first chance to accept their offer. Whatever the case may be, it pays to be the first one in line.
It’s not a bad thing to come second in an auction, with the vendor bid winning and yours runner up. The agencies are almost sure to come over to talk to you about putting a deal together.
In conclusion, we think auctions are fantastic: very clear, transparent, above-board and we have no qualms whatsoever about buying at auction. So there’s nothing left to do but wish you luck!
