Buying property at an auction can be an exciting and rewarding experience. But, beware, that special rules apply when buying at an auction.
Here are some basic things to be aware of before buying at an auction:
Know the market and decide a final and firm bid price before the auction. Do not get caught up in a bidding war and bid at a price beyond your means. Once you bid is accepted, there is no turning back.
- Review the Contract
Have the contract reviewed by your lawyer before attending the auction.
If you intend to develop on the property, make sure you tell your lawyer and make enquiries with the Local Council about their rules and limitations.
- Pest Report, Building Report and Strata Report
A common term in the property market is “caveat emptor” (‘buyer beware’). Essentially, the term means that a purchaser buys the property as it is; and cannot raise defects after the purchase.
Also, spending a few hundred dollars to obtain a pest and/or building report; and in the case of a strata property, a strata report, should provide you with information about major and minor problems with the property.
Always, always, always have approval for finance before bidding.
If you are a foreign resident, ensure that any necessary approvals have been obtained.
- Stamp Duty
Find out how much Stamp Duty liability you will have to pay on your highest bid price.
Unless you are eligible for a grant or concession, Stamp Duty is an unfortunate additional cost to your purchase which you have to factor in.
Have the deposit ready in the form required by the auctioneer. The deposit will be 10% of your bid unless a lower percentage has been agreed to prior to auction. If this has been agreed, ensure you take the paperwork confirming this to the auction.
- Register with ID
Normally there is a final inspection before the auction – so arrive early, take a final look and register the name of all purchasers.
All purchasers must be present at the auction to sign the contract unless you have a written authority and you have confirmed with the auctioneer, prior to the auction, that this is acceptable.
ID will be required. Ensure that the name on your ID, contract and mortgage documents all match otherwise there will be complications with the sale going through.
- Be 100% sure as there is no cooling off period
If you are successful at an auction you do not have a cooling off period* to change your mind.
If you do have a change of heart and rescind (pull out of) the contract, the vendor (seller) will keep your deposit and can sue you to perform the contract or pay damages.
Much like television shows, the auctioneer will call the sale several times before bringing the hammer and saying ‘SOLD’. If you are the highest bidder, there is no turning back.
- Passed in?
The vendor will advise the auctioneer of a reserve which is the lowest price he/she is willing to sell the property for. If this price is not reached, the property will be ‘passed in’ meaning it has not been sold at the auction.
- Buying on the day of auction
If the property is ‘passed in’ at auction the highest bidder will then get the first chance to negotiate a deal with the vendor.
Importantly, if the property is ‘passed in’ and you make an offer on the same day as the auction, you will be bound by auction conditions ie you will not be entitled to a cooling off period.
However, if you wait at least a day and then make an offer with a cooling off period, you will then forfeit only 0.25% if the purchase does not go through.
*A cooling off period arises once contracts are exchanged (signed and dated by both parties and swapped ie the buyer receives the sellers signed contract and vice versa). It is usually a period of 5 business days within which a purchaser can rescind the contract. If rescission occurs within this period, the purchaser will forfeit to the vendor 0.25% of the price.
By Namrata Singh