Bidding at an auction can be a daunting time for both the buyer and the seller. At any point in time, either the buyer or the seller could be in a situation where they need to make a speedy decision, potentially costing them thousands.
Buyers in particular have little room for error. If you make the winning bid, you are required to exchange an unconditional contract and pay the deposit on the day the Contract is signed. Plus, there’s no cooling-off period.
The best way to get what you want, at a price you can afford, is to be prepared: before and during the auction.
Did you know that once you’ve made the winning bid and signed the contract, you have now entered into an unconditional contract, and are required to pay a deposit of up to 10% of the purchase price on the day?
This means that not only do you have to potentially pay up to 10% of the purchase price on the day, but it also means that you are required to settle the contract on the nominated settlement date even if;
- Your finances do not get approved;
- The bank’s valuation does not reflect the contract price;
- The building and pest inspection comes back with unsatisfactory results; or
- You change your mind.
So how can you avoid entering into an unconditional contract without being prepared?
- Get Finance approval, and not just an online or over-the-phone approval, but a full credit assessed pre-approval with a real person. Know exactly what your borrowing limits are;
- Attend other auctions, even though you won’t be bidding, to get a feel of what happens during this process. Watch how other people bid, watch their body language, how they state their bid amounts; and
- Also watch the real estate agent. Listen to the words they use when accepting bids. Try and identify certain techniques that they may use to get people to continue to bid higher.
Secondly, do your due diligence on the property;
- Speak to the real estate agents about comparable sales in the area, so that you can establish what the property is really worth;
- Order a building and pest inspection before the auction day. That way you know exactly what you are buying into;
- Go a step further, do your research by inspecting similar properties and seeing what they sell for (not just the asking price);
- Get a feel for the market, it’s important to clearly establish what that property is really worth to you (take emotion out of it), this way you can identify a ‘walk-away’ price – that is the highest price you’re prepared to pay; and
- Show your solicitor the contract and organise any amendments to the contracts they suggest.
By being prepared and doing the necessary due diligence, you can make an informed decision on the day of exactly what that property is worth to you.
Remember, set a limit, and don’t go beyond that. It is easy to get into a bidding war, and going over budget, but it is much harder to break an unconditional contract for a property you can no longer afford.