Property auctions can quickly descend into fast-paced shootouts fuelled by adrenalin and ego as buyers fight for the front door keys. While it might seem daunting, our tips for buying a house at auction could help you be prepared to improve your chances of success.
1. Check out house auctions
Trying to bid on a property at your first auction can be overwhelming, so visit a few as a spectator to get a feel for the atmosphere. You will see how the auctioneers operate and can observe the bidding strategies of the buyers. Getting some experience of the real thing will help you understand what’s going on and what to do when you decide to bid.
2. Research the property value
Properties being sold at auctions only state an expected selling range, not a fixed sale price as usually happens in a private sale. This could make it difficult to know if you are paying too much on auction day.
So do some investigating. Check the recent sold prices for similar properties in the area where you are looking. Request your broker to assist with free Property Profile report, which includes property price information, comparable sales results and sales and rental history, when you’re doing your research.
3. Organise your finances
You need to know how much you can afford to bid. An effective way to do this is to seek pre-approval from your lender. Remember an auction contract is not subject to finance. If you buy, you need to be certain you can get the money to pay. Having a pre-approval may not necessarily eliminate the risk of property purchase at an auction. Generally, Pre-approval confirms that your borrowing capacity. At the time of pre-approval, lender may not know the details of the property. Property that you purchase at an auction may not be acceptable to a lender for various reasons. Essentially, there is an eliminate of risk purchasing a property at an auction that you need to be comfortable with.
4. Set your limit
As we’ve explained, if you win the auction, you’re committing to buy the property. If you can’t produce the balance of the purchase price at settlement, you could lose your deposit. However, emotions can run high at an auction. That’s why it’s important to work out how much you can borrow and what you can afford beforehand , so you don’t get carried away and go over your borrowing limits or what you can afford to repay on an ongoing basis. Note that borrowing capacity calculators does not take in to account every individual’s personal circumstances such as income, expenses and liabilities. One of the biggest mistakes we have seen is that individual may have credit cards that they may have not used however not cancelled. These credit card liability can easily reduce the borrowing capacity.
5. Conduct your inspections
If you’re serious about bidding, arrange building and pest inspections before auction day. The reports can estimate how much you might need to spend on repairs and that gives you a clearer idea of how much you can bid. If the inspections uncover serious problems, you may choose not to bid at all.
6. Check the contracts
Send copies of the contracts to your solicitor or conveyancer before the auction. Identifying any legal issues upfront could save you money and future headaches.
7. Register your interest
Depending on which state or territory you’re bidding in, you may need to register your intention to bid with the agent. Check with the agent beforehand to confirm any requirements.
8. Make a prior offer
You can generally make an offer before the auction. If your offer is above the reserve price the seller may choose to accept it. More often the seller may just let the market decide the price by going to auction.
9. Bid with your head
Auctions pit potential buyers against each other so competition can be fierce, and prices can shoot up quickly. Set your price range based on what you can afford and what you believe the property is worth. Stay calm during the auction and bid within your range. If you think your emotions might get the better of you, bring someone with you to the auction for support.
10. Ask someone to bid for you
If you don’t want the pressure of bidding, you can nominate someone else.
You could pay a buyer’s advocate. As experienced professionals, their job is to stick to your limit and not be intimidated by other bidders’ tactics.
Or you could ask a family member or friend to help. Make sure it is someone you can trust to bid within your budget. Even if they make the winning bid, you are the one buying the property.
Extra tips for online auctions
There are some differences between online auctions and on-site auctions. On-site auctions can be over in a matter of minutes, while the duration of an online auction can be set at anywhere between one day and some weeks. You can bid any time you like when the auction is open, from the comfort of your home.
There are a few different online auction platforms and each platform has its own rules. With some platforms, you will need to provide proof of your deposit or register a deposit. You might also be able to sign the contract digitally. It is important to ask questions and find out the rules based on the platform and what the identification requirements are.
Register early and have a play around to familiarise yourself with how the platform works before the auction. You may even be able to register as a participant so you can watch a live auction before bidding. When you have registered, check how you join the auction (for example, if a link will be emailed to you). Before the auction starts, make sure you have a stable internet connection.
To sum up
- Be well prepared. Do your research.
- Organise your finances and building inspections before the auction.
- Stick to your budget.
- You can nominate someone to bid for you.
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We can be a one-stop-shop for your financing needs. Contact us to find out more about how we can help you with commercial and asset finance.
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The information on this website is general information only and is not intended to be a recommendation. We strongly recommend you seek advice from your financial adviser as to whether this information is appropriate to your needs, financial situation and investment objectives. Article courtesy of ANZ Bank.