Buying at Auction

6 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.

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.

Step 1 - Finance

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.

Step 2 - Inspect the Property

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.

Step 3 - Get a Valuation

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.

Even though the agent will not disclose the reserve price, you can get an idea of what it will be by;

• Asking the agent what similar types of properties are selling for in the area;

• Researching the prices at which similar properties in the area sold for (i.e. on the internet, in newspapers, in magazines and in other price guides)

• Receiving a valuation from the lending institution, or

• Engaging a registered valuer to complete a formal valuation.

Step 4 - View the Agreement for Sale

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.

Step 5 - Bidding at the Auction

Before starting the auction, the auctioneer will read from something similar to the following terms and conditions (below is for NSW).
 

• The highest bidder is the purchaser, subject to any reserve price

• In the event of a disputed bid, the auctioneer is the sole arbitrator and the auctioneer's decision is final

• The auctioneer may refuse to accept any bid which, in the auctioneer's opinion, is not in the best interests of the vendor

• If the vendor reserves the right to bid at the auction in respect of a lot and instructs the auctioneer to make more than one bid on the vendor's behalf, the auctioneer must, before submitting the lot for sale by auction, announce in a clear and precise manner the number of bids reserved by the vendor in respect of that lot

• A bidder is taken to be a principal unless, before bidding, the bidder has given to the auctioneer a copy of a written authority to bid for or on behalf of another person.

• As soon as practicable after the fall of the hammer the purchaser is to sign the agreement for sale

• Should the reserve price not be reached (or the property is 'passed in') then the person making the highest bid generally has the first opportunity to purchase at the reserve price. If the highest bidder does not purchase at the reserve price, then the property will be placed back on the market for sale by private treaty, at which time you should negotiate directly with the agent.

• When a property is 'on the market' it means bidding has either reached the reserve, or the reserve has been lowered or waived. Often bidding interest can increase after this call.

Step 6 - Closing the Deal

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!