Visiting a property auction is one quick way to bring home a property bargain without a potentially lengthy conveyancing purchase. It does however, involve a lot of due diligence and is not for the faint hearted.
Many property investors avoid the auction altogether as it is not their preferred method of buying property.
Your purchase is binding as soon as the auctioneer’s gavel (hammer) slams on your bid, with all the benefits and drawbacks, that come along with it.
Here are some top tips to help you perform well at auction:
Before the auction:
Research – Research the area you want to buy in before the auction and speak to local property agents in as much detail as possible. Ensure you regularly look online at comparables and what you can expect to purchase your desired property for at auction.
Arrange viewings – You can arrange to view the property you have your eye on before auction and this is highly recommended. You should treat an auction property like any other property investment. You can contact the auction house to arrange the viewing. Visit with a builder who can advise on the state of the property and costs for potential work that is required.
Review all property particulars from the auction pack – These are often available online for up to four weeks beforehand. Review all details about the specific property you are looking to buy and ask the auction team any questions at all that you might have. There will be a full legal pack available for each property as well which you may need to request. You can then share this with your solicitor who will be able to advise you on anything that stands out or to be aware of. This might include any hidden covenants or loopholes that should be brought to your attention. This means you can be as prepared as possible before the property auction.
Budget – It is vital to set your budget after gathering all your information. Decide what the maximum price would be that you are willing to pay for the property and if you are not a cash buyer, you will need finance in place before attending. Each property might require a different method of payment so make sure that you are able to purchase it the correct way that the property vendor has outlined.
Don’t do your sums based on the guide price - The auction guide price, as the name suggests, is just a guide. In fact, it’s often set low in the catalogue to entice bidders and the property could sell for 10% more than that. As the guide price on a property can be raised before the auction even starts, usually when it’s generated a lot of interest, make sure you monitor it closely in the lead-up to the day.
Remember you can place a condition offer online - A conditional auction is where buyers bid for an exclusive option to buy a property and win a specific period, typically 28 days, to exchange contracts, with a further 28 days to complete. The winning bidder in this online auction pays a non-refundable reservation deposit to the auctioneer who holds this until contracts are exchanged. This ensures the buyer is unable to walk away from the purchase without incurring financial loss, but also means he or she cannot be gazumped.
During the auction:
Be on time – There are often changes made to the agenda which will be announced in an ‘Addendum’ and this will be announced beforehand. It is advisable to get to the auction early to ensure you are aware of all of this updated information.
Be clear on your bid – Make sure your bid is clear and that there is zero confusion. Be aware that each auction property is initially offered at a guide price and is also subject to a reserve price. The guide price is the starting price at which bidding will commence, whereas the reserve price is the minimum figure the seller will accept. The reserve price is not disclosed to bidders but can be up to 10% higher than the guide price so bear that in mind when bidding.
Stick to your plan and don’t lose faith – Stick to your decision with regards to the maximum you are willing to pay for your property. If you pull out after your bid has been accepted, you lose the 10% non-refundable despot and will incur extra fees that will sting your budget. You might not secure the property you wanted but remember that it is good experience and you can come back again more confident next time. Once the hammer falls, you are required to pay a deposit of 10% of the purchase price. The sale then has to complete within 28 days, which means you are expected to pay the remaining 90% balance within that time-frame. This is a legally binding contract – without provision of a ‘get-out clause’ – so consider it a non refundable deposit meaning you must make arrangements with your mortgage lender and have a written offer before bidding on a property
Understand Terms and Conditions - If successful, you are bound by the T&Cs of the sale when the gavel falls. If your bid is successful, you will be required to sign the contract and pay the deposit there and then. At the fall of the auctioneer's gavel, you will be bound by the terms and conditions of the sale and liable for the insurance of the property from that moment. Pulling out of the sale after this could result in huge after costs.