Top tips - Buying at auction
13 Apr 2016
Purchase your dream home at auction with confidence!
Buying at auction doesn’t need to be a scary prospect. In fact, with the right planning and advice you might end up saving thousands of dollars!
Never have you needed to be more prepared than when bidding and buying at auction, because if the hammer falls on your winning bid then the property is yours. There is no cooling off period following an auction.
Before auction day it’s always best to ensure you have inspected the property thoroughly and arranged a professional to conduct a comprehensive building and pest inspection.
Now this goes without saying, but it is also really important you have a good understanding as to what the property you’re bidding on is worth. Price ranges offered by vendor’s agents can be helpful as a guide, but this is best done by researching recent sales in the area on comparable properties. Credit Union SA can help you with our ‘Free property reports’ service. Powered by CoreLogic RP Data, here you can enjoy unlimited access to comparative market analysis reports documenting such things as the sales history at a property, street or suburb level. Ask a Credit Union SA lender for a free property report today!
Speak with your lender to ensure you have your finances secured before heading to the auction. You will need to have obtained unconditional approval on your home loan application from your lender in order to purchase a property under auction conditions.
The contract of sale will be made available prior to the auction date and it’s a good idea to have your solicitor review it, as contracts of sale can still be negotiated before the auction.
Arrive early on the day to register your intention to bid. Be sure to have a predetermined “maximum bid” you’re willing to go to, as the bidding process can be exciting, and some people can get carried away. It is also a good idea to go to as many auctions as you can, so you can observe and familiarise yourself with the bidding process and auction regulations.
Sellers will usually have a reserve price, which is the minimum amount that they are willing to sell the property for. The auctioneer can tell you whether or not there is a reserve price, but not what the amount is. If the reserve price is met during the bidding the auctioneer will announce “the property is on the market” and every bid from that point onwards is potentially a winning bid.
If the property is “passed in” it means that the reserve price hasn’t been met and therefore the property won’t be sold ‘under the hammer’. However, the highest bidder is then often invited to negotiate with the vendor’s agent first.
When you are the highest bidder and the reserve price has been met, it is time to celebrate as you have just bought a house!
From here you will need to sign an unconditional contract of sale and provide the agreed deposit (usually 10 per cent of the purchase price under standard auction conditions). Settlement times usually occur within 14 days, but this can vary.
Be aware that if for some reason you are unable to complete the purchase, there can be significant consequences. These include paying the cost of relisting the property for auction and the shortfall between your bid and the next winning bid. This is why it is crucial to meet with your lender, have your finances secured, and stick to a predetermined maximum bid.
Now you own the house – it’s time to insure it. From the minute the hammer falls you are the equitable owner of the property. If the seller doesn’t have adequate insurance and say the house burns down – you may well be the recipient of a block of land – not the house you thought you were buying. Credit Union SA can organise home insurance1 for you with 90 days free cover to carry you through to the settlement. But no matter who you insure through – don’t forget to insure the property straight away.
Cooling off period
Did you know that a ‘Sale by Auction’ contract is not subject to the usual cooling off period?
If the property is passed in and you were a registered bidder at the auction who enters into a contract of sale within two days of the auction, your Contract of Sale will also not be subject to the standard cooling off period.
Although buying a house is a nerve-wracking experience, it can also be very rewarding.
Get the right advice before going to the auction and keep within your budget, and you can purchase your dream home with confidence!
This is general advice only and doesn’t take into account your objectives, financial situation or needs. Conditions, fees and lending criteria apply and are available on request.
1Credit Union SA Ltd ABN 36 087 651 232, AFSL/Australian Credit Licence Number 241066, arranges this insurance as agent for the insurer Allianz Australia Insurance Limited ABN 15 000 122 850 AFSL No 234708. We do not provide advice on this insurance based on any consideration of your objectives, financial position or needs. Policy terms, conditions, limits, exclusion and underwriting criteria apply. Before making a decision please consider the relevant Product Disclosure Statement: Prestige Home PDS or Classic Home PDS. If you purchase this insurance, we receive a commission that is between 0% and 22% of the premium. Ask us for more details before we provide you with services.
2The offer of free buildings cover may only be used in conjunction with the purchase of a residential home or residential investment property and the purchase of a twelve (12) month Home Insurance or Landlords Policy for that property which includes buildings cover. It is not available to land-only ownership or Strata Title properties. This insurance is subject to normal underwriting terms and is offered subject to your eligibility for home or landlord insurance with the insurer. You must consider whether you need insurance for your settlement period as this varies from state to state and may depend on the terms of your contract for sale of property. Please seek independent advice to ensure that you are adequately covered at the appropriate time. By purchasing a twelve (12) month home or landlord insurance policy (including buildings cover), your policy will include an additional free cover period for your building(s) of up to a maximum of 90 days before the start date of your twelve month policy. The free cover period effective date and expiry date will be shown in your policy schedule. The expiry date will be the settlement date nominated by you, which cannot exceed the ninetieth (90th) day from the start of the free cover period. The twelve (12) month period of insurance under your home or landlord insurance policy will commence immediately following the expiry of the free cover period. Once the policy is purchased, the expiry date of your free buildings cover and the commencement date of your twelve (12) month insurance policy cannot be changed unless agreed to by the insurer in writing. The terms, conditions, limits and exclusions in your home or landlord insurance policy (which are set out in the Product Disclosure Statement and policy schedule) will apply to the free cover period. These include, but are not limited to, ’Buildings not lived in for more than 60 days’, ‘taking precautions’ and ‘security devices and burglar alarms.’ The optional additional cover ‘Rent Default and Theft by Tenant’ if selected in the landlord insurance policy, does not apply during the free cover period.