Buying a house at auction can be competitive, challenging, exhilarating, nerve-racking, and exciting all in the same moment… and it may also be the only way you can find a bargain, or your dream home.
Once the hammer falls though, the sale is final so make sure you have done your homework or it could cost you dearly!
Check the rules
A successful auction win is a cash offer to buy, and if you can’t complete the purchase it will put you in breach of contract. At a minimum this could mean that you would forfeit your deposit (typically 10% of purchase price) and potentially you may be liable for further costs to the seller.
Rules for participating in auctions may differ across the States and Territories. You should check with your solicitor, conveyancer or real estate agent to find out how this applies to you. In some States or Territories, you may need to register to bid at auction. Find out whether you need to take formal ID to bid.
Do your homework
Do in-depth research on the property’s market value and valuation expectations. Analyse the pros and cons of the property’s characteristics such as size, location, physical condition and proximity to amenities and compare to other similar properties that have recently sold. This important information can help you determine the price you’re willing to bid.
Inspect the property multiple times with the right specialists such as building and pest – before you go to auction. Accept property reports and legal fees as sunk costs that are part of the auction process. You’re better off spending a few hundred dollars checking a property than bidding hundreds of thousands without doing the pre-auction groundwork.
Get the contract of sale – and read the fine print. The contract of sale contains all the legal information about the property, such as the title, boundary measurements and recent building works. You’ll also find information about rates, local government building restrictions and easements (if any). A copy of the contract is usually available at open for inspections and you can request a copy from the real estate agent. Read it thoroughly before auction day. It’s also a good idea to get your conveyancer or lawyer to check it.
Make sure your finances are in place
Make sure that your loan pre-approval is good to go. Don’t forget that pre-approvals only last for a certain period, so if you’ve been looking around for a while, make sure it’s still current. If you are the winning bidder, you may need to pay a deposit straight away. Find out whether this is the case and make sure that you have the funds available.
Make sure that you consider additional costs such as:
- Loan application fees
- Building inspection fee
- Lenders mortgage insurance
- Government fees such as stamp duty (this differs in every state and territory so check the government websites)
- Solicitor or conveyancing fees.
For budgeting purposes, it’s a good idea to calculate your fortnightly or monthly loan repayments based on an amount two per cent above the current rate, to allow for possible rate rises.
Set your limits
By setting a realistic limit for yourself, you are making sure that you are bidding in a strategic manner and with more confidence. This may help to reduce doubt as you submit your bids and prevent you getting emotionally competitive or over-extending. Be prepared to go to a figure like A$793,000 rather than A$790,000. This is a relatively small difference in the context of the overall price, but it can be enough to dissuade other bidders and help you win at the auction.
On auction day, if you hit your limit, walk away to avoid temptation.
Get familiar with the auction process
It is worth attending auctions where you are not planning to bid on the property, so that you can watch and learn how they work. Observe the processes and any strategies the winning bidder employs that seem effective. If you find the whole thing overwhelming, you may want to consider taking on a buyer’s agent or asking a family member to bid on your behalf.
When it comes to your own auction some agents will require you to register as a bidder, or at least advise that you’re interested. A quick chat with the agent in the week preceding the auction, or on auction day, should be enough. Make sure you do not reveal your maximum bid to the selling agent prior to the auction!
Auction day tips
Try to ensure you have direct line of sight to other bidders and the auctioneer. Get ready to pounce back with your bids quickly after a competing bid. Look the auctioneer in the eye, then announce your bid clearly and confidently.
Try to stand by yourself and do not turn to your support crew for guidance. These actions may give other bidders the impression that you have a lot of cash in your pocket, and may discourage them from bidding against you.
Consider making your first bid close to the reserve price. It is acceptable to ask the auctioneer during the auction if the reserve price has been met if it has not been disclosed prior. This indicates that you are serious about buying the property and moves the auction into a more realistic phase.
Pre-auction tip: Ask the selling agent how many people have requested property reports. This will give you an idea of the number of serious bidders.
Auctions can be challenging, especially when there are emotions involved. Sensible, practical strategies can give you the best chance of being the last person standing – or at least stop you from overcommitting – on auction day.