What to do when buying at Auction

Going once, going twice, we’re all done?…. no further bids…. Sold!

Anyone who has been looking to buy a property will know that there is an under supply of property- meaning lots of buyers willing to bid against each other at an auction. The result of this means more and more vendor’s are listing their properties for sale by way of auction to maximise the sale price.

If you are attending an auction then there are a few points to understand before you start waving your bidding paddle around. Here are a few pointers:

1. No cooling off period

In New South Wales there is no cooling off period if you buy a property at auction, or on the same day as the property goes to auction. This means that once the hammer falls your cannot back out. Because of this bidders need to be prepared in case they are successful. Points 2-5 below address some of the tasks to sign off on. If the property is passed in but negotiations continue well into the evening then remember – there is no cooling off period, even if the auctioneer has long departed from the building.

2. Get your finance in order

The biggest risk of buying a property is not being able to pay for it. Make this mistake and the deposit, usually 10% of the purchase price forfeited to the vendor. This can occur in as little as 8 weeks after the date of the auction. For those who have not purchased property before, or are borrowing a high percentage of the property’s value, then obtaining unconditional loan approval can be more difficult that you may suspect. Difficulty can arise when a bank has issued ‘pre-approval’ to a buyer prior to the auction with conditions which require the property to be valued, guarantees to be in place, or the provision of certain financial documents (such as tax returns) which are not available. In those circumstances a pre-approval may not eventuate to a full loan approval at all, or not within the time required by the contract- usually 6 weeks. To avoid complications with finance speak with your personal bank manager to ensure either an unconditional approval is issued prior to the auction (up to a certain value), or the terms of the ‘pre-approval’ are capable of being met shortly after auction.

3. Have your lawyer read over the contract

The contract must be with the real estate agent at the time of listing the property for sale. The contract will include terms and conditions specific to the transaction, and documents which will disclose information about the property. It is no good bidding on a property only to find out that the property will be tenanted for the next 12 months, there is a term of the contract which means the owner will be removing the brand new kitchen appliances you thought were staying, or that the property is affected by an easement preventing the construction of the swimming pool. Prime Lawyers will advise you on the contract and negotiate any changes before the auction – the contract cannot be changed after auction.

4. Buyer Beware

If you are the highest bidder then you purchase the property with all defects. If you wish to become the owner of a house full of termites you will need to obtain the pest and building report prior to auction. It is an unfortunate expense but a needed one. Often the vendor will have obtained an independent pest and building report for prospective bidders, so check with the agent if there is a current report. The same goes with any issues as to the boundaries of the property, or the legality of the structures within. Speak with us and we can take you through these risks.

5. Get in early

If you can avoid buying at auction then do so. This can be achieved by negotiating with the vendor prior to the auction date or contacting local real estate agents in your area to obtain the inside knowledge as to which properties are in the stages of being listed for sale. The closer the auction date the less likely the vendor will sell without proceeding to auction.

If you are thinking of bidding at auction get in touch with one of our property lawyers to have the contract reviewed by contacting your nearest office. You can also obtain a no obligation quote by visiting our conveyancing website by clicking here.

We have property and conveyancing lawyers located at Sydney, Parramatta, Sutherland and Wollongong.