Two methods for buying property are common in Australia: private sale (also known as private treaty) and auction.
As its name suggests, the former involves liaising directly with the seller or their agent to make an offer on an advertised property – as it’s done behind closed doors, you may not be aware of other bids.
At auction, however, everyone’s bids are out in the open, with potential buyers gathered publicly and an auctioneer managing the offers. When the hammer falls and you’re the highest bidder above the seller’s reserve price (which isn’t usually advertised), it’s time to sign the contract to officially become a homeowner.
Why should I buy at auction?
There’s no clear answer to the question of whether it’s more cost-effective to buy property at auction or through private sale. Auction rules can vary between Australian states and territories, but here are some typical pros and cons to purchasing your property this way:
The pros of buying at auction
- The deal is done quickly, often in a matter of minutes. Vendors that go to auction want to sell on the day, and at the fall of the hammer as long as the bid you have placed is above the reserve, the property is yours.
- You know your competitors, because they’re standing around you.
- Everyone is treated equally, with offers open for all to see.
- Bargains may be found, if demand is low or the vendor is in a hurry to sell.
- The process is highly regulated, with ‘dummy bidding’ now prohibited.
The cons of buying at auction
- Unless the auction includes a cooling-off period (usually five days, but it varies by state), when that hammer falls and you’re the highest bidder, you are not given any time to get out of the contract if you wish to (without penalty).
- Expect to pay the deposit on the day if your bid is successful and the balance is required on settlement which is usually within 5 to 6 weeks of the auction. You will need to be prepared to pay the balance at settlement otherwise there could be financial consequences for you. It is best that you have your home loan conditionally approved before you go to auction.
- You risk getting caught up in the emotion of the auction experience and may overspend.
- To do your due diligence, you’ll need to pay for a professional building and pest inspection and a review of the contract before the auction – spending money even if your bid is unsuccessful. However, even if you are purchasing a property via private sale, you will still need to do your due diligence.
Understand your finances before the auction
The immediacy of becoming a homeowner at auction means your finances need to be in order before you bid. Talk to your lender to check financial basics such as:
- How much you’re pre-authorised to borrow.
- Whether your home loan is unconditionally approved (not just pre-approved).
- Whether you’re prepared to hand over the funds for the deposit (usually 10% of the sale price) on the day, unless you have negotiated a different deposit amount before the auction.
Other steps to take before auction day
Being ready to buy a property at auction is not as simple as turning up at the advertised time. Here are four steps to take pre-auction:
1. Do your market research
Before you sign a contract, familiarise yourself with the current market – inspect as many properties as you can in your preferred area so you’re aware of the sale prices. Even if you don’t find anything appealing, you’ll develop valuable market knowledge for the day your dream home comes along.
Attend auctions so that when it counts, you’re already comfortable with the auction process, including the pace of proceedings, and you’re familiar with how to register and how to liaise with real estate agents and auctioneers.
2. Inspect the property in person
Agents and their photographers can do wonderful things with online images, so it’s always a good idea to get a feel for your future home in real life. This will also give you the chance to check out the neighbourhood: the street, access, nearby conveniences. Consider visiting at different times of day. The seller’s agent, also known as the selling agent, will give you property specifications, but you should also request the suburb’s comparable sales data, so you have a clear picture of what other buyers have recently paid. Your lender or financial institution can also provide property value reports.
3. Have professionals inspect the property
If you’re really serious about making a bid, you’ll also want to enlist specialists to complete pre-purchase and building and pest inspections before auction day. While vendors are legally obliged to disclose property defects, regulations vary between states and territories, so for peace of mind, it’s a good idea to have your own independent contractor provide a report detailing any building or structural faults, or pest infestations.
4. Check the contract
Thinking about bidding at auction? Ask the vendor’s agent for a copy of the contract you’ll need to sign on auction day, and review it with your solicitor/conveyancer so you understand and are comfortable with the terms of sale. Once you’re happy, register your interest with the vendor’s agent to receive a bidder’s number, which enables you to participate on auction day.
Know the auction-day rules
It’s easy to get caught up in the excitement on the day of the auction, but it’s equally important to have a commitment to your maximum bid. These auction-bidding tactics might help:
- Arrive early at the auction to secure a strategic vantage point – you want to be able to see the auctioneer, and vice versa.
- Be aware of common auctioneer ‘traps’, like calling urgency to your bid: “Going once, going twice...” which is to encourage an extra bid. If you think you’ll succumb, consider getting a buyer’s agent or someone less emotionally invested to bid on your behalf. Make sure they’re experienced at auction bidding and that you’ve given them your spending limit.
- Be aware of your body language. Auctioneers have done this thousands of times and can sense your urgency to buy – that sideways glance you give your partner, the phone call you make mid-auction. Go into the day with conviction and confidence, and be prepared to walk away and resume the search if you need to.
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