26 Oct How to Buy a House at Auction – 7 Key Tips You Need to Know
If the property you want to buy is being sold at auction and you’re planning on bidding for it, it’s important to be prepared.
Auctions can be a fast-paced, exciting experience, but they can also be confusing or even overwhelming if you don’t know what you’re doing. They’re also very final. When the hammer falls on a successful final bid (subject to the reserve price), the property is sold. That’s that. So it’s important to get things right.
If you’re considering buying a property at auction, there are several steps you can take to maximise your chances of success and minimise the risk of making a mistake or committing to buy when you really shouldn’t have.
When a property is sold at auction, the seller sets a reserve price – the lowest price they’re willing to accept. The seller and real estate agent also set an auction date and time. The auction may be held onsite at the property in question (often in the back or front yard) or at another specified venue.
On auction day, people who want to bid must register. They will be given a paddle, which will often be numbered. To place a bid, you raise your paddle. Simple as that. (Anyone bidding must bring ID such as a driver’s licence or passport. If the house is to be purchased under two names, both individuals must bring their ID.)
If the bidding meets or exceeds the reserve price, the property will be sold to the highest bidder with no conditions on the sale. This means the purchase isn’t subject to finance or the results of a building and pest inspection or the sale of the buyer’s home. Instead, the highest bidder is legally obligated to buy.
It’s this finality that is one of the key reasons it pays to prepare before buying a house at auction. After all, you don’t want to end up with a property you can’t afford or a house that’s infested with termites!
So below are 7 top tips to help you get things right and avoid any expensive mistakes.
1 – Get pre-approval
If you need to borrow money to finance the purchase of your new property, be sure to get pre-approval from your bank or mortgage broker first. This will help ensure you can fulfil your legal obligation to buy if you win the auction. The figures you receive will also help you know your limits – how much you can borrow and how much you can spend.
2 – Set a “reserve price”
Just as the seller will be setting a reserve price they won’t go under when selling, you should set a reserve price you won’t go over when bidding to buy. Bidding at auction can become exciting and emotional, so it’s important to plan ahead and commit to stop if the bidding exceeds your price range. Don’t get caught up in the emotion of bidding and competing.
3 – Hire a private valuer
If you need a loan to buy, it’s worth hiring a private valuer before auction day. I suggest using one the major banks use, such as CBRE Valuers, Herron Todd White, WBP Property or Opteon Property. It will cost you, but it’s the best way to ensure you won’t be spending more than the lenders are willing to finance. You don’t want to buy at auction for $1 million then have the bank value the property at $950,000, forcing you to find an extra $50,000 cash, fast.
4 – Insist on a building & pest
Buying at auction puts all the risk on you, so be sure you know what you’re committing to. Read the seller’s building and pest inspection closely. If you’re not satisfied with the seller’s report or if there isn’t one, get a thorough inspection done yourself. It’s better to pay now for peace of mind than to discover (too late) that you’ve bought a termite-ridden home.
5 – Make a pre-auction offer
Not every house listed for auction ends up selling at the auction. In fact, many sell beforehand. So always ask the real estate agent if you can make an offer on the property before the auction. If the seller accepts, you’ll have saved yourself the stress of an auction and secured the home you wanted at a price you can pay. Win-win.
6 – Ensure post-auction valuer access
If you’re using finance to buy the house, ask the real estate agent prior to the auction if a valuer will be able to access the property post-auction day. If your bank’s valuer can’t value the property after the auction, they won’t lend you the money you need and you won’t be able to buy. If you’re borrowing money and post-auction access is an issue, don’t bid.
7 – Register to bid
In order to buy at an auction, it’s a legal requirement that you register to bid. You can register as an individual or couple, but if you register as a couple, you must both be present on auction day. You can also register via phone with the agent prior to auction day or sign an authority giving someone else the power to bid on your behalf. In each of these scenarios, you must use your full legal name and provide relevant ID as required.
What if the property doesn’t sell?
If the bidding at auction doesn’t reach the seller’s reserve price, the property will be “passed in”. This means it’s back to the normal sales process of making offers behind closed doors. However, you’ll now have a better idea of the price the owner is looking for and you may be able to make an offer with conditions (such as subject to finance or the sale of your home) – something you couldn’t do at the auction.
Why buy at auction?
There are two main benefits to buying a property at auction.
The first is transparency. When making an offer on a regular sale, you have no idea what the other offers look like. But at auction, everyone’s in the open. You can see them raising their paddles to bid. This lets you see where the offers are and what the going price appears to be so you make an informed and realistic decision about pricing and bidding.
The other advantage to buying at auction is that you cut out a lot of competition for the property. That’s because there aren’t many people who can buy a property without being subject to finance or the sale of their existing home.
Ready to buy?
Buying at auction is one way to secure the house of your dreams – but it isn’t the only way. If you’d like to learn about other ways to buy, read these articles listed below:
- How to buying an “off market” property
- How to buying subject to the sale of your home
Got questions? We’ve got answers.
If you have any questions about buying at auction, The Henry Wong Team can help. Simply give Henry a call today on 0412 471 588 or email email@example.com