Are you looking to buy your dream home in a suburb that may require you to bid at auction?
If so, this purchase method can test the nerves of even the most experienced of property buyers. The uncertainty of the final price coupled with your financial position (normally finite!) and emotions on the day, makes your heart beat pretty fast! It’s also not something you do everyday, so the unfamiliar process can cause more angst than normal.
It is therefore important that you are prepared ahead of time. The greater preparation, the more at ease you will feel on the day.
Here are some tips on what you can do before and during the auction:
Familiarise Yourself With the Auction Process
Get yourself out and about on a Saturday and attend a few auctions as an observer. You will feel a lot more confident as a bidder if you are familiar with how the whole process works.
You will note that people have vastly different strategies to bidding. Some will bid through the whole auction at small increments, others may come in once the bidding has stalled, or someone may do a ‘king bid’ at either the beginning or end of the auction to assert authority and try to scare other bidders out of the auction. Whatever your strategy it’s important to look confident, bid clearly and try not to show you are nearly at your limit! It’s a little like a game of cards – with bluff and showmanship, so keep that poker face!
Order All Inspections
You have found your dream home! Or maybe there are a few in the running. At this stage it is recommended that you complete pest and building inspections on the property. The last thing you want is to buy your home and then realise there are issues that need to be fixed. Inspections can cost around $300 each, so it’s key to budget these into your home buying budget. It may seem a lot if you need to do this a number of times, however it can save you thousands.
Have Your Finances and Legals in Order
When you make that winning bid at auction – the home is yours!
This is both exciting and scary as it means that you have just committed to buying the property – contracts will be exchanged immediately, the deposit is paid and there is no cooling off period.
Before the day of the auction you will need to:
- Get a copy of the properties contract
- Contact your solicitor or conveyancer to check the contract and follow up with the vendor on any questions that are raised
- See your mortgage broker and have a home loan pre-approval from your lender prepared in writing
- Ensure you have the deposit ready on the day – usually 10 per cent of the purchase price (but check this beforehand with the vendor)
If you don’t have the deposit at your disposal on the day, you can arrange a Deposit Bond through an appropriate insurance company. This is basically a promissory note stating that the deposit will be paid on settlement. Just remember to verify that the vendor will accept a Deposit Bond prior to attending the auction.
Determine Your Upper Limit
The emotion and excitement of an auction, and the time and money you have already invested into the home you are bidding on, often leads potential buyers to get carried away and bid more than they intended. I can attest to this from experience!
Set an upper limit to your bidding beforehand and stick to it rigidly. Even if it ends up going for $1,000 more than your limit – you don’t know that this would have been the final bid if you had stayed in and could find yourself in a bit of a pickle.
Register to bid on the day
In most cases you will need to register to bid before the auction begins. You can do this beforehand or on the day, and will need formal identification such as your driver’s licence or passport.
What if the property is passed in?
If bidding on the day of the auction does not reach the reserve price (the lowest price the vendor is willing to accept), then the property is ‘passed in’.
The final under-bidder has the first option to negotiate with the vendors behind closed doors, followed by any other bidders on the day. So, make sure you get a bid in – and you may secure your new home after all!
So be prepared, plan your strategy and keep your head on the day and that home you have your heart set on could be yours.