Found an ideal property that you are keen to purchase but it's going to auction.
Bidding at an auction is a scary thing for the uninitiated but the guide below will put you on the path to success without blowing your budget.
Unlike a private treaty or a tender process, an auction is a public event whereby bidders publicly disclose their offer; the highest bid wins the property (with a few assumptions).
A key difference with an auction is that it's a 'cash sale' and no cooling off period for finance or building inspections applies. So, you need to do your homework before auction day.
1. Be Knowledgeable - Do Your Own Homework
Educate yourself on what's needed to secure a property on auction day. Do your homework on the area, what infrastructure is in place, proximity to shops and schools and what's required to actually bid on the day. The selling agent can supply these answers but if you're sceptical, chat to other agents in the area, check out local government websites and even speak with the neighbours of the selling property.
2. Make A List Of Things To Be Done
The Boy Scout motto "be prepared" is advised here. Create a list and tick off items as they are done. You don't want to be front and centre on auction day only to discover you should have arranged finance or viewed a building and pest report. Here's a few items for your list: a. Inspect the property at least once. If you've got a mate who's a builder, plumber or carpenter, ask them to come with you to give their opinion just in case the property requires some work. You'll know the additional charges you'll be up for and you can factor that in to your bidding limit. b. Check out the build and pest report usually supplied by the agent; a cost borne by the seller. If your sceptical, organise your own inspection which could cost you around $400-$500. Peace of mind does cost. c. Have your finances sorted, at the very least an approval. d. Get a copy of the contract of sale. e. Chat to a solicitor about signing a standard contract of sale and the terms and conditions that'll apply to an auction. Understand that you'll be signing a cash unconditional contract on the day. f. Make sure you've got the ability to transfer the deposit to the agency's trust account should you be successful in securing the property. Most deposits are around 10% of the purchase price. g. Know your bidding limit. Auctions can be very emotional and many bidders go over their limit. Know yours and stick to it.
3. Get Your Finances Sorted
Following the recent bank inquest, financial institutions have tightened the criteria to borrow funds. Put simply it's more difficult in the current climate to borrow even if you are a AAA rated borrower. The best way to arrange your finances today is to deal with a mortgage broker. They have access to a panel of lenders and intimately know the terms and conditions each lender will require to approve a loan. Your circumstances maybe a red flag to one lender but given the go ahead with another. And these conditions change almost weekly. Get your finance approvals in place before your bid. Talk to us.
4. Know Property Values In The Area
The selling agent will be able to give you a comparable market analysis (CMA) report on similar properties in the area that have sold or are on the market. To further add to your knowledge you can go to property websites like realestate.com.au and domain.com.au to check out their research. But make sure you compare apples with apples. Not all areas are booming or in decline. Get specific local market information to help you make an informed decision on how much you'll bid.
5. Start Low, Finish High
Get into the race with an opening bid. Not everybody in the crowd on auction day is a bidder. Some will be 'nosy neighbours' while others maybe 'wannabe bidders' but can't because they may need to sell something first. Your bid flags you are serious about owning the property and may put the shudders through other bidders, knocking some out. If you do get locked into a bidding dual with another attendee, keep calm and know your limits. As you get close to your upper limit ask the auctioneer if the property is 'on the market' yet. This means the property has reached the reserve price set by the seller and it will be sold to the highest bidder.. If the property is not on the market tread carefully but make sure you are the last bidder. The highest and last bidder get the first opportunity to negotiate with the seller should the property not hit the reserve. You want this option. It doesn't mean that you have to come up to the seller's price. It just means you are now in the box seat to negotiate and that may mean the seller has to lower their price or potentially miss out on a sale. A bird in the hand is better than two in the bush.
6. Be Prepared To Walk
Stick to your limit. If the property exceeds your best offer, walk away. There's always another property on another day for you to be bidding at an auction.