Buying at auction for the first time can be a daunting task! There’s quite a bit to consider and plan for, and having your finance lined up is a critical step. Buying at auction requires you to do your due diligence before you bid.
Here’s what you need to know:
Have any building or pest inspections done prior to auction
Unless you negotiate an alternate contract with the agent and vendor prior to the auction, you will be signing their contract on the day. ‘Subject to’ conditions are not included and the property is purchased in ‘as-is’ condition. If this is a concern, organise your building inspections and pest inspections to be done prior to auction, so you know exactly what you are buying.
While this is an upfront investment for a property you may get outbid on at auction, it will also give you the inside track on any hidden issues with the house – in turn giving you more confidence in your budget for that particular house.
Get your loan pre-approval in place
What exactly does this mean? It means you have a submitted application where the lender assesses your documentation and provides approval subject to conditions, such as a sales contract, valuation of the property, or verification of your employment.
It doesn’t cut it to have just checked your borrowing capacity with the bank or to have filled out the online loan application and received the 5-minute tick of approval!
Your lender needs to take a deeper look at your spending, saving and credit history in order to formally approve your home loan, so the closer you can get to that point the better off you will be on auction day.
Speak to the selling agent beforehand and flag your interest in bidding
Unless you’re a seasoned buyer with significant cash reserves ready to access, you may not be able to easily pay the 10% deposit on the day of the auction. Before you go to any further effort or expense to line up the deposit payment, have a conversation with the selling agent.
Ask if they will accept a small payment on the day ($1-$5k), with the payment of the remaining amount on the first working day after the auction.
This will allow you to purchase a bank cheque for the accurate amount once you know you have secured the property, rather than in advance for an amount that may be over or under what is needed.
This needs to be done in advance as the auction contract will state the deposit requirements on the day. Any changes to this contract need to be agreed prior to bidding, so check whether the agent and vendor are flexible on this before the day.
Organise a deposit bond to take on the day
Another way to pay your deposit on the day is to organise a blank deposit bond to fill out and hand over on the day for the correct 10% value.
More commonly used in NSW and QLD, deposit bonds act as a guarantee to the vendor that you will pay the deposit at settlement. Your lender provides this, and you will need to apply and have it approved. This is something your mortgage broker can organise for you.
Not all vendors and agents will accept deposit bonds, so this is again something to speak with the seller’s agent about prior to the auction.
It is important to note there is no legally binding contract until both buyer and seller have signed the contract of sale.
Do your homework and have everything ready to go and there should be no surprises. Confident bidding and buying at auction really just comes from planning and preparation. Good luck!