The most important thing to remember is that under the Auction system, when you buy a property, there is no cooling off period as there is when you buy 'for sale'. The Auction sale is legally binding on the day. These guidelines should help you with understanding the Auction process.
1. Start Studying Before you start bidding on any property, try to develop a realistic understanding of its true market value. Properties that are sold at auction (unless advertised differently) are subject to a reserve price - the minimum price that the person selling the property will be prepared to accept. The agent cannot disclose the reserve price, so it’s up to you to monitor the prices properties in the area have recently sold for. For a fee, your lending institution or a registered valuer can give an opinion of value.
2. Practise Makes Perfect Attend as many auctions as possible to familiarise yourself with the procedures, rules and regulations and take special note of the strategies implemented by the winning bidder. This will also give you a realistic insight into the prices properties are advertised for and the prices they actually sell for.
3. Inspection Perfection Property inspection is an essential part of the buying process and it’s worth visiting a property several times so you can be sure it really is what you’re after. Take the time to get to know the agent representing the property as they will be familiar with all of the facilities in the local area and may reveal how much competition to expect and what other people think the property is worth. If you are really serious about a particular property, you could consider having it thoroughly inspected by a licensed building inspector, an architect and a pest inspector prior to the auction taking place.
4. Get Legal Advise If you are seriously interested in a property, you should have your solicitor or conveyancer inspect the ‘Agreement for Sale’, which will be held by the auctioneer. Your solicitor or conveyancer may suggest making additions or variations to the agreement. These can be negotiated between the solicitors of both parties and, if agreed, the contracts can be amended accordingly. Also check that your copy is an exact copy of the auction contract and check that there have been no late changes. Make sure that you have a clear understanding of exactly what is to be included in the sale - all fittings, furniture and any other relevant items should be clearly listed.
5. Be Financially Prepared The winning bid at an auction is a binding contract and, if you are successful, your finances must be in order before auction day. As you decide to start searching for a property, contact your lending institution for finance approval - that way you’ll know your borrowing power and can set your limit for the auction. You will need a written loan approval before the day of the auction, as well as the deposit, which is usually 10 per cent of the purchase price.
6. Register Your Intentions Even if it is a requirement for you to register, you may also need to show identification on the actual auction day. A driver’s licence that shows both your name and address is usually sufficient. Being registered does not mean you are obliged to bid, so don’t feel under any pressure if you change your mind.
7. Keep Your Cool If you don’t feel comfortable bidding and suspect that you will get too emotionally involved, you may want to consider a professional purchasing agent, friend or family member to bid on your behalf. When using a proxy bidder, make sure you talk to the agent or auctioneer to understand their requirements. It’s important to remember if you use a proxy, they will bind you to the purchase if their bid is accepted on the day. It’s a good idea to arrive a little early and find a spot that allows you to read the room and watch other bidders. Having some spare time will also allow you to do a mental checklist so that you feel fully prepared for the event - make sure you have your cheque book with you.
8. Boldly Go Forth When bidding, bid with confidence so that the auctioneer knows you exist - just make sure that the bid is realistic so that your interest in the property is taken seriously. Keep in mind that a strong bidder may create a psychological advantage over the competition.
9. Know When To Stop You will know your limit before going into the auction room but the trick is sticking to it. Once the bidding has reached your limit and doesn’t look like slowing down, STOP bidding. If you can’t resist the temptation to keep going, simply walk out of the room. If you were not the successful bidder, accept that over-extending yourself is not in your best interests and that there will always be other properties on the market. If you were successful, then you will need to sign the sale contract and pay the deposit. Then you can start celebrating!
10. Be Prepared When you win at auction, as the buyer you are required to sign the contract and pay a deposit once the property has been ‘knocked down’ to you. The deposit, which is usually 10 per cent of the purchase price, will be held in trust until settlement occurs. The next step is to organise insurance cover to protect your interest in the property. If you require early access to your new home, this can sometimes be arranged via the agent but is not a given right before settlement. For more information on the auction process and relevant regulations, contact the Department of Fair Trading in your state.*