Auctions are popular among sellers because they drive competition among buyers. If you’re on the hunt for a new property, it’s good to be prepared to buy at auction.
Here’s what Choice Home Loans wants you to know if you’re planning on successfully bidding at an auction.
1. Get pre-approval for your home loan
Unlike private sales where – depending on your state or territory – you may have a cooling-off period after your offer is accepted, a winning auction bid is a binding contract, so you need to have your finances organised before you make a bid. There is no cooling-off period.
Prior to an auction, talk to a Choice Home Loans mortgage broker to find out exactly what your borrowing capacity is and home loan options are. A broker can help you secure written loan pre-approval from your choice of lender. This will help you to understand exactly what your budget is, and how much you can afford to spend on auction day.
2. Have your deposit ready
If your bid is successful, you will usually need to put down a deposit of at least 10% of the sale price. You could face significant fees and legal consequences if you are unable to commit to the purchase after making a successful bid. When you have a pre-approved loan this shouldn’t be an issue.
Make sure you organise a bank cheque for 10% of your pre-approved limit for auction day, if you don’t own a chequebook.
3. Ask to read the sale contract before the auction
It’s crucial to read over the sale contract before auction day. Because auctions are instant and legally binding, any amendments to the contract need to be agreed to and made prior to auction day.
We recommend you engage a solicitor to go through the contract, and ensure you have completed any negotiations with the real estate agent prior to auction. Any changes you negotiate to the contract (e.g. a longer settlement period) won’t necessarily apply to all bidders, so you may actually be bidding on a different contract to others.
4. Get a building and pest inspection
Since you can’t back out of the sale after a successful bid, you’ll want to get your building and pest inspections done prior to auction day. While the reports may cost a few hundred dollars, it’s important to know and condition of the house you’re proposing to buy – or even if you want to buy it.
5. Engage a buyer’s agent
A buyer’s agent is someone who you can hire to bid for you at an auction. These agents are experienced at auctions and may help you level the playing field and outwit other bidders. They will also help to prevent you from going above your set purchase price limit. Agents are experienced in the bidding process , and by bidding on your behalf, can prevent you from making an emotional bid.
6. Be the last to bid
When a property looks as if it will pass in under the reserve (meaning, it won’t not sell at auction), there may be an advantage in being the last to bid. The last bidder is often in the best position to negotiate a private sale with the owner. But make sure you don’t jump in too late with a bid – once an auction is closed it can’t be reopened.
If you’re thinking of buying at auction, it’s a good idea to consult a mortgage broker first. They can help you to understand your borrowing power and borrowing options, and gain pre-approval so you can be confident of your purchase price limit.
Get the right advice
Choice Home Loans brokers are here to support you every step of the way. They can guide you towards a home loan that suits your circumstances. Make an appointment online to speak to your local Choice Home Loans broker today.
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