Getting a Home Loan in Australia if you're living overs...
29 Nov 2023
Research shows that most people feel intimidated by the prospect of buying a property at auction.
It’s not surprising when you consider that most of us will buy at auction only once in a lifetime, we aren’t familiar with the process and there’s a lot of money at stake as well as a home you have your heart set on.
The good news is that if you follow some simple rules, buying at auction is no harder than buying through private treaty.
In fact, it has some advantages because unlike private treaty, you can see exactly what other bidders you’re up against and what they are offering.
Below, we’ve put together our Top Tips to help you prepare for your auction and buy your dream home for a fair price.
Don’t wait until the last minute. You can save time when buying a property by letting your solicitor or conveyancer know in advance that you would like to use their services when buying.
If you have the details of your conveyancer ready when you make an offer on a property, the sale is likely to go through quicker.
Check if the quote you have received is a fixed fee or not and ask for a detailed breakdown of exactly what it includes. For example, does it include charges for searches and Land Registry fees? If not, you will need to factor these costs in on top of the quote for the legal work.
Auction Approval – also known as Conditional Approval - is free to get and typically lasts 3-6 months. It is a commitment from a lender to give you a home loan, provided you meet certain conditions.
Because it is a commitment, your lender will want to run through your finances in detail with you so it takes a bit of time.
You definitely don’t want to be doing it at the last minute while you are preparing to bid on a specific property.
Conditional Approval is a necessity if you are bidding at auction because there is no finance clause so you can’t back out if you fail to get a loan – you will lose your deposit and be in breach of your contract.
Helpful guide: How to apply for home loan pre-approval
Going through the process of getting Conditional Approval with your lender early is really helpful because it gives you a realistic idea of what you can spend on a home so you don’t waste time looking at the wrong properties. You can get Auction Approved with loans.com.au, called Auction Approval
The choice of home loan is almost as important as your choice of home. According to comparison site savings.com.au, the difference in cost between the dearest and cheapest home loans can be more than $80,000 over the life of a $400,000 home loan.
That will pay for an awful lot of holidays, car repairs, medical bills or schools fees over that period. So don’t just walk into your bank and give them a huge donation by taking out an overpriced home loan!
Be sure to look out for online lenders – you may be shocked to discover the difference in rates. Take a look at our range of super-low rate home loans.
This is the first thing to consider when working out the value of a property - not the house itself. To assess the likely sale price at auction, find 10 nearby sales in the last six months, and divide the price by the size to work out an average square metre rate. Then multiply the land size of the home you are looking at by that rate.
If the land size method tells you that all the properties you are considering are outside your budget, you can divide your budget by the square metre price you have worked out and start looking for properties of that size instead. It saves a lot of time and heartache.
If you are the highest bidder at the auction, you will have to sign the contract right away. Unlike a purchase by private treaty, there is no cooling off period or building and pest inspection clause, so you cannot wait until after you sign the contract to find out if there is anything wrong with the home.
If you win at auction, you’ll need to pay your deposit on the property straight away. This will usually amount to 10 per cent of the property value.
Median city house prices in Australia’s capital cities range from more than $800,000 in Sydney to more than $400,000 in Hobart! The table below shows the average deposit contributed by loans.com.au customers around Australia.
If they accept personal cheque and you have a cheque account with cash in it amounting to 10 per cent of your bidding limit, great – you can just write out a personal cheque on the day.
If not, you may be required to pay by bank cheque. You don’t know what the property will sell for so most people choose to get a cheque made out for 10 per cent of their bidding limit. If it sells for less, they will make a larger than 10 per cent deposit and pay less on settlement.
Arriving early gives you an opportunity to position yourself towards the front of the auction, preferably near the auctioneer.
Being in front also gives you a better view of your competition so you can see who you are bidding against. This also lets people know that you’re confident, experienced, and you’re prepared to bid.
It is a good idea not to bid until the property reaches its reserve price. If the auctioneer hasn't said anything, don't be shy about asking mid-way through the auction "is the property on the market."
Until then, it is not for sale and you are just increasing the hype around the property and building the price. No matter how much pressure you receive from the auctioneer, do not play into their hands by bidding too soon.
Don’t call out your bids in increments, like “$1,000”, instead you should state the full amount “$501,000”. This way your competitor knows the exact number they're bidding against. Be sure that you fully articulate your bids confidently.
Related: Tips for property auction bidding over the phone
Slowing the bidding is a strategy you can use to stay within the limit of your auction budget. If the auctioneer calls out for $5,000 bids, you can offer $1,000 or $2,500 so that the momentum is slowed.
If you know you can’t handle the emotions and the stress of property auctions, you can have a buyer’s agent, friend, or a family member who you can trust to do the bidding for you. You can advise them of your game plan and tell them your price limit.
Elaine Davies, Buyer’s Agent New Road Property
There are many mistakes buyers make at auction but these three are hugely important:
Don’t trust market research from the seller
Pound the streets and do your own research. Don't depend on the feedback from the real estate agent and check the date and relevance of the comparables they give you!
To a professional like me, there is no better indication that you're at the end of your budget than whispering to your spouse/friend/family member during the auction.
This is when I pounce with confidence, stare down the competition, eyeball the auctioneer and be as intimidating as possible - even if I'm coming to the end of my own budget. Go hard until the end! You can avoid conferring by knowing your budget before you register.
Never Bid against yourself
This is a big one and while it may sound obvious, when a large crowd and a professional auctioneer are staring at you, it’s easy to cave. Add a slick real estate agent whispering in your ear into the mix and who wouldn’t put their hand up again? Well, not you – not on my watch.
Also, bidding against the “vendor bid” would be the same as bidding against yourself. Trust me, the vendor isn’t there to buy the property, they are there to sell it.
With so much pressure having accumulated to this intense moment in time, it’ll be easy to get carried away in the drama of it all but please keep your cool.
There’s no need to be rude and a line I find works well is, “I’d like someone else to have a go now”. At the same time, join the auctioneer in looking around the crowd, as if encouraging those other bidders.
If the property was passed in
If it’s going to pass in and it’s still within your limit, make sure you are the highest bidder. This gives you first right to negotiate with the vendor after the auction.
If you won
If you win, you’ll need to immediately sign the contract and pay the deposit (normally 10%). The deposit is then held in trust until settlement.
If you have conditional approval, or Auction Approval, you’ll need to get formal approval. Your lender will value the property before approving your loan, so make sure you don’t bid above market value and stick to their lending rules, for instance, don’t buy a farm if they don’t lend against that.
If you stuck to your strategy and your limit but didn’t get the home, well done
You dodged a bullet. It is a far better to miss out on a home and keep looking than to pay too much. Try to remember: there will always be another home.
As Australia's leading online lender, loans.com.au has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.