Auctions can be a great way to buy a home, but it’s not as simple as wandering in off the street, putting your hand up and walking away with the deeds to expensive property. And if you’re a seller, it’s also not as simple as simply putting up a sign up and hoping for the best.
Here are some key things you need to prepare for, for both sellers and buyers.
Clean the place up thoroughly, both before you advertise the property for sale and before the auction starts. There will likely be people checking the property out on the day of the sale, so having it in pristine condition could sway someone’s decision on bidding or not.
Hardly anyone is going to just show up to an auction they never hear about. You have to let people know it’s on, well ahead of time. Your selling agent should plant some signs and boards on nearby streets to attract passers-by, while you can also invest in ad space both online (like Facebook or real estate websites) or in print.
You should liaise with the selling agent a day or two before the auction - they’ll also show up about an hour or also before the auction is due to start to clear up the following things:
How many people will show up? (roughly)
What your reserve price is (the minimum you’re willing to sell it for)
What happens if that reserve price is not met
What the bidding increments will be
Whether you have any friends or family bidding at the auction (you shouldn’t)
A good agent should make sure everything goes smoothly on auction day.
An agent will generally charge a commission as either a fixed price or as a percentage of the sale, and you should double-check this before the auction as it can be quite costly. For example, a 3.5% commission on a $600,000 property sale at auction would set you back $21,000.
Make sure there’s no ambiguity when it comes to your agent.
This is very important to get right. The reserve price is the price deemed to be the lowest acceptable by the seller for an item sold at auction. For a house sold at auction, your reserve price is the minimum you’re willing to sell it for.
Once the bidding starts, the auction has two possibilities:
The reserve price is not met, which means you are obliged to enter private negotiations with the highest bidder
The property will be declared “on the market”, and will go to the highest bidder
A good selling agent should help you formulate the right reserve price.
It’s important to be sure you’re ready and willing to buy the house you’re bidding for because once you’ve been confirmed as the final bidder, that’s usually final.
Make sure you’ve fully researched both the property (i.e. by doing an inspection) and the surrounding area so you can understand the market you’re buying in. If you’re not comfortable doing this yourself, you can consult someone like a buyer’s agent who can do it for you.
As well as researching the property, you should get a professional building report done or ask for a copy of an existing one. These reports can identify any structural issues with the property and could let you know if you’re paying too much.
As well as a building report, carry out or ask for:
Electrical reports and plumbing reports
You don’t want to be buying a property with some unpleasant surprises.
Don’t just look at the property itself - check out the neighborhood too. Walk or drive around and look at:
The surrounding houses;
Public transport options;
The noise levels;
Schools, cafes and restaurants nearby;
And other things that might be important to you. What you find might change your mind.
Register for the auction with the selling agent to be given a bidder’s number - you usually can’t just stroll in and sit down. You’ll need to provide them with identification, like a driver’s license and a document issued by your bank.
It’s important to know the property you’re bidding on is one you can afford, especially when it comes to the deposit. For a $500,000 home, you’d need a deposit of $100,000 to reach the 20% limit to avoid Lenders Mortgage Insurance or even to get approval from certain lenders. At loans.com.au, we have home loan products for buyers with a 10% deposit.
Don’t bid on a property that you aren’t 100% sure you can afford.
You want to make sure you’ve sorted all the legal issues before the auction starts. Get a copy of the sale contract and show it to your lawyer or conveyancer for them to review, as they could identify any issues with the property you’re buying and whether you’re being ripped off or not.
Once that hammer goes down you’re legally required to go through with the purchase and put a deposit down - if the bank declines your request for a loan after your bid is successful, you could be out quite a bit of money.
That’s why you should get pre-approval from a trusted lender before the auction. Provided that your circumstances don’t change, you can have some guarantee that you'll be able to pay for it after. Speak to a loans.com.au lending specialist now to discuss your options or find out if you qualify for a home loan with us: