An auction is a popular method of purchasing a property, but for the first timer, it can be a daunting experience. You may be overwhelmed by the excitement of getting your hands on your dream property or forced to silence by the ferocious tactics of the seasoned buyers. Auctions can be unpredictable which is why you always need to be prepared:
Once that hammer falls on your final bid, the offer becomes unconditional. There is no backing out of the sale or negotiation. If you change your mind because there is no off-street parking, or there is roof damage that went unnoticed during the first inspection, it’s now your problem. If you are serious about the property, it is important to carry out some thorough Due Diligence. Attend the open homes of the property and request another viewing if you are interested.
Before you attend the auction, it is recommended to go through a copy of the draft Sale and Purchase Agreement with your legal representative.
It is advised to commission a building inspection, especially in older properties. A Builders Report will cost around $500 which is a worthy investment if you are serious about the property.
The Land Information Memorandum (LIM) Report offers information held on the property such as any rates that may be owing in relation to the land, building permits,
Attend a few practice auctions
Before your big day, attend a few auctions to familiarise yourself with the process and strategies that may be used. Become aware of the techniques used by the auctioneer to speed up the auction or jump in increments to push up the sale price. Compare the figures in your area for suggested price and purchased price to understand the current market and demand.
Have the finances available
You must arrange your finances before you bid at an auction and ensure the lender is happy with the property as suitable security. Your mortgage adviser will be able to explain the process. It is best to obtain a pre-approval which will outline your maximum purchase price but importantly will always have a condition that states the offer is subject to the security being acceptable to the bank. At this stage, when you find a property that you are interested in (that’s going for auction) you need to send your adviser the draft Sale and Purchase Agreement so they can get the security accepted by the bank prior to the auction taking place.
When you have the successful bid, the agreement becomes unconditional and you then need to pay your deposit to the vendor (the standard is 10% however this can be negotiated and you will need to have this available as cash – or a deposit bond if this has been agreed on). Your deposit needs to be paid on auction day unless previously agreed by the vendor and/or the auctioneer). You cannot use your KiwiSaver for the deposit, only once the final settlement of the property occurs.
Set your maximum price and stick to it
When you go into an auction, have two prices in mind – how much you would like to pay for it and the most you are prepared to pay for it. Aim for the first price in mind when you are bidding. Set your maximum price slightly above a rounded figure. Leave your emotions at the door and do not get caught up in the competitive nature of a bidding war. Remember, once it goes unconditional, it’s yours for whatever price you agreed at the time.
Buying before auction
A pre-auction offer can be made to the vendor. For your offer to be taken seriously, it must be unconditional and appealing to the vendor. Often this will result in the auction date being brought forward and your offer then sets the reserve.
Reserve
If there is a reserve price in place, the property must be sold to the highest offer at the end of the auction if this figure has been reached. If this reserve is not met, the home is ‘passed in’. The home often sells through negotiation after the auction. If you were the highest bidder, you are in a strong position to negotiate. Conditions can be added to the contract at this stage.
Before the auction day
Once your finances are in check and you have carried out your due diligence, register your interest with the agent if you have not already done so. Have one last look around the property if feasible. You may want to take along a friend for moral support, or ask someone to bid on your behalf if you are not confident or new to the process. Remember to leave your emotions at the door, and good luck!
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