Buying at Auction: Shore Financial’s guide to buying at Auction

The big day has come, the property you have had your eye on has just landed on the market at an auction and the competition is hot. Bids are flying left and right, and the price is steadily but surely rising, what was my limit? Do I need to have financing secured? Should I wait or bid now? These thoughts are common predicaments to both new and veterans of the property market, and that is why we at Shore Financial have put together this flyer to help get you up to speed on the property market and not let buying your dream home turn into a nightmare.

Understanding an Auction

An auction is unlike a traditional sale as you are competing against other interested parties who also wish to purchase the property. Sellers like auctions because the competitive environment often leads to the house selling at a higher price than what might be achieved by a private sale. However, as the bidder having a firm understanding of how an auction works can give you a distinct advantage over the competition. As a bidder, you must understand how an auction works and your priority on the day is to register your interest with the real estate agent. You will be required to provide them with photo identification to register yourself as a potential buyer. Once registered, you have the right but not the obligation to bid on the property. You should
only bid on the property if you feel comfortable with the current price and are confident that you would want to purchase this home. An auction will always have a reserve price set for the property and is the lowest amount the seller will accept. If the auction does not go above this reserve price the seller does not have to sell and hence will either redo the auction later, negotiate with the top bidder or drop the reserve price lower. The property reserve price may not be public knowledge to the bidder as it is a private agreement between the auctioneer and the seller. However, as a bidder, you can potentially guess the reserve price by talking to the auctioneer or seller. Once the auction is above the reserve price, the property is live, with the highest bids after this point being accepted by the seller. Approaching the end of the auction, the auctioneer will call for any final offers, representing your last chance to bid on the property. It is possible to miss this final call, so if you are interested in the property, you need to be aware that this is your last opportunity to purchase the property. The auctioneer will then symbolically hit his gavel called the ‘falling of the hammer’, after which no new offers can be accepted.

Understanding the Property

As an auction has no cooling-off period, if you are the highest bidder, you will be required to purchase the property or else forfeit your deposit. This sizeable penalty for pulling out of the deal is something that you want to avoid at all costs. Hence, having a solid understanding of what you are bidding on is vital. A key consideration is the type of property you are purchasing. Whether it be a traditional home, a unit or a townhouse, all have different everyday costs associated with them. Traditional homes will incur maintenance and insurance costs, while a unit or townhouse will incur paying strata levies. These ‘hidden’ costs need to be factored in when buying a property as they will significantly affect the monthly cost of owning the home. Understanding any issues with the property is also important. The seller might not immediately point out flaws in the property to keep the price as high as possible, so you must do your research into the property and conduct an inspection. Checking the age of the building is a great way to understand common issues that might occur. Houses built before 1988, may have asbestos cladding, a known carcinogen requiring specialised cleaning services if and when you decide to renovate the building. Cleaning costs can cause quickly exceed your budget as your focus will be on the safe removal of the material. Another issue to check would be termite damage in older houses. Verifying the house’s termite treatment documentation is an effective way to understand whether termites could be a risk to the house currently or in the future. If ever unsure it is always beneficial to get a professional inspection of the property by a certified individual. Although costly, a professional inspection will provide certainty when purchasing the property and ensure no unnecessary future costs.

There are checks and precautions you can undertake prior to the auction day to make sure you are the most prepared if you win. While these are not a requirement however, we at Shore Financial highly recommend you consider all of these to protect yourself.

Contract Review

Prior to auction day, request a copy of the contract and have it reviewed by your conveyancer or solicitor. This review is crucial for two main reasons:

1. Identify Unfavourable Clauses: Ensure there are no clauses in the contract that could negatively impact you, such as the requirement to pay additional funds to the seller beyond the sale price.
2. Pre-Negotiate Terms: Negotiate any necessary changes to the contract before the auction. Any modifications must be pre-agreed, and your version of the contract, including these changes,
   will be held on auction day if you win.

Remember, no contract changes can be made after the auction, so thorough due diligence is vital.

Building & Pest Inspection

Arrange for a building and pest inspection of the property prior to auction day, especially if the agent has not provided one. This inspection will help you identify any issues that might not be immediately visible. Additionally, hiring a surveyor to conduct a surveyor’s report will provide insights into aspects such as drainage and plumbing, which are not always apparent during a regular inspection.

Strata Report (If Applicable)

If you are looking at a strata-titled property, you should purchase a Strata Report for the building. This report includes:

• Building History: Overview of the building’s past.
• Financial Status: Current financial health of the strata plan.
• Pending Works and Special Levies: Any upcoming building works and levies.
• Past Works History and Building Defects: Records of past repairs and any existing issues.
• Expenses and Budget Analysis: Detailed expenses for the past two years and a 10-year budget forecast.
• Policies and Compliance: Information on pet policies and other
  compliance issues

Reviewing this report carefully can prevent future financial and emotional stress by ensuring you understand the full scope of the property’s condition and management.