House Auctions 101: How to Prepare Ahead & Increase Your Chance of Success
Ever since coronavirus fears and restrictions subsided in Sydney in mid to late 2020 and open homes and auctions have been permitted once more, house auctions have been increasing.
We’ll tell you how to prepare to bid at the next auction during this busy time and what you can do to increase your chances of success.
House Auction 101
Auctions are both legally binding and unconditional in Australia. So if you win an auction, you are mandated to buy the property and restricted from changing the terms of the contract of sale. There is no cooling-off period of any kind, meaning the highest bidder must put down at least a 10% deposit (usually) after winning the bid.
But while auctions can be a great way to pick up a property at a discounted price, they can also create competition and drive prices up. Many people will try to negotiate a sale price prior to the auction, so that you can have more control over your budget and be less susceptible to unexpected factors, such as other bidders or pressure applied by the auctioneer or real estate agent.
Note that there are no do-overs in auctions, so you need to be as prepared as possible. If something happens, such as your loan falling through or a change of mind, you won’t get your deposit back. This means making sure you have enough to make the required deposit if you do win the auction and understand the ins and outs of your bank’s terms of approval.
Here are a few reminders you’ll need to always keep in mind before buying a property in an auction.
What to Do Before The Auction
- Check out property prices and amenities in the area. It’s always best to check the cost of similar properties in the area to get a sense of how high you may need to go when bidding. You will need to know this beforehand as an indication of the required loan amount for bank pre-approval.
- Inspect the property’s condition. Make sure to obtain all the necessary building inspections and pest reports. It’s important to always make sure you:
- get a contract review by a solicitor,
- get a strata report if the property is in a strata scheme, and
- get a building and pest report (if it’s a free-standing home).
Some solicitors only review contracts and so buyers need to be prepared to dig through the details of a strata report themselves and make themselves comfortable with the history of the building and the management of the owner corporation
- Deposit bond – If someone is borrowing 100% of the property value (perhaps with a guarantor loan) they might need to consider the need for a deposit bond
- Get a bank pre-approval before bidding at an auction to know your spending ceiling. On top of being aware of your spending limit, getting a bank pre-approval before the auction can also strengthen your competitive position when making an offer.
Pre-approvals are not a guarantee that you will get your home loan approved. It’s usually dependent on the security being acceptable to the bank and perhaps final verification of details within your application. You should always consult with your acting solicitor to get proper guidance. Typically, pre-approvals are only valid for a certain period, usually from 90 days of your application, but this can change according to your lender’s terms and conditions.
Don’t hesitate to speak with Shore Financial if you need help in this area.
- Know your maximum purchase price and the maximum loan amount you can afford. Overbidding means putting in a competing offer at the auction that’s higher than what the bank is willing to lend you and what you can realistically afford.
- Have the required 10% deposit on hand in case you make the winning bid. Make sure to check the preferred payment method when submitting your deposit (e.g., bank cheque, deposit bond, cash, etc.). Note that although you can negotiate a 5% deposit, this will need to be signed off with the buyer and vendor solicitor prior to the auction.
- Pre-register with the selling agent at any time before the auction. Buyers are encouraged to drop by or call the selling agent’s office to register and indicate their intention to bid by providing their name and address.
- Prepare all the necessary paperwork and proof of identity as you will need this for pre-registration. You will need to present any government-issued card or document such as:
- A driver’s licence or photo identification
- Your vehicle registration paper
- council rates notice.
And if you can’t present any of the above, you’ll need to present two proofs of identification — one government-issued ID and another valid document that shows your address.
- If you are bidding on behalf of another party, prepare a letter of authority to show you’ve been authorised to act in their stead.
Should you have any questions, the real estate agent should be prepared with all requirements for the auction. All sale conditions will be displayed at the auction as well as on the NSW Fair Trading Website.
What to Do on Auction Day
- Arrive early on the day to confirm your registration.
- Upon arriving, you will need to show proof of identity before you are added to the Bidders Record and given a bidder number.
- Always display your bidder number clearly. As soon as you have a bidder’s number, the auctioneer can accept your bids. Remember to return your bidder’s number to the agent after the auction.
Other than making sure you stick to your budget, it’s also important to keep your emotions in check and not get too attached to a property. You may have your eye on that one property that seems perfect but ends up selling for much higher than expected, so remember that there will always be something else around the corner!
There will often be last-minute bids in certain cases and it’s best to avoid getting dragged into an emotionally charged bidding war, where you’ll most likely only end up regretting exceeding your spending limit.
What to Do After the Auction
- If you are successful in winning the auction, you’ll need to sign the contract of sale with the seller and pay an on-the-spot 10% deposit of the purchase price.
- Check the contract beforehand with your solicitor to ensure you are prepared to accept all of the terms. Your solicitor or conveyancer will carry out various searches on the property. Once the contract is signed, your solicitor and the seller’s legal representative will then arrange for property settlement.
- Agree on the settlement conditions. In Australia, the settlement usually takes six weeks from when contracts have been exchanged, at which time you must pay the full balance of the purchase price.
Get Auction Advice From Shore Financial
Sydney house auctions can be tricky and the variance from one property to the next can be enormous, making it critical to be as prepared as possible. If you’re trying to get your finances in order before you start bidding in auctions, Shore Financial has the expertise you need to make the right choices.
The right mortgage broker can tell you more about which home loan will fit best with your repayment goals and help you source your mortgage from a reputable lender, so you’ll always have all the information you need with the least amount of hassle.
For instance, our team can help you avoid investing in properties with blacklisted postcodes or certain features and titles that banks may not approve. From the application process to the final paperwork, you can count on us throughout every step.
If you’re ready to make a move on a property, give Shore Financial a call today. Whether you’re just starting to get your feet wet at auctions or you’re buying your tenth property, we personalise our advice to match your portfolio goals.