If you have to go to auction to get the home of your dreams, do so strategically and unemotionally. This is what you need to know.
Auctions are a common feature of the Australian home buying landscape. However, it’s not always the best way to buy a property.
“Auctions aren’t great for buyers, as you won’t get the property for less than what the vendor wants to sell it for,” says Pratham Karkal, Head of Personal Banking Direct at Macquarie’s Banking and Financial Services Group. “The property either sells for more than the vendor wants, or it’s passed in”.
“It wasn’t too long ago that properties being sold at auction were selling at an average of 20% more than the vendor’s ask.”
The smart thing to do is to try to seal the deal before auction, but if your attempts fail, your best bet is to approach the day itself as strategically as possible.
And while an auction is an exciting and fast-paced experience, it’s important to balance that with the fact it is one of the most significant purchases of your life.
Step 1: Get experience of auctions in the neighbourhood
If there’s a chance the property you want might go to auction, do not make that auction your first. Attend auctions in the local area, and get a feel for what happens.
“You should never go to an auction for the first time when you want to bid,” says Karkal. “Go to auctions to see what they're like. Go to auctions just to observe, and remove any uncertainty about what happens.”
Step 2: Arm yourself with information before bidding at auction
Make sure you get a building and pest inspection before auction day – so you don’t have any nasty surprises (such as structural issues).
Arranging for an independent valuation will help you decide what you’re willing to pay on auction day. This prep work could not only save you regrets, but a significant sum of money in the long run, too.
“You should also get a feel for the prices of comparable properties in your area, over the last six months,” says Karkal. “It’s also important to understand how long it's been on the market for; why has it been on the market for six weeks, seven weeks, eight weeks?”
Speak to the real estate agent in the lead-up to auction day and ask as many questions as you can. They should be able to provide you with a condition report and a copy of the contract. Ask your solicitor to review this paperwork prior to auction day and tell you if any terms of sale strike them as red flags.
Make sure you have spoken to your bank or mortgage broker, and had your finance pre-approved too.
Finally, make sure the required deposit is on hand – if you are the highest bidder you must put down the deposit immediately after the auction. More often than not, this will typically be 10% of the purchase price.
Don’t forget to bring along some picture identification to register to bid, such as your driver’s licence. If you registered in advance at your first inspection, you’ll still need to bring your ID on auction day.
Step 3: Keep a cool head on the day
Stay calm. Stick to your plan and your budget, and don’t let excitement get the better of you. There’s no cooling-off period with auctions, which means the winning bidder is obligated to follow through with the purchase – there’s no backing out afterwards.
“Intense emotions can make people do some pretty silly things at property auctions,” says Karkal. “Know your budget and stick to it.
“If you don’t trust yourself, get a friend or family member to do the bidding for you.”
So, here are some hints to help you bid like a pro:
- Arrive on time, but not too early. Waiting around for the show to begin can increase nerves. Try to arrive several minutes beforehand so you have just enough time to settle in
- Don’t feel pressure to bid early – even if it seems like no one is interested at first, there could be a number of people who are simply holding back
- Remember, the auctioneer is going to seek as high a price as possible. With this in mind, don’t let them, or other buyers, push you out of your comfort zone. Also, set your price limit at an odd value. A figure like $807,750 will give you a bit more leeway than $805,000 and could mean the difference between a win and a loss
- Be seen and heard – position yourself somewhere prominent and say the full amount in a clear, loud voice when making a bid. While this is partly psychological, reinforcing the amount in this way will help to establish your confidence and show you mean business
- Make sure you have a cheque book on hand for your 10% deposit if you make the winning bid. Alternatively, check whether the selling agent uses DEFT Auction Pay – which allows you to pay your deposit electronically
- The post-auction time to settlement is typically six weeks, however you may be able to negotiate a shorter or longer period. Your mortgage broker or banking specialist will then be able to help you through the process of securing a home loan for your new property!
So, if you’re heading to auction, remember to have your finance approved, get some practice in, and approach it in an unemotional state.
While it’s hard to detach yourself from the excitement of landing your dream home, it’s imperative to avoid making a very expensive error of judgement.
After all, as the cliche goes, there are plenty more fish in the sea.
- Try to avoid going to auction. If you want the property, put a bid in a few days beforehand.
- If you go to auction, make sure you have an independent valuation and are clear on your maximum offer.
- Get your solicitor to review the contract, and have inspections done in advance.
- Make sure you have your finance approved.
- Attend auctions beforehand so you know what to expect.
- On the day of the auction, remain unemotional – don’t be tempted to bid more than your maximum.
- If you do buy, make sure it’s on your terms.
- If you don’t trust yourself to stick to your budget, get a friend or family member to bid for you.
Before heading to auction, get your finance pre-approved. Call 13 62 27.