10 tips for buying a home at auction
Heading to an auction and not sure what to expect?
Buying a house at an auction can be daunting. Instead of negotiating privately with a seller, you’re trying to outbid others during a public auction. Even the most experienced buyers can feel intimidated. But even so, to many, purchasing a home at an auction is more than worth it.
When you buy a house at an auction, you know it's yours as soon as the bidding ends. You’ll also see in real time how much other people think the property is worth. The efficiency and transparency of the whole process attracts a lot of homebuyers.
The broad rules of buying at an auction are simple: do your research, lock in your finances early, and don’t exceed your financial limits. Below, we spell out essential things you need to know so you can go to an auction with confidence.
Auction vs Private Sale: What’s the difference?
An auction is an event where people who want to buy a property come together and publicly bid against each other for the right to buy it. The higher bidder gets the property.
An auctioneer, usually a real estate agent representing the seller, conducts the auction by standing in front of the potential buyers and acknowledging the bids they call out. The auction ends when no one is willing to offer more than the current highest bid, and the person who made that bid wins the property if the bid is above the reserve price set by the seller.
A private sale, on the other hand, is when a house is put on sale and buyers make an offer to the buyer. It’s usually done with the buyer or buyer’s representative talking directly to the seller or seller’s representative.
Key differences between an auction and a private sale
The most important differences between buying at auction and buying privately are:
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Bidding is public during auctions. Everyone knows what everyone else has offered for the property. This makes it easier for you as a buyer because you have the same information as the seller, unlike a private sale where only the seller knows who else is bidding and what they are offering.
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You must sign the contract immediately. If you are the highest bidder, you must sign the contract and supply a cheque for the deposit. There is no cooling-off period so if you have to pull out of the purchase, you will lose your deposit and be in breach of the contract.
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Legal consequences if the sale does not push through. You could be in serious legal trouble if you don’t settle the sale on time. You may have to shoulder the cost of re-auctioning the property or be forced to buy the property even if you don’t have the funds.
Knowing these differences can help you navigate the auctions and ensure a successful home purchase.
Before the auction: Things you need to do to prepare
These preliminary steps before the auction are essential because the negotiating timeframe is shorter. More importantly, there’s no backing out if you change your mind.
Know the market and the auction process
Look at the recent sale prices for similar properties to see how much they’re going for. A suburb report could be beneficial for a more detailed look into a neighbourhood. If you can become a good judge of the market value of properties in the area, you can avoid overpaying at auction.
Be familiar with the auction process
Auctions are a high-stress, high-octane environment, and the bidding is a real skill; there's a reason buyer's agents exist. Before you attend an auction on a property you plan to bid on, visit as many other auctions as possible. Familiarise yourself with the processes and observe the different bidding strategies. Also, knowing the auction rules in your state or territory is a massive help.
Work out your price limit
Don’t get carried away in the heat of a bidding war. Review your finances and figure out how much you can afford on a home purchase. A pre-approved loan can help you create a budget because it tells you the maximum amount you can potentially borrow. Having a price limit lets you easily walk away from the auction and stop bidding when necessary.
Lock in your finance
Getting pre-approved for a loan is vital since the consequences of not settling the sale at auction are quite serious. You can start your home loan application as early as now. At loans.com.au, you can get pre-approved for a home loan online.
The pre-approved loan typically lasts three to six months and although not legally binding, puts you in a better position come auction time.
You also need to make sure that you have enough money available to pay the deposit. This is usually 10% of the cost of the property.
Inspect the property thoroughly
Sales from auctions don’t have clauses that allow you to withdraw from the purchase if the building and pest reports are unsatisfactory. You must get these reports before bidding for the property to make sure the property is pest- and damage-free.
Before bidding make sure to thoroughly inspect the property and get a professional building inspection and pest reports. Look at all the necessary structural, engineering, building and termite reports, as well as any legal title information.
Review the strata reports if the property is in a strata scheme. Review the contract with your lawyer or conveyancer and ensure you are comfortable with it. Lastly, do the necessary checks such as a land tax clearance search and a swimming pool inspection (if relevant).
During the auction: Tips on getting the best deal
There can also be a tendency to go overboard and overpay during auctions. Check out the advice below to best equip you through the process:
Play your cards close to your chest
On the auction day, keeping your cool is an important thing to practice. One of the main pressures associated with auctions is the competitive edge that comes with multiple people bidding on the same slice of real estate and it can be quite intimidating.
Giving away information can take negotiating power out of your hands and makes you open to agents leveraging other buyers against you. By not sharing specifics you maintain an advantage and reduce the opportunity to be manipulated.
Be clear and confident
Auctions can get rowdy; it's important to call out your bids loudly, clearly and confidently. Make sure you state your bids in the whole dollar amount rather than the increments the auctioneer is calling out. For example, "$605,000", not "$5,000".
Don't rush and keep it cool
It's easy to get caught up in the allure and excitement of bidding, especially if you've already got attached to the house. Taking your time and displaying calmness and assertiveness will project confidence and can get you in the proper mindset.
The tendency to push your bidding as far as possible to beat out your opponents may seem like a good idea in the moment, but it’s best to keep your wits about you and always consider your financial limits.
Be prepared to walk away
Be prepared to miss out. Auctions are highly competitive, particularly in today's market. Stick to your pre-approval amount and/or your walk-away price. Provided you've done your research, you should know the value of the property, so don't get drawn into overpaying.
If you miss out, it wasn't meant to be and look forward to finding something better. It's better to walk away than to commit to an overpriced property that could become a negative asset.
After the auction: What do you do next?
Once everything is said and done, you either get the house or you don’t. Here’s what happens after the final gavel falls:
If your bid is unsuccessful...
Then, you move on and find another potential property. Unfortunately, getting outbid is a possibility and if that happens, the best you can do is start searching for your next property.
If your bid is successful...
You’re one step closer to homeownership! At auctions, all sales are final. Because you must sign the contract of sale after the auction, it’s best to have a conveyancer or solicitor with you to check the sale contract.
A solicitor will be able to expertly navigate the vast and complex sale contract and pick up on things that you may have missed or don't understand. You can organise any amendments to the contract that they suggest. They’ll also do the necessary legal checks on the property and arrange the settlement date for you.
If you have a pre-approved loan, it’s time to get formal approval for your mortgage. After this comes the settlement where you’ll make sure everything is as agreed upon in the sale contract. Your lender and conveyancer will handle the documents and provide the seller with the final payment.
The specific steps after a winning auction bid vary depending on the state and territory. It’s best to brush up on your state or territory’s rules of auction.
Ready to buy a home at auction?
Start by getting your financing in order with a pre-approved loan from loans.com.au. We offer a range of low-rate home loans with incredible features. Talk to our friendly lending specialists today to discuss your mortgage needs.
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About the article
As Australia's leading online lender, loans.com.au has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.
