Buying at auction

There’s some prep work you’ll need to put in to have the best chance of getting the property you love on auction day without any nasty surprises.

 Before the auction:

• Make sure you attend an inspection of the property before bidding. In an auction, there’s no cooling-off period so in most cases you can’t withdraw from the sale without losing your deposit.
• Before you decide to bid at auction ask your conveyancer or solicitor to review the contract of sale, which you get from the selling agent. If yours is the winning bid, you typically have to sign and exchange contracts on auction day. Some things like settlement dates are set prior to the auction so make sure you’re clear on these before you bid.
• Organise building and pest inspections for the property and if you’re buying an apartment, organise a strata search. It’s good to get someone independent to look through the property and make an assessment on any works or repairs it may need which will add to the overall cost. It may cost a little, but if you find problems it can save you money in the long run. Check whether your solicitor can arrange these inspections for you.
• The most important thing to organise before the auction is your finances because buying at auction means you don’t have the benefit of a cooling-off period or conditions in a contract.
• You should already have conditional approval from a bank so you have a pretty clear upper limit in mind but you’ll also need your loan unconditionally approved, not just conditionally approved. So, let your bank or broker know you’re planning to bid.
  • Keep in mind you’ll need a 10% vendors deposit for the auction before you get the home loan so you may need additional funds to cover your mortgage deposit to the bank
• If you make a successful bid on auction day you’ll need to have a vendor’s deposit ready (which is generally 10% of the purchase price) but check this amount and how this can be paid with the agent. Some agents will allow for a flat deposit to be made on the day (e.g. $10,000) then if you win, no matter what the purchase price is, you can make up the difference of the 10% the next business day. This is because the majority of auctions happen on the weekend when your bank is closed and we’re guessing you usually bank online and don’t carry around a chequebook…
• Sometimes you can make an offer prior to the auction so if you’re interested in that strategy, ask the agent if that’s an option.
• It’s a good idea to go along and watch a few auctions before you bid so you can get a feel of what goes on and what’s expected.
• Read through our guide for bidding at auction so you’re clear on the etiquette and feel more comfortable bidding. If you don’t want to bid yourself, organise for a friend, family member or buyers advocate to bid on your behalf.
• It’s important you don’t get carried away by the excitement of an auction. Even if you’re going to bid yourself it’s a good idea to have someone there who’s not emotionally connected so they can remind you of your bidding limit.

On auction day:

• If you’re attending in person, get there with enough time to register your interest as a potential buyer (in SA, NSW and QLD you may need to register to bid with the auctioneer or agent on the day).
• The vendor will set a reserve price for the property and once bidding goes over that amount and the agent announces the property is on the market the highest bidder will buy the property.
• If you place the highest bid you’ll usually go inside with the agent and sign and exchange contracts of sale and pay the vendor’s deposit.

After auction day:

• Contact your conveyancer or solicitor to book in a settlement date.
• Begin to organise home and contents insurance, removalists and cleaners for your settlement date. Most lenders make it a condition of giving you a loan that you also take out home insurance. This covers the cost of rebuilding or replacing your home if factors outside your control damage or destroy it.
• If you still only have conditional approval for your finance, it’s now time to make it formal. To give your bank or broker as much time as possible to arrange the paperwork, you should do this as soon as possible after exchanging contracts. You will need to provide extra information to your lender including:
  • A few months’ worth of bank and credit card statements, billing statements and other loan statements
  • Proof of identification such as a birth certificate or passport
  • Proof of employment such as your payslips, a letter from your employer or if you’re self-employed your tax returns
  • The contract of sale for the property you’re buying

Settlement:

• Once you’ve bought a property you’ll need to negotiate a settlement period, which is essentially how many days between the sale and getting the keys. They’re usually between 30 and 90 days.
• Sometimes the seller will have a settlement period as part of the sale conditions, but other times you can negotiate.
• On the day of settlement, you’ll be required to pay the property price in full.