Buying A House At Auction
Your dream home has just come onto the market and with a certain amount of trepidation you realise that it is being sold by auction. You've never been to an auction before - never mind buying a house at auction - and you're a little worried that you won't know what to do.
How To Get A Good Deal At Auction
Make sure you have finalised all important details before the auction date. Extensive preparation is essential to a happy auction experience.
- Familiarise yourself with the auction process by visiting as many auctions as you can. Ask questions of the auctioneers and find out everything you need to know about bidding. Try to become competent at recognising the tactics used.
- Inspect the property before the auction date. Be objective and make sure you inspect other properties as well. Inspecting other properties means you can make an educated guess as to a fair purchase price. Work out how much you are willing to pay and do not exceed your maximum on auction day. If necessary, arrange your own valuation.
- Visit the real estate agent and ask questions. Also request a copy of the contract, including condition reports, and study it carefully.
- Contact a solicitor to inspect any contracts before you attend the auction.
- Visit your lender and finalise any home loan arrangements. A deposit, often as much as 10% of the purchase price, will need to be paid on completion of the auction so ensure you have these funds available.
On auction day it's important to remember that the auctioneer is employed by the seller to get as good a price as possible for their house. A good auctioneer will be able to encourage the crowd to enter the bidding early, maintain excitement among bidders and even force them to exceed their maximum amount.
- Auctioneers are adept at recognising interested parties and will use this knowledge to set a reserve price at auction. Try to show as little interest as possible to encourage the seller to lower their reserve.
- Don't bid before you have to. Wait until the reserve price has been reached before entering bidding as a lack of interest can confuse some bidders and may force the seller to lower the reserve.
- Work out your tactics and stick with them. Your visits to other auctions should give you an insight into bidding tactics, such as changing the increments of the bids away from the auctioneer's chosen amounts. This can intimidate other bidders and shows confidence and a strategic plan.
- Terms of settlement are often negotiable. Just because the vendor may ask for settlement 30 days after the auction, does not mean they will not allow for extra time depending on your circumstances. For example if you have to sell your existing home before you can finance the purchase of the new home. In this case you could ask the real estate agent to extend the settlement day to 60 or even 90 days after the auction.
- It is easy to get carried away during the auction, it is a very exciting process. Be sure to decide on the maximum amount you wish to bid on the house, and stick to it. Prepare yourself for the chance you might not be able to purchase the home, and be ready to walk away.
- It is the auctioneers job to do his or her best to get a good price for the client, ways of doing this is to create excitement and anxiety amongst the patrons. Changing the pace of the auction can make people bid faster and higher because they think they have to or they will miss out. Also the agents may use humour to try to get patrons to like them, bid more and even forget that this is a serious event, and thus be less worried about spending more than they were willing to spend.
- Another way agents can get a great price for their clients is to increase the amount of people attending the auction, this can be done by originally underquoting the price estimation of the property. In general you can expect to add around 15% to the agents original estimation of the price.
- If you know that there is even a slight chance you might get carried away in the emotion of the event or that you are too attached to the property and will overspend, then consider nominating someone else to bid for you.
Vendor Bids, Dummy Bids And Co-Owner Bids
The main difference between vendor, dummy and co-owner bids is that dummy bidding in Australia is illegal. A vendor bid is where the auctioneer will place a bid on behalf of the seller with a view to assisting the property reach its reserve price. Vendor bidding can only be done by the auctioneer or another legally permitted person and should be declared as part of this auction's process before the auction begins.
Alternatively, dummy bidding is just false bids made by non-genuine crowd members. They have no intention of buying the property and are there purely to inflate the price. Unfortunately, some unscrupulous agents still partake in this illegal act so don't bid until the house is placed on the market as dummy bidding is generally only used until the reserve price is met.
A co-owner is a person who has a financial share in the house, such as a divorced spouse, who wishes to buy out the other owners. Co-owner bids cannot be made through the auctioneer and are not announced during the auction. However co-owner bids are declared in the rules set out before the auction starts.
Are Auctions Safe?
Auctions are a recognised and widely used form of selling. Not just property but livestock, household goods and cars are auctioned, just to name a few. Each state and territory in Australia has their own set of regulations governing auctions, designed to protect both the vendor and vendee.
The Real Estate Institute in each state and territory sets down guidelines detailing their code of practice for the industry. By ensuring your chosen agent is a member of the Institute, you can guarantee a high standard and an auctioneer who will adhere to each and every regulation.
Not many complaints are made about auctions in Australia, however if you do have any problems, contact the Real Estate Institute in your state who will be able to refer you to the relevant authority.