Buying a property at auction can be an emotionally charged and intimidating time, but planning ahead can make everything much simpler and easier.
The number one rule is to set your budget and stick to it. Be very clear about what you can afford and what the property is really worth - and remain calm on the day so the atmosphere doesn’t carry you away.
Do Your Research
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By having a clear budget you’ll only spend money for pre-inspection searches on properties in your price range. Be sure to do your homework, both on the building and local home values.
Ensure your contract of sale is checked by a lawyer or licensed conveyancer before the auction, and be especially careful of the position of sewer lines and zoning. A survey is crucial. It identifies any improvements and whether they are council-approved and within the boundaries. If you find problems after the auction, you’ll have already paid your 10 percent deposit and the wheels are in motion.
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Plan Your Auction Strategy
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Whatever your experience, temperament and personality, you’ll benefit by remembering the following:
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- Real estate agents will almost always announce a property is ‘on the market’ before a bid is accepted.
- Observe the behaviour of other bidders and how much the bids rise by. If other bidders are becoming hesitant and bidding in smaller increases, a small increment might clinch it.
- If you get too wound up, don’t go...but get someone else to bid on your behalf.
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Stick To Your Budget
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Don’t get pulled past what you can afford. If it is your dream home consider tactics like fast bids and higher increments to discourage other bidders... but stay within your limit.
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‘Dummy’ Bids
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In some states, the Office of Fair Trading protects buyers by making ‘dummy’ bids illegal; the seller can only make one bid on their own behalf and this can only be done with the auctioneer’s knowledge.
Also, anyone planning to bid will need to register with the selling agent and provide proof of identity. Registering does not mean you must bid, it simply gives you the right to bid.
If you are the successful bidder, you will need to sign the sale contract and pay the deposit (usually 10% of the purchase price) on the spot. And remember, there is no cooling-off period when you buy at auction.
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Home Loan Pre-Approval
If you’re planning to buy your home at auction, it’s a good idea to obtain a home loan pre-approval first. Subject to the property valuation, this will confirm exactly how much you can borrow from your lender, so you can set your budget and stick to this limit when bidding. You may also want to ask your lender about a Deposit Bond.
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Deposit Bonds
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If the funds for your deposit are currently tied up, but will be available at settlement, you may want to consider a Deposit Bond. A Deposit Bond acts as a substitute for the cash deposit in between signing a contract and settlement, and can be particularly useful at auctions.
You simply arrange the Bond with your lender prior to attending an auction, agreeing to a maximum deposit amount. You’ll be given a certificate to take with you where the Bond amount is fixed, but not the property and vendor details. So you can attend a number of auctions and be ready to commit to a deposit up to the agreed amount. If you’re the successful bidder, you simply complete the vendor and property details on the certificate.
The bond is legal, but it is up to the vendor whether to accept one or not. Numerous banks and home lenders can arrange for a deposit bond, including RAMS Home Loans, check this out: RAMS Deposit Power Guarantee.
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Further Information
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| | Download the Buying at Auction Checklist |
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