What is an auction?
An auction is a popular method for selling real estate, especially in sought-after areas where there is competition for properties. It involves prospective buyers bidding against each other on the property and the property is sold to the highest bidder, providing the bid matches or exceeds the reserve price set by the seller.
Competitive bidding amongst prospective buyers allows the seller to drive the sales price up, maximising the sales price for the seller. However, for buyers, it can be a daunting and intimidating experience, particularly for an inexperienced bidder who does not understand the auction process.
If you are considering buying your property at auction, here are our top 5 auction tips to help you navigate the process with confidence and to ensure you construct a solid bidding strategy so you don’t end up paying more than you intend to for your dream home.
Do proper research
Before you get started, you need to take some time to fully understand the auction process by attending as many auctions as possible in order to familiarise yourself with the rules and procedures, and conditions. The auctioneer will usually read out the auction conditions before the bidding starts and provide you with a bidder’s guide. Take this opportunity to understand the terminology used (“passed in” and “fall of the hammer”), read the room and observe the body language of the bidders and auctioneer (pace, tone and their overall style of engaging with the bidder), and different bidding strategies.
It is also important to research the market, investigate the recent sales in that area and the value of the property by speaking to real estate agents and neighbours living in the vicinity so you know what you’re prepared to pay. As you start examining, you will grow your knowledge which in turn will develop some confidence to start bidding.
Get your mortgage sorted
On the day of the auction, the seller would normally require a 10% deposit of the purchase price. You must have your finances in order before bidding. Speak to your lender and obtain unconditional finance approval and confirm the maximum amount you can borrow so you know your borrowing capacity which will enable you to set your financial limit for the auction.
Inspect before you bid
It is important that you inspect the property several times before the auction date and satisfy yourself that the property is exactly what you are after and that all the inclusions are in good working order. You should also arrange to have the property thoroughly inspected by a licensed building and pest inspector before the auction.
Take the contract to your solicitor or conveyancer well before the auction date so they can review it, advise you of any risks, and ensure you understand all the terms and conditions that you need to abide by if you are successful at auction as there is no cooling-off period or chance to change your mind once the hammer falls. Your solicitor or conveyancer will be able to negotiate the terms and conditions of the contract on your behalf and ensure that you are buying exactly what you intended to.
Consider using a buyer’s agent
If you don’t feel comfortable bidding, don’t feel afraid to ask for help. Consider hiring a professional buyer’s agent or approaching a friend or family member to bid on your behalf during an auction. They will stick within your financial limit and not allow their heart to rule their head.