Practical tips for buying a home at an auction
Before heading into an auction, make sure you are prepared and that you know exactly what you’re bidding for.
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Buying a home at auction can be a pretty stressful time. The money stakes are high and most people are well out of their comfort zone. But there's no reason to dive into an auction feeling out of your depth.
We spoke to property experts Chris Gray (Your Empire buyer's agent) and Adam Vernon (Vernon Partners) to get the real insider advice.
Nine expert tips for auction success
1. Be prepared
Before you arrive at auction, make sure you have home loan pre-approval. This puts you in a better position to bid, as you'll already know your limit.
2. Visit auctions before you bid
If bidding at auctions wasn't a skill, buyers agents wouldn't exist. It is an experience you don't want to be dropped into cold.
"Just go and see 10, go and see 100 auctions. See the language the people are talking. Go and talk to buyer's agents, real estate agents or auctioneers," says Chris Gray.
A little bit of knowledge can be very useful. Just like someone with a bit of car knowledge buying a car at a used car dealership — learning some of the simple elements of a property will help protect your interests when buying property.
3. Ask the selling agent for comparable sales
A selling agent should provide evidence as to why a property should sell at the asking price.
"They can definitely help by providing you with past sales within a block or in a street. That's probably the best way in which they can help you," says Adam Vernon.
"The selling agent will try and help a buyer," says Vernon.
For buyers who are keen to increase the value of their investment through home renovations at some stage in the future, making enquiries before purchasing a target property is ideal.
"Ask the agents, 'Has anyone renovated in the block?' That will give you an idea of what you can and can't do, from a strata perspective. Sometimes, that agent might get you to go and see property that's been renovated. Then straight away, you can see what you can achieve if you just spent $20,000 on the apartment you're thinking of buying," says Vernon.
4. Don't give too much away
Don't share specifics with the selling agent or be drawn on the amount you're willing to pay.
5. Bid early, start low
If you bid early and low, you're far more in control of the situation than if you jump in late. By the time the property goes on the market and the serious bidding begins, nerves should settle slightly.
"The truth is if the market's there, it's going to find its value anyway. Start low and go slow," says Vernon.
6. Go slow
It's not a race. Drawing the process out allows time to put pressure on the seller to adjust the reserve price downwards. If they really want to sell their property, they will have to accept a fair market price for it.
Set yourself an upper price limit loosely based on a property valuer's valuation range.
7. Be confident
Call out your bids loudly and with confidence. State your bids in the whole dollar amount rather than the increments the auctioneer is calling out. In other words, "$505,000", not "$5,000".
8. Set yourself a limit
It's not a good idea to bid more than your budget. Your absolute limit should be what the bank is willing to lend you plus your saved deposit. Getting pre-approval is probably a good idea before heading into auctions.
Decide on a price ceiling for the property itself as well. Remember that there are some cashed-up buyers not concerned about your beliefs of what is a fair market price for a property.
9. Consider using a buyer's agent
A professional buyer's agent can help you navigate the complexities of an auction and even bid on your behalf. Learn more about buyer's agents here.
What happens after the auction?
If you've won at auction, you'll need to pay your deposit. This will usually be at least 10% of the purchase price. This is why it's important to be ready with a form of payment when you attend auction.
You can use a personal cheque or a bank cheque. If you're planning to use a bank cheque, have it made out for an amount that's 10% of your budget limit. If you end up winning at auction at a price lower than your limit, the deposit will be larger than 10%, but this just means a smaller home loan debt.
You'll also need to sign your contracts. Remember, until the contract has been signed the seller is under no legal obligation to follow through on the sale.
Last: be sure it's the one
There's no cooling off period when you buy at auction, so if you win the auction, you are obliged to purchase the property off the vendor.
You'd want to ensure that you have completed pest and building inspections before the auction if you intend to buy. And you can't make the contract subject to conditions, it's as it is at the day of sale. So be sure you have home loan pre approval before bidding at an auction.
Auction advice from The Block 2015 winning auctioneer Damien Cooley
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