HOW TO BUY A PROPERTY AT AUCTION
You have found a property you like and it is being sold by auction. What should you do next?
Preparing for The Auction – Due Diligence
At an auction you must buy on an unconditional basis. That means any conditions you might want to put in an agreement for sale and purchase when buying by negotiation such as LIM report, finance or building inspection will not be allowed. Instead you must get ready and investigate all these aspects prior to the auction – a process called due diligence.
For instance you will need to:
- Work with your lawyer to review the auction terms, check the title including any instruments registered against the title and review the Land Information Memorandum or LIM report for the property.
- Obtain finance approval for your purchase of the property.
- Carry out a building inspection and any other applicable investigations of the property.
This does mean that you will incur legal fees and other costs without knowing you will be successful at the auction.
If you have carried out your due diligence and there are not any issues of concern then you may wish to consider making a pre-auction offer for the property. This is an offer which if it is acceptable to the vendor means the auction is brought forward so the auction is still held but is earlier than originally scheduled. Normally the auction is about 2 days after the pre-auction offer. At the auction the starting bid is the pre-auction offer.
The advantage of a pre-auction offer and bringing forward the auction is that you may be able to exclude other potential buyers who may have come along to view the property later or who may not have done their due diligence yet and are not in a position to bid at auction yet.
Before The Auction - Variations
After your lawyer has checked the auction terms you may find you want some variations to the auction terms. It is possible and not uncommon to want a change to the settlement date or to the amount of the deposit (normally 10%). If you do want a variation to the auction terms then you should discuss this with your lawyer and the agent and ensure the variations are presented to the vendor and recorded in writing prior to the auction.
At The Auction
Once you have done all your required due diligence and documented any necessary variations then you are ready for auction day. It can help to attend other auctions before-hand so you know what to expect at an auction and how they operate. The main point to remember is to set yourself a budget and keep to it.
If you are successful at auction you will be required to sign the auction agreement to confirm the price and other details and to pay the deposit (either by cheque or often bank transfer is allowed).
Contact us for further assistance with buying a property at auction.