If there is one thing we know for certain, it is that the property market in Queensland is booming. As a result of this increase in Buyers, we have seen an increased election by Sellers to try their luck at auction. Whilst an auction can (and usually is) a thrilling event to attend, the process is very different to your standard property purchase process (inspection, offer, contract).
Below are 6 tips to help you navigate your way through buying real estate at an auction.
1. Do your Research
The most important thing to remember is once the hammer falls, you are locked into an unconditional contract (more about that below). You want to make sure that what you are buying is actually what you are getting. Some big-ticket items worth considering are: zoning, similar property sales in the area, local government overlays and flooding and school districts. A lawyer will be critical at the pre-auction stage to assist with your due diligence investigations.
2. Understanding your rights
The key point to remember when purchasing at auction is that the contract will be unconditional. This means that not only should you consider the financial implications of an auction purchase carefully, but you should conduct all your due diligence searches and building and pest inspections prior to attending on Auction day. Another critical point is that auction contracts do not offer the protection of a cooling-off period. This means you will have to settle even if you change your mind within 24 hours. You must also bear in mind that even if you enter a private treaty contract within 2 business days of an unsuccessful auction of that property, cooling off period still does not apply.
3. Obligations regarding deposit
Items of import to confirm prior to bidding would be the deposit amount (is it a percentage of the winning bid or a fixed amount) and the timing of payment. Non-payment of a deposit by the due date, is a breach of the contract and can have serious implications. You want to ensure before committing yourself at auction, that you can meet the financial obligation when it falls due. It would also be prudent if the deposit is a large sum whether your bank will allow the transfer by EFT in one sum, or whether you will need a few days to make the payment. The deposit is not deemed paid until the entire sum is received by the deposit holder.
4. Buying without a finance clause
As mentioned, the auction contracts are unconditional which means you do not have the benefit of a finance clause. We recommend obtaining a pre-approval with your bank and even sending them a copy of the draft auction contract prior to attending. Other steps you can take might include arranging a property valuation prior to attending so you have a better estimate of the funds the bank might be willing to lend. Short of these steps, you would want to ensure that you are comfortable with the amount you are able to spend prior to attending and to stick to that amount. All too often an over eagerness to “win” at auction, can mean you lose in the long run if you over commit financially, and can’t arrange the finance come settlement day.
5. Check the contract
At the inspection of the property, the agent will have a contract available that will become the Auction contract if the property sells. Prior to attending an auction, it is prudent to have a solicitor check over the contract which can be done by simply requesting a copy from the agent beforehand. There is limited scope to negotiate on an auction contract. You should also confirm with the auctioneer if any last-minute changes have been made to the contract prior to bidding (although they should announce this to you when the auction commences).
If you are attending an auction, contact tony.crilly@PerspectiveLaw.com to assist with your pre-auction needs to help make sure you are ready and confident come the big day.