If you have to go to auction to get the home of your dreams, do so strategically and unemotionally. This is what you need to know.
Auctions are a common feature of the Australian home buying landscape. However, it’s not always the best way to buy a property.
“Auctions aren’t great for buyers, as you won’t get the property for less than what the vendor wants to sell it for,” says Pratham Karkal, Head of Personal Banking Direct at Macquarie’s Banking and Financial Services Group. “The property either sells for more than the vendor wants, or it’s passed in”.
“It wasn’t too long ago that properties being sold at auction were selling at an average of 20% more than the vendor’s ask.”
The smart thing to do is to try to seal the deal before auction, but if your attempts fail, your best bet is to approach the day itself as strategically as possible.
And while an auction is an exciting and fast-paced experience, it’s important to balance that with the fact it is one of the most significant purchases of your life.
Step 1: Get experience of auctions in the neighbourhood
If there’s a chance the property you want might go to auction, do not make that auction your first. Attend auctions in the local area, and get a feel for what happens.
“You should never go to an auction for the first time when you want to bid,” says Karkal. “Go to auctions to see what they're like. Go to auctions just to observe, and remove any uncertainty about what happens.”
Step 2: Arm yourself with information before bidding at auction
Make sure you get a building and pest inspection before auction day – so you don’t have any nasty surprises (such as structural issues).
Arranging for an independent valuation will help you decide what you’re willing to pay on auction day. This prep work could not only save you regrets, but a significant sum of money in the long run, too.
“You should also get a feel for the prices of comparable properties in your area, over the last six months,” says Karkal. “It’s also important to understand how long it's been on the market for; why has it been on the market for six weeks, seven weeks, eight weeks?”
Speak to the real estate agent in the lead-up to auction day and ask as many questions as you can. They should be able to provide you with a condition report and a copy of the contract. Ask your solicitor to review this paperwork prior to auction day and tell you if any terms of sale strike them as red flags.
Make sure you have spoken to your bank or mortgage broker, and had your finance pre-approved too.
Finally, make sure the required deposit is on hand – if you are the highest bidder you must put down the deposit immediately after the auction. More often than not, this will typically be 10% of the purchase price.
Don’t forget to bring along some picture identification to register to bid, such as your driver’s licence. If you registered in advance at your first inspection, you’ll still need to bring your ID on auction day.