Auctions can be a great way to buy or sell property. They generally reflect the true market value of a house and the usually tedious due diligence and negotiation process between multiple parties is over as soon as the hammer falls. Because of this, they can also be quite overwhelming with lots going on, not only during the auction but beforehand as well. So where do you start if you’re looking to buy at auction?
Talk to your bank first
Talk to your bank and get the money sorted first. Auctions are unconditional sale processes, meaning if you’re successful, you are legally bound to go ahead with the purchase. This means you need to be able to bid on a “cash unconditional” basis. All due diligence (building reports, LIMs, valuations and so on) needs to happen before auction night so that if you make the winning bid, the sale can go through without a hitch. With this in mind, it’s incredibly important that you understand the maximum amount you can bid up to — I’ve mentioned this in some of my other blog posts, but it’s worth saying again — make a plan and stick to it. This is even more important at auction so that you don’t get caught up in the moment and bid more than you budgeted for — because once you win, there’s no backing out. Remember to check our website for some handy home loan calculators.
Do sweat the details
Before your bank will agree to loan you money to bid with at auction, they’re going to want to know a bit about your financial situation and the house you’re trying to buy. This means cobbling together all the necessary documentation to take to your bank — they’ll go through the usual steps involved in getting a home loan, as well as ask questions about the house. Make sure you give them a copy of the Auction Terms and Conditions, these will be available from the agent that is selling the house. Sometimes the people selling the house will have pre-prepared building reports and LIMs to smooth the sale process, so provide these to the bank too. Basically the more information you can give the bank about the property, the better. Make sure you check with the bank to ensure your finance is in place so you can bid - the last thing you want to be is the successful bidder only to find that your loan is not sorted.
Buying before the auction
Even if a house is up for auction, there’s a chance it could sell to someone else before the big day. Someone might make an unconditional offer on the property that the seller is keen to accept. If this is the case, all is not necessarily lost as the real estate agent may notify all registered bidders to give them a chance to make their own, best offer before auction day. For this reason, make sure you’ve gone to the real estate agent and formally registered your interest in bidding.
After the dust settles and you find yourself with the winning bid, you’ll be whisked away by the real estate agent to sign the sale and purchase agreement. It’s at this point that you will need to negotiate a settlement date, if one hasn’t already been agreed. Settlement day is the time at which your solicitor will pay the full sum of the purchase price to the seller’s solicitor, ownership will be transferred to you and you take possession of the property. Once the agreement has been signed you’ll need to pay a deposit of 10% on the spot, so make sure it’s ready to go. If your cash is tied up and won’t be available on auction day talk to your bank to see if they can provide any temporary assistance. The real estate agent selling the house will hold the deposit money in an audited trust account until they’re authorised to release it according to the sale agreement.
Once all this is done, make sure you get a copy of the sale agreement and provide it to your bank ASAP. The bank won’t be able to finalise loan details until they have a copy of this agreement.
Auctions can surely be a whirlwind, but if you’re properly prepared with a solid plan, they can be a great way to buy a new home. Find out more about auctions and other ways of buying a house on the BNZ website.