Purchasing a property at auction-what you need to know
When purchasing a property, there are generally two ways in which you can achieve this.
The first, the traditional offer method, is by offer and acceptance of a signed Agreement for Sale and Purchase between the vendor (seller) and purchaser (buyer) of a property. The terms of the Agreement for Sale and Purchase can be negotiated between the parties, whether through a real estate agent or a private sale. These types of agreements, can contain terms, known as special conditions to enable the purchaser sufficient time to ensure they have completed their due diligence on the property including (and not limited to) confirmation of finance being approved, obtaining Land Information Memorandum (LIM) reports to check for building consents, code of compliance certificates, location of services such as stormwater and wastewater running through the property, and any intended works by the council or government agencies, such as road construction. Additional reports may be required such as building and methamphetamine contamination reports and anything else the purchaser may need to satisfy themselves that the property is suitable for their needs. This traditional method gives the purchaser the ability to terminate the agreement should they genuinely not be in a position to confirm their special conditions of sale.
The second method is purchasing by way of auction. For any purchaser using this method, which can be riskier than the traditional method, it is highly recommended that they complete their due diligence of the property being purchased first. The consequences of not completing your due diligence could result in the property being purchased with hidden issues, such as weather-tightness or not having had code of compliance certificates issued for works completed from 1993 onwards, which may in-validate your insurance or prevent your bank from lending you mortgage funds.
The check-list mentioned above under the traditional offer option must also be carried out when an auction is the method of sale. The only difference is timing. Under the first traditional method, the purchaser has the luxury of having a signed agreement to work with. However, with the auction method the purchaser will have needed to complete their due diligence for the property, including approved finance as he or she must be ready before the auction. This is because when the hammer falls in your favour you are bound to purchase the property from that time.
The important steps to be aware of when purchasing by auction include the following:
- Register your interest with the real estate company before the auction.
- Have your conveyancer or solicitor review the auction terms and conditions to the Agreement for Sale and Purchase before the auction.
- Ensure the vendor warranties, which give the purchaser protection in some circumstances, have not been deleted from the auction terms.
- Be prepared to have your deposit amount available, as at the fall of the hammer, if you are the winning purchaser your deposit is immediately payable.
- The reserve price the vendor has disclosed to the agent will not be known to the general public. Researching the value of the property before you attend the auction will ensure you are not over paying for it, or entering into a bidding war and going over your pre-approved finance limit.
- Once you have purchased at auction you are committed to completing it. There is no going back without a great legal battle, and you may forfeit the deposit you have paid.
If the property fails to sell at auction, you may then be invited to enter into negotiations with the vendor to discuss price, the settlement date and any special conditions of sale. It is recommended that you consult a legal professional before signing any Agreement for Sale and Purchase, whether it is by the traditional method or by way of auction, to ensure your rights as a purchaser are protected.