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Buying a home at auction: Everything first-home buyers need to know
September 30, 2024
Buying a home at auction can be a daunting experience. With bids flying from every direction, intense pressure from the auctioneer and mounting competition from fellow bidders, your stress levels will be through the roof.
If you’re ready to buy your first home, but aren’t sure how to crack it at auction, these four tips are the helping hand you need:
1. Complete your pre-auction checklist
Unfortunately, you can’t simply rock up to an auction and place a bid. Buying a home at auction just doesn’t work that way—you need to do a fair bit of legwork first.
Save this checklist; once you’ve ticked each item off, you’ll be ready to roll.
- Get your finance pre-approved in writing, whether conditionally or unconditionally, from your lender.
- Know your limits by confirming the maximum amount you can borrow. If you borrow more than planned, you’ll need to pay for lender’s mortgage insurance (LMI). This will impact your repayments and could stretch your budget.
- Have enough money ready to pay the deposit (typically 5-20% of the purchase price). If you secure the winning bid, you must sign the sale contract and pay your deposit immediately after the auction finishes—there’s no cooling off period when you buy a home at auction.
- Do your research; know where the local market is heading and how property sales are performing. Overpaying at auction can come back to bite!
- Thoroughly inspect the property and know its condition. If you’ve done your research well, you should know for which properties it’s worth investing in building, pest or strata reports.
- Review the contract with your solicitor or licensed conveyancer and make sure you’re comfortable with its terms. The contract of sale is final at auction, but you can do a pre-purchase review to make sure there are no unexpected surprises.
- Make sure the property has been appraised accurately. Never place a bid without first reviewing the bidder’s guide, and always attend an open home to make your own assessment of the property.
- Be confident that the property meets your needs. Before buying a home at auction, think about whether it’s close to the amenities you desire, if any repairs are required, whether there’s enough space, etc.
- Register to bid. Registration usually starts 30 minutes before the auction begins, but you can also register early with the selling agent; in either case, make sure you bring valid ID, like a driver’s licence. The agent will record your details and give you a bidder’s number, which you’ll need to display when placing a bid.
2. Do a few dry runs first
The best way to prepare to buy a home at auction is to attend a handful of auctions first and watch what goes down. Pay attention to the order of events, get comfortable with the atmosphere and take note of any bidding strategies you see. Here’s a quick rundown of what happens on auction day:
- Final property inspection.
- Register with the auctioneer (if you haven’t already pre-registered).
- Auctioneer gives an opening address about the process and property.
- Bidding begins.
- The property is declared ‘on the market’ once the reserve price is met.
- Bidding continues until it slows or ends, with the auctioneer confirming the highest bid by saying, ‘Going once, twice, three times’.
- The auctioneer drops the hammer and says ‘sold!’ to confirm the buyer.
- The sale is finalised between the buyer and the real estate agent.
3. Know your auction terminology
There’s a fair bit of jargon to get to grips with when buying a home at auction.
- Reserve price: Before the auction, the seller and auctioneer agree on a minimum ‘reserve price’. If bidding doesn’t reach this amount, the auctioneer will check privately with the seller to see if they’ll accept a lower price.
- Bidder’s guide: A document provided by the auctioneer before the auction that includes information on registration, required paperwork, auction rules and bylaws, and privacy laws—a must-read when buying a home at auction.
- Vendor bid: Strategically placed by the auctioneer on behalf of the seller to help the property hit its reserve price. This bid can only be made once, and must be announced by the auctioneer.
- Fall of the hammer: As the auction comes to a close, the auctioneer will call for any final bids. Once bidding stops, they will count down to the ‘fall of the hammer,’ marking the auction’s end. No more bids can be placed after this, and the highest bidder must sign the contract of sale and pay the deposit immediately.
- Passed in: If the reserve still isn’t met during bidding, the property may be ‘passed in’ or withdrawn. The highest bidder then gets the first chance to negotiate with the seller.
4. Stress less with a mortgage broker
When it comes to buying a home at auction, you’ve already got a lot on your plate. The good news is, you can take some of the pressure off with the help of a mortgage broker—like us! Our friendly team will help you find the right lender and home loan, plus any schemes or guarantees you may be eligible for, without the stress.
With our unmatched ranking amongst the country’s top lenders and pre-emptive processes that keep your application ahead of the system, you’ll be able to rest easy, knowing your finances will be all sorted before you buy a home at auction.
Reach out to us today, and we’ll help you get the ball rolling on your home ownership journey.
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