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Buying at Auction
Buying a house at auction can be a great exhilaration but be sure to take all the necessary steps to prepare you before the big day.


Whether it's the family home or an investment property, buying a house is one of life's most important financial decisions. You can buy a property by agreeing to a vendor's set price: this is known as sale by private treaty.

The more common alternative is to buy at auction. For you, the private buyer, there are many advantages of buying at auction.

Firstly, the property is available for sale on a set day. It is a transparent process between bidders. Private treaty arrangements can encourage the playing off of one potential buyer against another, resulting in an inflated price.

Auctions offer a wider range of properties and can include repossessions or properties in need of renovation or modernisation.

There is no risk of being gazumped (see below) because the property is sold on the fall of the hammer and the contract is binding. There is no danger of the vendor pulling out as the contract of sale is equally binding on both parties as soon as the hammer falls. You benefit from a speedy purchase and completion because all the legal work and surveys should be completed prior to the big day (Gazumping occurs when you have a verbal agreement with an agent or seller to buy a property at an agreed price, you pay an expression of interest deposit, but the property is sold to someone else, usually for a higher amount. This cannot happen at auction.).

Buying at Auction

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As a private buyer there some key issues you need to consider before making your first serious bid at a property auction.

Attend other auctions - It is important that you attend other auctions to familiarise yourself with the procedures. Auctions can generate a potent atmosphere of emotion and competition and it's best that you know what to expect before you risk your own money. Advise the agent of your interest - This is so you can be kept informed. Sometimes the vendor may be accepting offers prior to auction, or there may be special conditions of sale you should know about. Have an expert check the property - If you have any concerns about the condition of the property, have an expert (a builder, architect or independent agent) check it and provide you with a report before the auction.

Check the contract - Check the contract details with the vendor's agent or the agent you have engaged to represent your interests. Satisfy yourself - Compare property values in the area by monitoring local advertisements and sales. Check access to local facilities like schools, transport and shops. Visit the street at different times of the day. Inspect the property more than once. You also might try chatting with your potential neighbours beforehand.

Arrange your finance - Most banks and lending institutions will inspect and/or approve your finance prior to the auction. You will need to have enough funds to pay the deposit when the hammer falls (usually 10 per cent of the purchase price) plus you will have to have your mortgage in place to pay the balance if you are successful (usually 28 days later).

Buying at Auction

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Set your limit -
On the day of the auction, set the limit you are prepared to pay. You might have a small margin up your sleeve if you really want the property, but never bid beyond your capacity to pay. When setting your limit, don't forget the necessary additional costs such as bank fees, stamp duty, conveyancing and other costs. These can be quiet sizeable, so know what they are before you set your limit.

Bidding at auction - By now you will have seen how successful bidders operate. You can bid by getting the auctioneer's attention by calling your bid. Ensure you position yourself where the auctioneer can see you. Waving your hand or nodding your head will raise the bid by the amount of the previous bid. Be positive and bid with confidence.

Arrange suitable insurance cover - If you are successful and the hammer falls on your bid, the property is your responsibility and you should arrange suitable insurance cover to protect your interest.

If it fails to sell - If the property fails to sell at auction this means it did not meet the vendor's reserve price, a confidential figure known only to the agent (and auctioneer) and the vendor. The selling agent will then usually seek to negotiate with interested parties immediately after the auction to see if a sale price can be agreed upon. The convention is that the highest bidder has first right to negotiate if the property is passed in. However, if you are keen to buy the property, certainly make this known to the auctioneer.

Buying at Auction

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A dummy bidder is a person who is not a genuine buyer but who participates in the auction solely for the purpose of artificially raising the sale price. To deter this practice, in some States you cannot bid at the auction of a residential property unless you give the selling agent your name and address and show proof of identity. Your details are recorded in the Bidders Record and you are given a bidder's number. Registering doesn't mean you must bid at the auction; it simply gives you the right to bid.

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In some States vendors (the sellers of the property) are restricted to a single bid and when this is accepted the auctioneer must clearly state that it is the vendor's bid.

Buying at Auction

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When considering buying an investment property remember that you are making a business decision. You are buying from the head, not the heart, so don't look for all the same things you would look for in a home. Don't succumb to the idea that you need to buy in your local area so you can be close to your investment to keep an eye on it. It's essential for you to have a fully worked out property investment strategy. You may be seeking a high yield plus high appreciation. Because it is often difficult to achieve both, try to be clear on where you are prepared to give ground on rental returns or on capital growth?

Buyers who bid successfully for their property often recall the auction as one of the most exciting few minutes of their lives. The stakes are high and so are the tension and the adrenalin, but it can be a wonderful experience.

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