An auction is a popular method of purchasing a property, but for the first timer, it can be a daunting experience. You may be overwhelmed by the excitement of getting your hands on your dream property or forced to silence by the ferocious tactics of the seasoned investors. Auctions are unpredictable which is why you always need to be prepared:
Once that hammer falls on your final bid, the offer becomes unconditional. There is no backing out of the sale or negotiation. If you change your mind because there is no off-street parking, or there is roof damage that went unnoticed during the first inspection, it’s now your problem. If you are serious about the property, it is important to carry out some thorough research. Attend the open homes of the property and request another viewing if you are interested. As there is no Sale and Purchase Agreement in place, you will have to carry out all inspections on the property.
Before you go to the auction, go through a copy of the Particulars and Conditions of sale with your legal representative.
It is advised to commission a building inspection, especially in older properties. A Builders Report will cost around $500 which is a worthy investment if you are serious about the property.
Land Information Memorandum (LIM) Report offers information held on the property such as any rates that may be owing in relation to the land, building permits,
Attend a few practice auctions
Before your big day, attend a few auctions to familiarise yourself with the process and strategies that may be used. Become aware of the techniques used by the auctioneer to speed up the auction or jump in increments to push up the sale price. Compare the figures in your area for suggested price and purchased price to understand the current market and demand.
Have the finances available
You can obtain a pre-approval but this does not guarantee that you will have the funds available to you. You must arrange your finances before you bid in an auction. Your mortgage adviser will be able to explain the process. When you have the successful bid, the agreement becomes unconditional and you will have to pay a 10 % deposit to the vendor on auction day (unless previously agreed by the vendor and or auctioneer). You cannot use your KiwiSaver for the deposit, only once the final settlement of the property occurs.
Set your maximum price and stick to it
When you go into an auction, have two prices in mind – how much you would like to pay for it and how much you are prepared to pay for it. Aim for the first price in mind when you are bidding. Set your maximum price slightly above a rounded figure. Leave your emotions at the door and do not get caught up in the competitive nature of a bidding war. Remember, once it goes unconditional, it’s yours for whatever price you agreed at the time.
Buying before auction
A pre-auction offer can be made to the vendor. For your offer to be taken seriously, it must be unconditional and appealing to the vender.
Reserve
If there is a reserve price in place, the property must be sold to the highest offer at the end of the auction if this figure has been reached. If this reserve is not met, the home is ‘passed in’. The home often sells through negotiation after the auction. If you were the highest bidder, you are in a strong position to negotiate. Conditions can be added to the contract at this stage.
Before the auction day
Once your finances are in check and you have carried out your due diligence, register your interest with the agent if you have not already done so. Have one last look around the property if feasible. You may want to take along a friend for moral support, or ask someone to bid on your behalf if you are not confident or new to the process. Remember to leave your emotions at the door, and good luck!
