Buying your first home in a private sale is daunting enough but if you happen to love a property that is going under the hammer things really get nerve-racking.
That’s why it’s wise before you attend an auction to create a game plan to ensure you not only purchase the right property but one at the right price.
Here are the steps I recommend you take before, during and after an auction:
1. Inspect and inspect again
If you’re really serious about a property, you should inspect it at least twice before auction day and at different times to have a different experience each time. Even without an inspection it can be worthwhile visiting the property to see what parking is like in the area and what the noise is like on a given day.
2. Review the paperwork
Asking to review the contract is the first step if you’re really serious about bidding on auction day. The contract will have information about the property itself including land size, sewer diagram, etc. You’ll need to have this reviewed by a solicitor to spot any abnormalities which could bite you later on.
3. Do a Building Inspection
This is something you’ll need to pay for but could save you thousands in the long term. Conducted by a third party, it will highlight any structural issues with the property e.g. termites or water damage.
4. Check your pre-approval
You may already have your pre-approval but it’s worthwhile making sure it’s current and to see if the bank has any information on the property you’re considering including a price guide. Keep in mind, while a pre-approval shows you’re a shoo in for the bank’s home loan, the lender won’t value the property until after the hammer comes down and may not approve you for final approval if you have paid over market value for the property.
5. Know your terminology
The reserve is the minimum sale price set by the owner and the auctioneer must reveal when this is reached but this can change throughout the auction, although this would only happen in a quiet market. A vendor bid is made on behalf of the current owner and can only be made once. It can be made at any time during the auction but must be disclosed by the auctioneer so listen out for this.
6. Consider your game plan
Decide in advance whether you’re confident to bid at the auction. If not, you can authorise a family member or friend to bid on your behalf, just be clear with them on your chosen strategy and budget. If you physically can’t be there on auction day, you can assign the bidding to someone on your behalf and the real estate agent can provide you with a template letter for this.
7. Don’t overthink it
Trying to develop the winning strategy could become useless after the first five minutes so don’t get too set in your ways, just see how the bidding goes. With that in mind, it’s important you know your absolute maximum and don’t get carried away.
8. Pay on the day
If you’re successful on auction day, you’ll be required to pay a 10% deposit on the spot so make sure you have your chequebook or a deposit bond from the bank with you. If for some reason your home loan is not approved, you’d lose that deposit, so you can see why doing your research and seeking a pre-approval is important.
9. Don’t let an opportunity pass you by
If the property is passed-in on auction day, you still might be able to negotiate even if you’re not the highest bidder so it’s worth chatting to the real estate agent to see if you can make an offer and how keen the owners are to negotiate.
10. Keep your chin up
If you miss out on a property on auction day, don’t give up. Speak to the real estate agent and let them know that you are keen on similar properties in the area and, knowing you’re a serious buyer, they might give you some advance warning when a new property is coming on the market.
For more property buying tips, read my Investing in an inflated market blog.