What happens if…I’m buying at auction but don’t have a chequebook

Being successful on auction day might be one of the most exhilarating and adult-like experiences of your life. Those months of budgeting having finally paid off and you’ll now have the big responsibility of paying off a home loan once you hand over the 10% deposit. For many of us, online banking has become our life, but when it comes to the auction, you can’t whip out your phone and make a quick bank transfer as real estate agents don’t allow it.

So if you’re now wondering how to go about paying the deposit, you’ve got three options:

Personal cheque.

For your first option, you may have to get a little old school and order a chequebook on your personal bank account – you can do this over the phone or at your local branch. While these are free to order, there are minor fees associated with using personal cheques. Cheques that are issued on your account and that are charged over the counter may incur a withdrawal fee of $2.50 each time. Also, cheques that are written by you and are negotiated through a clearing system may incur a fee of $1.50. It usually takes three business days for a cheque to clear once deposited at the bank.

But one of the best things about using a personal cheque at the auction is that if you are successful, you’ll be able to write out the exact figure for the winning bid but remember, by using a personal cheque you will also be asked to provide ID on the day, so don’t forget your license!

Bank cheque.

If you don’t want to order a cheque book purely for attending auctions, you are able to have a cheque provided by the bank. This is something you’ll obviously have to do beforehand as banks aren’t open after hours or on weekends, which is typically when auctions are held.

However, paying with a bank cheque is a risky game, as you’ll have to have the cheque written for 10% of your maximum bid. This means that during the auction, you won’t be able to stretch your budget if necessary and risk losing the home if your maximum price is lower than the selling price. But if your price is higher than the selling price, there’s no need to worry, this just means that more money will be tied up in the home.

While you may have to pay a small fee for a bank cheque – typically $10, these can add up if you’re continuously unsuccessful at auctions.

Deposit bond.

Your final option involves paying with a deposit bond. A deposit bond, or deposit guarantee, is a type of insurance policy that works like a guarantee to the vendor that you will pay the deposit. One of the benefits of a deposit bond is that you are able to use it at multiple auctions because the property and vendor’s details are left blank for you to fill in. If you’re planning to buy off the plan, this is also a great option as long as the developer accepts deposit bonds. By doing this, you’ll also be able to be given more time to financially prepare for the property and potentially receive a discount if the developer is desperate to sell.

However, you will need permission from the vendor to use a deposit bond as they often prefer a cheque deposit so that they can buy their new property. This is why it’s also a good idea to properly read the contract of sale. If you find that the contract states that a deposit is to be paid on the day, then you must actually pay it. You will also need permission from the real estate agent and because they like to see their commission payment ASAP, they may decline.

Want to get a jump start on finding the best home loan offers? Check out Mozo’s home loan comparison tool.