KEY TAKE-OUTS:
- What to keep in mind when looking at purchasing at auction
- How to protect yourself as a purchaser at an auction
- Must-knows before you consider attending an auction
An auction can be an anxious and stressful time for both parties. As the Vendor, you’ve set your reserve and now anxiously wait, listening to bid after bid to see if it’ll be reached or even exceeded. You’ve all seen how emotions can get wild like on Channel 9’s The Block right?! As a potential Purchaser, you’re so hopeful you’ll be the highest bidder and not have to reach the top end of your budget to secure the property.
But what about the legal considerations before you even get to the auction day? There are things you need to know and legal protections that can be put in place by obtaining good legal representation prior to auction.
No cooling-off period
The sale/purchase of a property at auction is one of the instances where a cooling-off period doesn’t apply. Both parties are locked into the transaction on the day. For the Purchaser, this means they don’t receive the benefit of a cooling-off period, and so it’s imperative that they conduct their due diligence prior to attending the auction. For the Vendor, it gives surety and confidence knowing the Purchaser is locked in on the day and the property is sold.
Due Diligence
As set out above, because there is no cooling-off period when you purchase at auction, it’s imperative that the Purchaser conducts their due diligence prior to the auction. This includes obtaining inspection reports (pest, building, and/or strata reports). It is important that you are aware of any issues or factors that may contribute to your decision to purchase the property or the price that you are prepared to pay for it. If an issue is identified in the report, you can factor this into your decision-making. If completed early enough, it allows you an opportunity to make enquiries or even negotiations with the Vendor about the findings and/or conduct further investigations yourself.
Finance Approval
Once again, because there is no cooling-off period, it’s important you have your finances in order prior to attending the auction. This means having a loan approval in place – something that says you can borrow the funds you need to complete. The loan approval will tell you the maximum amount the bank is prepared to lend you. This, together with your savings, but less the costs and expenses, such as stamp duty, will help you to determine how much you can afford and ultimately what your highest bid can be. We recommend speaking to your broker or banker once you decide it’s the right time for you to enter the market, so all the preliminary conversations and calculations can be done before you find a property but then also as soon as you find a property you like and decide that you want to go to the auction and bid for it.
Deposit
If you are the successful bidder at auction, you will be required to sign the Contract and pay the deposit as soon as possible after the fall of the hammer. As such, it is important that you have access to the funds required. You may need to consider increasing your daily transfer limit ahead of the auction day, just in case you are successful and can’t do it on your mobile on the day. The deposit is 10% of the price. In the instance you require a reduced deposit, say 5% deposit, this will need to be negotiated prior to the auction. Don’t have access to a cash deposit? You should speak with your banker/broker and legal representative about a deposit bond, which is a substitute for a cash deposit.
Contract Review and Negotiations
Prior to auction, you should engage a legal representative (Solicitor or Conveyancer) to review the Contract, advise you on its terms, and make any required negotiations. The Agent holds a marketing Contract and can issue this to your nominated legal representative for their review. Your legal representative will explain the terms of the Contract and make recommendations for changes to it. It is important that you know what the Contract says and have an opportunity to negotiate its terms before you are required to sign it and become legally bound by it. You should have evidence of any negotiations made and present these to the Agent if you are the successful bidder. Once the Contract is entered into, the Purchaser loses all power to negotiate its terms, noting you are already locked in (remember, there is no cooling-off period with a purchase at auction). Think about it this way – would you typically sign any document agreeing to terms in it without reading it first? I am hopeful your answer to this question is no. The Contract could contain clauses and information that are detrimental to your decision to proceed with the purchase of the property, but how will you really know this until you have a legal professional explain the terms to you?
How can we help?
At Coutts Lawyers & Conveyancers, we understand how daunting property auctions can be. Our experienced team can:
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Review and negotiate contracts before auction day
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Guide you through inspections, deposits, and legal requirements
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Help secure your rights as a buyer with confidence
Don’t risk making a costly mistake on one of life’s biggest purchases.
ABOUT MELINA MAIOLO
Melina joined the Coutts team in 2010 working as a Licensed Conveyancer within our Property & Conveyancing team, based out of our Campbelltown office. Her commitment to client services saw her progress further and into the role of a Senior Licensed Conveyancer in July 2022.
She graduated with a distinction in the Advanced Diploma of Conveyancing and is accredited with the Australian Institute of Conveyancers NSW.
For further information please don’t hesitate to contact:
Melina Maiolo
Senior Licensed Conveyancer & JP
info@couttslegal.com.au
1300 268 887
This blog is merely general and non-specific information on the subject matter and is not and should not be considered or relied on as legal advice. Coutts is not responsible for any cost, expense, loss or liability whatsoever in relation to this blog, including all or any reliance on this blog or use or application of this blog by you.
