KEY TAKE OUTS:
- What you need to know before attending an auction.
- What pre-auction process should you undertake.
- The importance of getting inspection reports and advice on the Contract before auction.
No cooling off period
One of the most important things you need to know when purchasing a property at auction is that if you are the successful bidder on the day, you become locked into the purchase on that day. There is no cooling off period. A cooling off period does not apply to the purchase of a property at auction.
Obtain advice on the Contract prior to auction day!
The Contract contains terms and conditions that impose rights and responsibilities on you. It also contains legal jargon, legal terminology and important information about the property generally. It is important you know and understand what those conditions are. When it comes to the information that is disclosed about the property, this includes but is not limited to whether the property is flood or bushfire affected.
As such, we strongly recommend that you have your Conveyancer or Lawyer provide you with advice on the Contract prior to the auction day. You should let the Agent know that you are interested in purchasing the property and they will forward you a copy of the Contract, which you can pass on to your Conveyancer or Lawyer for their review.
Your Conveyancer or Lawyer can negotiate changes to the Contract or raise any queries you may have prior to the auction. This can include things such as negotiating a longer settlement period or a reduced deposit. Any agreements for changes to the Contract made prior to the auction will be incorporated into the Contract that is exchanged if you are the successful bidder on the day.
We recommend that you take a copy of the correspondence between your Conveyancer/Lawyer and the Vendors Conveyancer/Lawyer to the auction so that this can be presented to the auctioneer prior to you signing the Contract.
Ever heard the term ‘caveat emptor’? It means ‘let the buyer beware’. The principle beyond it is that the Purchaser alone is responsible for checking the condition of the property prior to purchasing it. There are some exceptions where the Vendor must make disclosures but in the majority of cases the Purchaser accepts the property on an ‘as is’ basis and so it’s important that the Purchaser knows the true condition of the property before purchasing it. As such, it is highly recommended that you conduct your own due diligence prior to the auction.
This includes things such as obtaining pest and building inspection reports or in the case of a strata property, a strata report. The results of these reports may affect the offer you are prepared to make on the property or even your decision to buy the property altogether. It is important to consider that even newer properties can have issues you are unaware of. Any issues identified in the reports can be raised with the Vendor prior to the auction and can form part of the Contract negotiations.
For example, if the building report reveals cracked roof tiles which resulted in water leaks into the property from the roof, you may ask the Vendor to replace the cracked roof tiles prior to settlement at their own cost. If they agree, the Contract will be amended to include a special condition which details this agreement.
Given the unconditional nature of exchange of Contracts at auction, it’s extremely important that you ensure your finances are in order prior to attending action. We strongly recommend that you have unconditional (sometimes called formal) loan approval in place prior to the auction day. Despite this, we understand that it is not always possible.
Sometimes you don’t have enough time between finding the property and the auction day to get unconditional loan approval in place. If you don’t have an unconditional loan approval in place prior to auction, you should consider the financial risk.
Even with a pre-approval in place, finance is not guaranteed to be granted to you. If there is an interest rate rise between being issued a pre-approval and the auction day which affects your borrowing capacity or if the valuation doesn’t stack up you may be restricted from obtaining the finance required to complete and be in default of the Contract terms. We would encourage anyone looking to purchase a property at auction to discuss their financial situation with their banker or broker prior to attending an auction.
When considering what you are prepared to bid on a property and how much you need to borrow from the bank, don’t forget to factor in the other miscellaneous costs associated with purchasing such as rates adjustments, stamp duty, legal fees etc.
A 10% deposit is required on exchange of Contracts, that is 10% of the purchase price is payable to the Agent on the day of the auction. If a lesser deposit is negotiated prior to the auction, then this amount is due upon signing the Contract. As such, you should have your deposit ready to go. Consider whether this requires you to contact your bank to arrange an increase of your daily transfer limit so that you can pay the full deposit on the day of auction.
To ensure the integrity of the auction process, some other rules apply.
- The highest bidder is the Purchaser, subject to any reserve price.
- In the event of a disputed bid, the auctioneer is the sole auctioneer’s opinion, is not in the best interests of the seller.
- The bidder is taken to be the Purchaser unless, before bidding the bidder has given the auctioneer a copy of a written authority to bid for or on behalf of another person.
- A bid cannot be made or accepted after the fall of the hammer the purchaser is to sign the agreement for sale.
- All bidders must be registered in the bidders Records and display an identifying number when making a bid.
- One bid only may be made by or on behalf of the seller and this includes a bid made by the auctioneer on behalf of the seller.
ABOUT MELINA COSTANTINO
Melina joined the Coutts team in 2010 working as a Licenced 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.
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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.