In recent times, auctions to generate the best price for vendors have become a very popular sales method. Buying at auction is a little different to a normal purchase in the fact that you don’t actually know the purchase price of the property you will be buying until the hammer falls. While there is always a risk of being swept up in the drama and excitement of bidding, and paying slightly more than you would normally, it is often a way to purchase a property at a slightly lower price. Especially if the sale of the property is being forced by the bank, or as it is most usually referred to, gone to mortgagee auction.
However, there are a couple of things to bear in mind when purchasing at any auction, and a couple of extra points to be wary of if it’s a mortgagee sale.
• When you are the successful bidder at auction your purchase becomes unconditional.
This means that you will definitely be buying, and any checks that you would normally carry out before purchasing a property (Builders inspection, LIM, etc) would need to be paid for prior to auction day. (Remember, that you run the risk of not being the successful bidder, so could end up paying for inspections for a house that doesn’t end up being yours)
• You will be required to pay 10% deposit on hammer fall,
so would need to make sure that funds can be withdrawn, or that you have access to another source of funds to pay the deposit. In most cases, if you have a pre-approval with the bank, a temporary overdraft can be set up to cover the cost of the deposit. The overdraft then gets repaid from the home loan once it draws down on settlement of the purchase.
When the auction is a mortgagee sale, it is important to consider the following;
• There is not usually an option to view the property, so there is no guarantee of the condition of the home before you buy it.
• We have heard of one occasion where the previous owners (Those being forced from the property) refused to vacate the home on the required settlement date, and the purchasers ended up having to get the Police involved to have the previous residents removed.
If you know the details of the property prior to going to Mortgagee auction, then the bank will be able to determine whether the property type, location and expected sale value will be acceptable as security and you should be able to get the banks consent to bid ahead of the auction date. They will also be able to give you a loan offer for a maximum borrowing amount. This pre-approved figure allows you to know what purchase price you are able to go up to, and it is important to talk to an adviser who can help you be prepared in the best possible way before you go to any type of auction.
