Buying a property at an auction can be challenging and stressful, however with prior planning & organisation, you will be well prepared to make the right decision when the auctioneer calls for a final bid!
1. The Contract
There are important differences when buying a property under auction contract conditions compared with buying under standard contract conditions.
Auction Contract Conditions
When buying under auction conditions, the Contract does not include the conditions which protect the Buyer in a standard contract.
Standard Contract Conditions
When buying under standard conditions, the Contract can state that the Buyer is only required to complete the purchase after some or all of the following conditions are satisfied:
- to change their mind & withdraw from the purchase within the 5 business day cooling-off period
- to confirm that they are paying a fair price for the property by obtaining a satisfactory valuation
- to confirm that they can borrow sufficient money from a bank to complete the purchase by obtaining a satisfactory finance approval
- to confirm that the building is structurally sound and/or in good condition by obtaining a satisfactory Building Inspection Report
- to confirm that the property is not affected by termites, pests and other vermin by obtaining satisfactory Pest Inspection Report
- when buying an apartment, to confirm that the body corporate does not have any issues which will affect their use, enjoyment or expense of living in the property; by obtaining a satisfactory Body Corporate Records Inspection Report
2. Are You Feeling Lucky?
The Queensland contract doesn’t include the important documents about the property which every buyer needs to review before deciding whether to purchase.
You have a choice
You can buy the property without making any enquiries before the auction and hope that you do not experience any problems, or, you can undertake enquiries before the auction to enable you to make an informed decision.
Risks of Pre-auction enquiries
Pre-auction enquiries involve time and money, all of which may amount to nothing where you are not the successful bidder at the auction.
Reasons why you may not succeed at the auction
The property may be: sold before the auction, or withdrawn from sale by the owner, or fail to reach the reserve price, or the bidding goes beyond your budget!
Get familiar with the auction process
Attend several auctions in the weeks prior to your auction to get familiar with how auctions are conducted. You will find many comments on websites about the issues with auctions for both buyers & sellers.
3. What You Should Do?
What enquiries should you make?
The actions a buyer can take fall into 2 categories:
- Engage your lawyer to conduct searches of the property
- Engage consultants to investigate the property & provide you with reports
When to start
Because it can take up to 15 business days to obtain the results of some enquiries, you should start the process at least 3 weeks before the auction.
Obtain a copy of the Contract
Obtain from the Selling Agent a copy of the Contract document and any disclosure documents which the successful bidder at the auction will be required to sign.
Contact your lawyer
Provide your lawyer with a copy of the Contract & discuss what searches to conduct. Your lawyer can provide you with a detailed list of available searches.
The searches to be carried out will depend upon the type of property & your intentions, however where in doubt, conduct them all.
Contact your Consultants
Depending upon the property and your particular circumstances, consider the following:
- Contact a licensed valuer to obtain a valuation report as to the market price for the property
- Contact your Accountant to discuss whether the property will be purchased in your own names, or whether some other legal structure may be used.
- Contact a finance broker to obtain a pre-approval of finance from your preferred lender
- Contact a licensed building inspector to obtain a report as to whether the building is structurally sound and/or in good condition
- Contact a licensed pest inspector to obtain a report as to whether the property is not affected by termites, pests and other vermin
- Contact your lawyer to engage a Body Corporate Records Inspector to provide a report as to whether the body corporate has any issues which will affect your use, enjoyment or expense of living in the property
Arrange Access to the Property
Contact the Selling Agent to arrange access for your consultants to inspect the property. Arrange the inspections as soon as possible to ensure you have the maximum time to consider the reports.
Review the Results of Your Enquiries
Before the auction day:
Review the search results obtained by your lawyer
- Review the reports and approvals provided by your consultants
- Decide whether you are satisfied with the enquiries, reports & approvals; & that the property is suitable.
Determine your Highest Bid
Where you want to attempt to buy the property:
- decide what is the maximum price you are able to afford, &
- decide what is the maximum price that you are prepared to pay for the property.
You don’t need to wait until the auction to make an offer to buy the property. As the property owner could accept an offer from you & other potential bidders and sign a Contract before the auction, contact the Selling Agent where you are interested in buying the property.
4. Auction Day
Check that the contract documents are the same (if you have previously reviewed them).
Confirm with the Auctioneer as to how the auction is to be conducted & review any documents made available to potential bidders. Register as a bidder, using the name recommended by your Accountant (if applicable).
Whilst auctions are obviously important and significant events for the successful bidder, auctions are often conducted with distracting theatrical aspects of salesmanship & humour.
Usually, the highest bidder will only be successful in buying the property after the auctioneer has announced that the “property is on the market” or words to that effect. However, this is not always the case.
A frustrating aspect is that, on some occasions when the bidding has reached the “reserve” amount required by the Seller (which is not disclosed) there is a blurring of the theatrical aspects of the auctioneer with the need to convey the clear statement to the people present that the highest bidder will become the owner.
Whilst you may never know whether bids announced by the auctioneer are genuine, where you are well prepared, you will be able to block out the distractions & concentrate on the auction process to enable you to make clear decisions.
You will sign the Contract following the auction & pay the deposit. You will receive your copy of the Contract, which you should deliver to your lawyer immediately.