So you are ready to buy your first place but before you bid, what else do you need to consider?
Auctions are not for the faint hearted so before you bid, it is worth preparing yourself. Buying a house is like running a marathon: the length of time it takes may vary but you should definitely warm up and you’ll need to pace yourself.
Sadly many properties these days are sold at auction — this is due to demand of the rising property market. At this stage, as a first home buyer, you are at a disadvantage as buying at an auction, unlike making an offer on a house, does not have a cooling off period (the time you could have used for duck realignment). It is important for you to understand the processes involved so that before you bid, you have all of the information, allowing you to go in confidently on the day of the auction. Seasoned buyers and those looking to improve their portfolios with an investment property are at the advantage having been there and done that but they don’t need to know you’re a newbie.
There are many things that need to be done before the auction to ensure that your interests are protected and that you are fully informed about the property you are hoping to buy. And besides, who doesn’t love a good list? That’s why we have made one for you. Pencils ready please!
A Checklist For Before You Bid
- Finance: Make sure you have your finance unconditionally approved with your chosen lender.
- Know your limit: Find out your maximum borrowing capacity, set yourself a limit, and stick to it.
- Contract review: Have your conveyancer review the contract prior to the auction. At least a week. You will need to present this if you are successful at the time of auction.
- Inspect the property physically: Only your eyes can pick up potential issues. Real estate photographs can be deceptive and Google Maps can only tell you so much about the neighbourhood.
- Property report: Property and strata reports can be commissioned through agents for the buyer or the seller and are legally required to disclose any vital information that may affect the sale of the house or unit.
- Deposit: Have your deposit ready. If you are successful, you will have to pay this on the day.
- Register to bid: Properties to be sold under auction require you to register to bid with the agent. You will then receive a bidder number and you are ready to go. Note that you will need ID to register.
So that’s it in a succinct, easy to scan, “ok I have done my homework, where do I sign” kind of way but lets break it down just a little more.
Digging Deeper
Money!
There, that got your attention.
You need to have unconditional pre-approval to safely bid at your auction. This is something you will go through with your bank or lender as they ask you, or you and your partner, lots of dry questions about earnings, spendings, and assets. They will then run it through their computer (beep-bop-bo-be-bop) and come up with a figure that you are, hoozah!, approved for.
It is worth noting that pre-approvals are often eye boggling sums of money and should definitely be taken with a grain of salt. Just because you can borrow that much money, doesn’t mean you should.
The lifespan of this approval varies from institute to institute but you generally have a three to six month grace period while it is active so strike while the iron is hot.
Which brings me to the next item on the before you bid list, know your limit.
Know your limit
I hope by now you have done the maths on what you can comfortably afford and what will remain in the realms of a Powerball win. Sadly, you will lose some auctions and with some you might not even get the chance to bid. But sticking to the limit you have set for yourself after you have crunched your own numbers will be worth it in the uncertain future of interest rates and the rising cost of living. It might even save you a foreclosure. You just never know, so be sensible.
Now that you have your finances sorted and you have alerts set on all your apps to potential matches of your search criteria, you can start to weed out the wheat from the chaff. You can save a lot of time by doing preliminary property report research online. You can find out sales and rental figures and also look through photos to see any updates or renovations that may have occurred (clearly this is a 21st Century perk) but the sales history will stretch back further than any photographs. There is much to be gleaned from this type of research.
In-person inspection
As stated, there is nothing better than an in person inspection. You may have researched an area but nothing beats driving up and having a look around. The agent is hardly going to list proximity to a famous murder house in the features. Once you have given it the once-over and your heart swells with hope and desire, then you can look to getting an official property or strata report (strata reports are for apartments or units within an existing building or section of land managed by a strata committee or body corporate).
These reports can be conducted through agents or private vendors who specialise in this area, though these reports will incur a fee.
The checklist may be looking pretty checked about now, so it is time to get ready for the day of the auction.
Preparing for the auction
Enter your legal eagle, the conveyancer, the see-er of all.
The sales agent will issue you with a contract that you can handball straight over to your conveyancer. Don’t even try to read it. Or do, but out loud and with a glass of wine to gain some understanding. Make sure you do this well before the auction date (not the drinking with wine bit, the other bit).
Your conveyancer will review the contract, advise you of any risks and help to protect your interests by identifying any terms that might need to be negotiated on your behalf or that you wish to have altered, for example: longer settlement periods, reduced deposits, and/or additional terms and conditions.
This will ensure you are buying exactly what you intended to buy and that the property is in the condition you expect.
Then when that moment arrives and you are the successful bidder at the auction, this reviewed and bespoke contract can be signed with total confidence. Remembering, of course, to have that deposit (usually about 0.25 % of the purchase price) sitting within easy access.
Pitfalls To Avoid Before You Bid
The checklist is pretty straightforward but there are always hidden undercurrents to anything new you are undertaking. Rolling the dice at an auction can be daunting, so now that we have you prepared for the lead up to auction day, here are some things worth noting before you raise your nervous paw in the air.
Avoid emotional bidding
We get it, you have everything else lined up and you have missed out on three places that were absolutely perfect, natural light, a small yard, and there was that one that had a window seat you imagined you and your daughter reading stories in on rainy afternoons. They say if you want to make God laugh, tell him your plans. And whether you believe in God or not, you definitely feel like, after that last auction, the universe is conspiring against you.
Every one of these places now is someone else’s dream realised and you are once again left disappointed and determined that you will not miss out next time. Do not let the emotional fatigue you are feeling push you into making emotionally charged decisions about your money and future. Never mix money with emotion — the brain’s got this one!
If buying with your partner, decide well ahead of time who is going to do the bidding. While you may be on the same page about the house, how to you raise your kids, and the best way to load the dishwasher, you may have different strategies regarding your approach at an auction. The absolutely last thing you want to do on the day of auction is undermine your partner in the middle of a bidding war or stress them out in any way (or vice versa!).
House buying is a high stress, high stakes game and you don’t want to add impending divorce into the mix, so try and work this our rationally between you before the bidding starts, even if it means one of you sits in the car and watches through binoculars.
If you are prone to to this type of emotional reaction, be it single or partnered, and are waking up on auction days sweaty and dry mouthed, it might be worth taking the pain away and enlisting a trusted friend or family member to take the stress out of it for you — or better still, hire a buyers agent.
Yes, it is an additional cost that you might not feel like you can justify but think about the experience a seasoned buyers agent brings to an auction. This person goes to auctions for a living and can probably tell you, from experience alone, how the auction is likely to play out due to having bid on auctions on a near weekly basis for years. They may also have a scoop on the likely reserve price (the minimum price the vendor is willing to sell for), thereby being able to negotiate in the event that property is turned in.
If you do chose to take this road, then remember that you must provide a written signed authority to the agent authorising this person to bid on your behalf.
Don’t let the first auction you attend be one that you want to win
Buying a property in this method can be intimidating. Go to loads of auctions, even if they’re out of your price range. Get a feel for the process, start understanding the language used, chat with the agents, realise you will see some of the same people in attendance over and over again (stare down that competition!). Plus, you get to have a good old stickybeak at some cool places you would otherwise never get to see.
Notice how those in attendance react to the pressure, how they do their bidding. You can use this time to hone your own approach to bidding by observing other people. Some people are aggressive while others are nonchalant. Only you can decide what approach is best for you. Just don’t go in cold — auctions are rarely, if ever, a case for beginners luck.
