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’s worth preparing yourself. Buying a house is like running a marathon: the length of time it takes might 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 growing demand in the property market. As a first homebuyer, you’re at a disadvantage, as buying at an auction — unlike making an offer on a house — doesn’t have a cooling-off period (the time you could have used for duck realignment).
It’s important for you to understand the processes involved so that before you bid, you have all the information you need, 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 of 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 your interests are protected and you’re fully informed about the property you’re hoping to buy. And besides, who doesn’t love a good list? That’s why we’ve made one for you. Let’s cue the ducks!
A Checklist For Before You Bid
- Finance: Make sure you’ve got your finance pre-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 at least a week prior to the auction. You’ll need to present this if you’re successful on auction day.
- Inspect the property physically: Go and see it! Only your personal attendance can pick up potential issues. Real estate photographs can be deceptive and online maps can only tell you so much about a neighbourhood.
- Property report: Get the property or strata report. These 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’re successful, you’ll have to pay this on the day. The deposit is usually about 0.25% of the purchase price.
- Register to bid: Make sure you do this prior as properties sold under auction require you to have registered to bid with the agent. You’ll then receive a bidder number and you’ll be ready to go. Note that you’ll need ID to register. Or: enlist a buyers agent to do this all for you!
So that’s it in a succinct, easy to scan, ‘okay I’ve done my homework, where do I sign’ kind of way but let’s break it down just a little more.
Digging Deeper
Money!
There, that got your attention.
You need to have pre-approval to safely bid at your auction. This is something you will go through with your bank or lender as they ask you lots of dry questions about earnings, spendings, and assets. They will then run it through their computer (beep-boop-bo-be-boop) and come up with a figure that you are — huzzah! — pre-approved for.
It’s 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 necessarily mean you should. Remember that you’ll still need to come up with the ‘funds to complete,’ a.k.a, your deposit. If you’re already stretching to the upper limits of your borrowing capacity, make sure you know what you can afford by calculating against the money you’ve previously earmarked for the deposit. You don’t want to miss out because of an easy-to-avoid overreach.
The lifespan of this approval varies from lender to lender but you generally have a 3-6 month grace period while it’s active so strike while the iron is hot!
Which brings me to the next duck in line on the ‘before you bid’ list, know your limit.
Know your limit
I hope by now you’ve done the maths on what you can comfortably afford and what will remain in the realms of a Powerball win. Sadly, you’ll lose some auctions and with others, you might not even get the chance to bid. But sticking to the limit you’ve set for yourself (after you’ve 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’ll find sales and rental figures and also be able to look through photos to see any updates or renovations that may have occurred (clearly this is a 21st Century perk) but the sales history might stretch back further than any photographs. There is much to be gleaned from this type of research.
In-person inspection
As stated, there’s nothing better than an in-person inspection. You may have researched an area online but nothing beats driving through it and having a look around. The agent is hardly going to list proximity to a famous haunted mansion in the features after all. Once you’ve given it the once-over and your heart has swelled with hope and desire, then you can look at 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 specialize in this area, though these reports will incur a fee.
The checklist may be looking pretty checked about now, so it’s time to get ready for the day of the auction.
Preparing for the auction
Enter your legal eagle, the property solicitor or conveyancer, the see-er of all.
The real estate agent will issue you with a contract that you can handball straight over to your solicitor or conveyancer. Don’t even try to read it. Or do, but out loud and with a glass of wine to escalate your understanding. Make sure you do this well before the auction date (not the drinking wine bit, the other bit).
Your solicitor or conveyancer will review the contract, advise you of any risks, and help protect your interests by identifying any terms that might need to be negotiated on your behalf or that you want altered — for example: longer settlement periods, reduced deposits, and/or additional terms and conditions.
This will ensure you’re buying exactly what you intended to buy and that the property is in the condition you expect.
Then, when that moment arrives and you’re the successful bidder at the auction, this reviewed and bespoke contract can be signed with total confidence. Remembering, of course, to have that deposit sitting within easy access.
Before You Bid — Breathe
The checklist is pretty straightforward but there are always hidden undercurrents to any new 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 nervously raise your hand in the air.
Bid with your head!
We get it, you have everything else lined up and you’ve missed out on three places that were absolutely perfect... natural light, a small yard, and oh, there was that one that had a window seat you envisioned reading books 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’re once again left disappointed yet determined that you won’t miss out next time. Don’t let the emotional fatigue you’re 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 someone else, decide well ahead of time who’s going to do the bidding. While you may be on the same page about the house, how to train the pets, and the best way to load the dishwasher, you might have different strategies regarding your approach to an auction. The absolute 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!).
Homebuying is a high stress, high stakes game and you don’t want to add impending bloodshed into the mix, so try and work this out rationally between you before the bidding starts, even if it means one of you sits in the car and watches through binoculars.
Consider hiring a duck manager
If you’re prone to any type of strong emotional reactions 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 do your bidding (at the auction, not in a supervillain kinda way). Or, better still, hire a buyers agent.
Yes, it’s 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 the property is turned in.
If you do choose 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 you want to win
Buying a property via 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, and chat with the agents. You’ll start to recognise some of the same people in attendance over and over again (stare down that competition!). Plus, you’ll 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 and 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 beginner’s luck.