When the hammer goes down at auction

Earlier this year I watched the Australian TV series Five Bedrooms. The show is about five friends (a doctor, a lawyer, a real estate agent, an aged care nurse and a tradie) who purchase a house together at auction. In the first episode, the friends notice many issues with the house, half of the backyard pool has been removed by the previous owner and the upstairs shower almost floods the entire house because of some dodgy plumbing. One of the friends asks ‘didn’t you do the due diligence?’ You would think with a lawyer and a real estate agent purchasing the property things would be hunky dory, however there are many pitfalls to be wary of when purchasing a property at auction. Here, we discuss the things you should consider before buying a property at auction.

Do your research!

Inspect other properties in the area and ask the selling agent for comparable sales so you can see evidence as to why a particular property should sell at the asking price. The asking price is the minimum price the seller is willing to sell the property for. You should also ask the selling agent for the amount of deposit that the Seller requires and how and when you will need to pay it (often this is payable on the day of the auction). 

Preparation is key

We all know of the 6 P’s. It may be best to attend a few auctions to see how they work before you bid on a property.  Make a checklist of the things you need to do before attending the auction such organising finance, getting advice on the draft contract and conducting due diligence enquiries and inspections.

Buyer Beware – know the difference in Contract Conditions

See your lawyer or conveyancer before you attend the auction and get some advice and know your rights.

More often than not, properties sold at auction will require a purchaser to bid on an unconditional basis. This means that you will be required to complete the contract even if, the property does not pass inspection, you can’t afford it, or if you change your mind. Auction contracts are often not subject to finance or building and pest inspections.

Line your financial ducks in a row

Make an appointment with your financier and find out how much you can borrow from the bank. You don’t want to get caught out on the day, so set yourself a budget and stick to it. Obtaining pre-approval from a bank is a good idea before heading into an auction.

Conduct a due diligence enquiries and inspections

Due diligence enquiries and inspections often involve conducting your own investigations of every aspect of the property that could affect its value and suitability as a home or an investment. Your enquiries into the property may include, but are not limited, to knowing:

• whether the property is habitable?
• are there any encumbrances noted on title, such as an easement, which may affect your use and enjoyment of the property?
• whether the property has all final approvals from the local council?
• whether there are any restrictions on what can and can’t be built on the land in the future?

Undertaking due diligence on the property could save you from buyer’s remorse.

If you are looking to bid at an auction, make an appointment with one of our experienced property lawyers or conveyancers today.