Best Tips for Buying a Property at Auction
Buying a property at auction can be a bit daunting so this article gives top tips for buying a property at auction. By design, auctions create a pressured environment where prospective buyers’ emotional brains kick in.
Feelings of competitiveness, desire and fear of missing out can take over the rational brain. For this reason, many real estate agents love them! Especially in a hot market or if the property is desirable. So it’s no surprise that auctions are especially common in Auckland.
The above sounds stressful, but it doesn’t have to be your experience. If you go into an auction well prepared you can keep a clear head throughout.
We’ve pulled together our top tips for getting through the process smoothly, without regret and hopefully with a new home to enjoy.
Do your homework early
All auctions sales are unconditional. When the hammer falls, the successful buyer needs to immediately pay the agreed deposit. You are then also legally obliged to settle the full amount, on the settlement date. This means all due diligence and finances need to be sorted ahead of the auction.
Allowing as much time as possible for these activities is the most effective thing you can do to reduce any stress you may feel.
Sort your mortgage approval
Talk to your mortgage broker as soon as possible, in the “buying by auction process”. Ideally you’d have already got mortgage pre-approval, but even so the bank or lender will need to sign off on the property you’re bidding on. They will want documentation to inform their decision and may ask for further due diligence to be done on a property, if they identify any red flags.
The turnaround time of this process varies per company and can be longer during busy periods. Therefor, the longer you allow for this step, the better.
If you do find yourself up against a tight deadline, there are options available that give you finance quickly. There is a cost associated with this, but in some situations it can be the best move.
Do your due diligence on the property
This is an important part of getting the property approved by your lender. So, get stuck in straight away.
The real estate agent will provide you a pack of documents. It’s then up to you to:
- Decide whether a LIM or builder’s report is required. Your lender may require this prior to approving the property. Talk to your mortgage broker.
- Check the title for any potential issues.
- Check settlement date and chattels listed in the draft agreement.
Get your lawyer involved at this stage as they are experts in reviewing the fine print and looking for issues.
Decide your absolute top offer
The mortgage pre-approval will tell you what you can pay, now’s the time to think about what you’re willing to pay for the property in particular.
Take into account the market and the state of the property. Then think about what the property is worth to you. You want to identify ahead of time, what your absolutely top offer is so you can go into the auction with a clear point that you should stop bidding. It’s hard in an auction to make that final call, as if you were willing to pay $700,000 why wouldn’t you pay $701,000?
Find the threshold where you feel like you would have paid too much. You would then, set the top offer just below that. Of course, if that number is more than you can afford then go with the amount you can afford as your limit!
Get comfortable with the auction process
If you haven’t been to a property auction before, go and observe one. It will help you feel in control when you go to buy a property at auction and will give you some great insights ahead of time.
The part of an auction you won’t see:
You’ll see that the auctioneer won’t state the vendor’s reserve price, but they can place a vendor bid if the reserve price isn’t being reached. If the reserve price isn’t reached, the highest bidder may then go into negotiation with the seller.
This part also isn’t visible: The buyer will go into a room and the seller in another (if they’re on site). The seller’s real estate agent will go between the two and try and negotiate an agreed price.
If you need to consult with anyone, don’t be afraid to ask the real estate agent to leave the room so you can discuss your options. They will appear helpful and neutral, but remember they’re there to get the best deal for the seller. They will also be looking for clues, as to what your financial situation is and how high you can go.
Reframe what ‘winning’ an auction means
Remember, the goal isn’t to win at an auction. In fact, the word ‘win’ is emotive and misleading, you’re not winning a house, you’re buying one!
Your goal is to buy a house you want for a reasonable price that you can afford. Sometimes that will mean you don’t get the house you’re bidding for. It can be disheartening, but if you’ve done your homework and stuck to your plan then you can take pride in keeping a clear head and acting rationally. That in itself is a win at any auction!
If you’re looking to buy a property and haven’t got a mortgage pre-approval yet, that’s your first step. Contact us and we’ll help you get sorted.