Important finance considerations
Before attending an auction you will need to make sure that you well prepared and are in the best possible position to bid. This will include knowing your purchase price limit.
On auction day you will need to make sure you have funds available to complete the purchase if you are successful. This will include payment of the deposit on auction day plus the remainder of the money at settlement which is usually 4 to 6 weeks later.
The deposit required at an auction is normally 10% of the purchase price. A bank cheque or deposit bond are common methods of payment (you will need to check whether the vendor will accept a deposit bond).
Having a loan pre approval will provide the comfort of knowing the balance of the funds required for settlement will be available subject to any lender conditions.
There’s no cooling off period when you buy at auction, so if you win the auction, you are obliged to purchase the property off the vendor.
You can’t make the contract subject to conditions, it’s as it is at the day of sale. Show your solicitor/conveyancer the contract and organise any amendments to the contract he/she suggests beforehand.
Prior to the auction you should have the purchasing entity organised (ie: Company, Trust, SMSF etc) if you are not buying in your own personal name.
If you intend to bid/buy it is recommended that pest and building inspections are obtained before the auction to ensure that you know of any issues that you may not otherwise be aware of and which potentially could effect the property’s value.
For buyers who are keen to increase the value of the property through renovations at some stage in the future, making enquiries regarding the feasibility and cost before purchasing the property is a good idea. The funds required may need to be factored into the loan being obtained for the purchase.
Most importantly… make sure you have fully qualified home loan pre-approval before bidding at an auction. Preferably a full application approved subject only to “suitable security” ie: the property.
Some lenders pay scant regard to pre-approvals and this means they have not properly checked that you can actually qualify for a loan. The pre-approval is non-binding and so after the auction, the lender can reject your application on any number of issues.
The repercussions can be very serious and extend well beyond just the loss of your deposit. You should always seek legal advice.