Auctions can be a great way to buy a home, however they can also be challenging and stressful, particularly if it’s your first time. Auctions can bring out emotions based on attachment to a potential home, excitement, and sometimes they can also bring out a sort of primitive urge to win.
With other methods of sale, you can make an offer, but you usually won’t know how many other people have made an offer and what figure they’ve put forward. Auctions are unique as you not only know exactly what is on the table in real-time, but you’re also right next to the people who offered it.
To assist you get the result you want (and to avoid possible auction disasters!) we’ve put together a five-step guide to preparing for your auction.
Step 1: Get the help you need
Buying a property can be stressful and difficult if you’re doing it alone, so make your life easier by getting the help you need from suitable professionals. That usually means speaking to:
a mortgage broker (adviser) to sort your finance,
a building inspector to check the property – see point four below,
a lawyer to check the legal side for the property you are interested in, and
a real estate agent about advice and support for the auction.
Step 2: Do your research
You should look closely at the immediate area you’re considering. Ask a real estate agent to provide you with a list of recent comparable sales in the area to help you determine the property’s true value.
There are also free websites you can use to check the possible value, though these valuation estimates are based on computer-collected data and algorithms which means they aren’t much use beyond providing a guideline valuation.
Step 3: Have your finance approved so you can bid in confidence
As soon as the hammer slams down, you’re legally required to go through with the purchase if you have the leading bid. That means, if the bank declines your application for finance after you win, you could be in serious trouble and with most contracts you will likely lose your deposit.
Therefore, we suggest that you have your finance unconditionally approved before the auction. Unconditionally approved means that all conditions on your initial pre-approval have been satisfied and you have undertaken all due diligence required by the bank. This could be a request for a registered valuation report, full insurance, property documents, etc.
If you win the auction, a 10% deposit is usually required on the day or within 24-48 hours. Because of this, you will need to have all your finances approved before the auction. If all your deposit is made up of a KiwiSaver Scheme balance, other Superannuation, and grants, these will most likely not be available in time for you to make this payment. A common solution to this issue is having one of our mortgage advisers arrange a short-term temporary overdraft on your behalf from your bank so you can make this payment.
If you win at auction, you’ll usually still be required to purchase the property even if you find out later that there is an issue such as asbestos contamination.
Make sure you know exactly what you’re buying by completing the following checks:
Conduct a building and pest inspection
Obtain a registered valuation report
Have a conveyancer (lawyer) check the sale and purchase agreement
If the home is old, or you have other concerns, consider carrying out these additional checks:
Electrical report and plumbing report
Most of these conditions/checks are optional, however, thoroughly checking a property before attending an auction will help uncover all the little secrets that the home holds. With this knowledge in mind, you can either avoid the property altogether, reduce your bid, or continue with confidence knowing exactly what you’re buying.
Step 5: Decide on an auction strategy
Being successful at auction can depend on your strategy and how well you play the auction game. You need a strategy to do this effectively.
Set a price limit
Setting a price limit is a crucial step – pledge to not exceed that number regardless of what happens. That number should be uneven because bidding usually goes up in multiples of $10,000, $5,000 or $1,000. If you set your limit at $503,000, for example, that extra $3,000 could win you the auction.
It’s a good idea to arrive early to see how the auction room is set up and secure a seat where you can be easily seen by the auctioneer. You can also doublecheck that you’ve met any prior requirements to bid.
Bid confidently and aggressively
Wear smart clothing to the auction and raise your hand straight away when you’re making a bid. Placing “confident bids” is recommended as it will help give other people the impression that you are serious about the property and have a lot of money that you are willing to spend. Being a confident bidder also means that you should try and speak with authority (without yelling!), have open body language, and try to bid in larger increments.
Bid early or late
There are two schools of thought when it comes to the timing of bids:
Bidding early can help calm your nerves and shows rival buyers your intentions are serious, or
Holding back on your bid until nearer the end of the auction, or closer to the price you’re comfortable paying, means you could trump a competing bidder and stop them in their tracks.
Either way, ensure you’re clear which approach you’ll use.
The bottom line
Let’s recap the top five steps to prepare for bidding on a property at auction:
Get appropriate help
Do your research
Get your finance pre-approved
Do your due diligence
Decide on an auction strategy
If you decide to buy at auction, don’t leave your success to chance. With our help, and the assistance of other trusted professionals, you could be living in your dream home before you know it! Get in touch so you know up-front how much you can afford.