Ready, Set, Bid!
5 Tips you should read before bidding at auction!
A room full of keen buyers. A nervous, tense, yet excited atmosphere. The property you desperately want could be just a few bids away. In fact, if you are the highest bidder, you will walk away as the owner of that property, whether you can afford it or not. Let that sink in for a minute.
I've put together five quick tips to help you keep your cool and set yourself up for success, before you even lay eyes on your dream home!
TIP #1
Before you play, get pre-approval
When the gavel comes crashing down, the sale is final, with no cooling-off period. That contract is yours to settle, even if you can’t afford it, you change your mind, or it doesn't pass inspections. You cannot back out of an auction contract!
With pre-approval, you know how high you can bid and what your repayments will look like. Get a clear picture of your borrowing capacity, so you don’t get carried away in an intense and emotional environment. Remember, pre-approval does not equal an approved mortgage application. All banks will require a signed purchase contract for this, which is of course impossible without unconditionally securing the property. This is where we step in as mortgage brokers, working with lenders who will fully verify your documents prior to pre-approval, so you can bid with confidence!
TIP #2
Gather a great team
Bring along your partner, parents, siblings or friends for moral support on the day, but in the lead up, make sure you have the right professional players in your corner. To create a winning team you’ll need:
Lawyer/Solicitor: In Queensland, you must use a solicitor for all property transactions, including the purchase of a home. Their trained eyes will pick up anything in the contract that you might miss, and they can answer any questions that might arise.
Your Mortgage Broker: Once your broker has helped you achieve reliable pre-approval, make sure you discuss the specific property you will be bidding on. More than just securing the right type of home loan, there may be some restrictions in place - make sure you share all the details with your broker! Double check with your broker if the property you are buying:
- Has a floor plan under 50 sqm
- Has a land size of over 2 hectares
- Is in disrepair and will require a lot of work
- Doesn’t have standard title and zoning
- Is not in a major town or city
- Includes incentives such as rental guarantees or furniture packages
Buyer’s Agent: As agents who represent the buyer, they can help source and research a property, and even bid on your behalf, typically charging a percentage fee on the purchase price.
Building and Pest Inspector: A few hundred dollars for a building and pest report to check for structural soundness and pest infestations can save you thousands of dollars down the line!
TIP #3
Set your limit & stick to it
If you only stick to one rule, make it this one. Know your walk-away price and whatever you do, do not cave! If you have a suspicion that you may get carried away, ask a trusted friend or relative (or even your broker!) to bid on your behalf. If you win the auction, you must settle the contract, even if you cannot afford it. If a bidder surpasses you, put the paddle away, knowing there are other opportunities waiting for you.
Hot tip: Set your final price as an uneven number, to avoid having the same limit as someone else - this might even help you win the auction!
TIP #4
Read the fine print!
In Queensland, it is illegal for an agent or seller to give you a price guide for a property going to auction. Online platforms may filter the property into a price bracket for web search purposes. Just because a property pops up in your the price filter you set when searching for a property, this does not mean that it will sell when bidding reaches the upper limit you set!
Do your due diligence: Research the property’s history, its value and its condition to avoid any unpleasant surprises. Ask the agent for building and pest reports, or get them done yourself (we can make a few recommendations). Request to see the body corporate records and have a look at the local flood maps. It could also be worth obtaining a bank valuation prior to bidding.
Finally, make sure your solicitor checks the contract for any fine print so you know exactly what you are bidding on.
TIP #5
Have a game plan & follow the rules
In Queensland, you must arrive 10-15 minutes before the auction begins, with a valid proof of ID to register as a bidder. You’ll receive a paddle and you’ll be required to bid in set increments. Once the property surpasses the reserve price, the highest bidder will secure it. If you secure the bid, you will need to sign the contract and pay a deposit immediately - usually 10% of the purchase price. Make sure you check with the agent in advance what payment options are available!
If the property fails to meet the reserve price, it is passed in, giving bidders the opportunity to negotiate with the seller. Be aware that if you sign a contract within 2 days of an unsuccessful auction, you may be waiving your cooling off period, even if you did not bid at the auction!
A few useful terms:
Reserve Price: The minimum amount a vendor is prepared to accept for their property at auction. It is illegal for an auctioneer to sell a property under the hammer at an amount below the reserve. The real estate agent and auctioneer cannot share the reserve price with you prior to auction, but they can indicate it during the auction.
‘On the Market’: If the bidding has reached the reserve price, the auctioneer will ask the seller if they will sell at the highest bid. If agreed, the auctioneer will say the property is 'on the market'. This gives bidders an indication that the property will sell under the hammer.
Cooling-Off Period: The standard duration of a cooling-off period in Queensland is five business days commencing from the date when the buyer enters into a binding contract. During this period, the contract can be cancelled at any time if you are unsatisfied, and the seller must refund the deposit, retaining up to 0.25% of the purchase price as a penalty,
Vendor Bids: In Queensland, vendors or their representatives can bid on their own property, up to, but not including the reserve price, in order to keep the auction moving.