03 Mar Buying A House At Auction: Things You Should Know
With more and more homes being sold at auction, first home buyers need to understand how this exciting, fast-paced, often-stressful buying process works, in order to be successful when buying a first home at auction. Along with due diligence and pre-approved finance, buying at auction is unconditional so it’s vital first home buyers come prepared. Before you head out to bid on your first home, take a look at these useful tips for buying a house at auction: the things you should know.
Research and prepare
Buying at auction is unconditional. That’s why it’s so important to do your research before the auction. As well as attending open homes or private viewings of the property you intend to bid on, ensure you’ve done your due diligence on the property.
That means getting a building inspection done by a licenced builder or an accredited property inspector, and having your solicitor go over the LIM report and other important documentation, like the title and any relevant council information. Doing your due diligence also protects you against over-bidding, as you have a good idea of how much the property is worth.
It’s useful to attend a few auctions before you bid on a property as that will give you some understanding of how auctions operate, how quickly things move, and help familiarise you with the terminology used throughout the sale.
Know how it works
As a first home buyer – and even as an existing homeowner – bidding at auction can be stressful. But a bit of preparation goes a long way. To help you understand and prepare for a property auction, here’s an outline of some of the terminology that may be used on auction day:
- Absolute auction: The sale is awarded to the highest bidder and there is no reserve price
- As is: The property is being sold without warranty. As a buyer, you are responsible for checking the property and ensuring your due diligence is done
- Auction listing agreement: The contract that will give the details of the agreement and the roles of the parties involved
- Hammer price: This is the last bid placed before the auctioneer bangs the hammer
- Increment: The amount a bid can be increased by
- Minimum bid: This is the smallest sum a buyer can bid
- Maximum bid: The upper limit an absentee buyer using a proxy or automatic bidding is prepared to pay
- Passed in: A property that doesn’t reach its reserve price may be passed in
- Pre-auction offer: An offer made on a property before auction day
- Reserve price: The price set by the seller that the property must reach if it is to sell at auction
- Reserve auction: An auction where the reseller has the right to accept or decline any and all bids
Remember to register your intent to bid with the real estate agent, as that way you’ll be kept informed of any changes to the auction date or any opportunity to make a pre-auction offer.
Get pre-approved finance
Because auctions are unconditional, if you plan to bid at an auction, it’s essential you get pre-approved for a mortgage. A mortgage pre-approval is a conditional agreement from a lender confirming the amount they’re prepared to lend to you, provided you meet the conditions of the agreement. With pre-approved finance, you can safely bid at a property auction up to a specified amount, knowing your lender has pre-approved your finance application up to a specific amount. Remember also to have your deposit ready to pay to the real estate agent on the day if your bid is successful.
In addition, ensuring that the property is insurable is also key, as otherwise finance can potentially be pulled by the lender. Getting an insurance quote on the auction property before the property auction can provide you with peace of mind that this condition is also to be met if you are successful at auction. One of our experienced Insurance Advisers at Max Insurances can provide a free no-obligation quote before you bid at auction. Give us a call on 0800 ASK MAX (0800 275 629) to know more about what we can do for you!
Stay calm and bid strong
When it comes to bidding at a property auction, there’s no right or wrong bidding strategy. While some prefer to start bidding early, signalling strong intentions, others prefer to remain quiet, watching the action until the last minute. However, how you choose to bid is up to you. Most importantly though, if you plan to bid at auction, know when to stop. Getting caught up in a bidding war and paying far more than you’re comfortable with or that you can afford can have long-term financial consequences.
Ensure you go into an auction with a very clear budget in mind, as that will help prevent you from over-bidding beyond your means. To determine how much you’re willing to bid, look at recent sales of similar homes in the area and discuss your options for pre-approved finance with your Mortgage Adviser at Max Mortgages. Our Mortgage Advisers specialise in helping Kiwis arrange home loans NZ wide and can work with you to ensure a smooth and successful outcome! We can even provide you with a free personalised report of the property you are interested in with relevant statistics and indicative valuation range.
When the auction ends
If the reserve is met, the highest bidder wins the auction and signs a sale and purchase agreement and pays the deposit. The sale is now legally binding. If the reserve is not met, the seller and the highest bidder may enter a private negotiation to determine an agreed sale price, or the seller may lower the reserve, or the property may be passed in and the seller may choose to try and sell the property another way.
Get advice before buying at auction
The key to success is being prepared ahead of the auction, getting expert guidance and support from a team of Mortgage Advisers, and staying focused on achieving your home ownership goals. If you have questions about getting pre-approved finance ahead of an auction, or you’d like to find out more about your options for financing a first home, get in touch with one of our experienced Mortgage Advisers at Max Mortgages. We’re here to provide the information you need to confidently bid at auction.Contact a Mortgage Adviser
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