You have finally decided to take the step and are ready to purchase the perfect property! But are you really?
Attending an auction can be very intimidating and can quickly become a nightmare if you are not adequately prepared! Understanding the auction process and what you should keep in mind at every stage, will provide you with the peace of mind and confidence you need to make the most out of this experience.
1. In the lead up to the auction:
Before you even set foot on a property and start bidding, there are a few bits and pieces to arrange. These include:
- working out and arranging your finances
- assessing the state of your property of interest, and
- analysing whether it will be a good fit for your financial situation
Let’s go into them with a bit more detail:
– Secure your finance
Before you go to auction the first thing you should consider is making sure that you’ve got your finance ready. In an ideal scenario, this implies taking the necessary steps to obtain a pre-approval, and considering additional costs you may have to keep in mind and include in your budget (things like Lenders Mortgage Insurance (LMI), or Stamp Duty to name a few).
When you bid for a property at an auction you are actually signing up to an unconditional contract. So unless you have already secured your finance, entering a bid without pre-approval can result in unnecessary stress and trouble!
Having a pre-approval can provide you with the confidence needed, knowing exactly what costs you will be able to afford.
– Understand your Borrowing capacity
Occasionally, you might choose to get a pre-approval for a lower amount than what you can afford. Conversely, you may choose to attend the auction without a pre-approval in place.
In both scenarios, understanding what your actual borrowing capacity is can be extremely empowering! Allowing you to understand whether there might be some wiggle room for you to negotiate once bidding commences.
Having clarity on what your absolute maximum is and working backwards from there is the perfect starting point. It will allow you to be mindful of what you are able to offer, providing you with the confidence needed.
– Get your deposit ready before the auction
A key component of being financially ready in the lead up to an auction is getting your deposit ready.
Often, if your bid is successful on auction day you will be expected to pay your deposit on that same date or a couple of days later. Working with your friendly Rise High mortgage broker can assist you in understanding how much deposit you will need to pay so you can have that cash readily available.
In the circumstance that you are unable to secure the amount, alternatives like a deposit guarantee can be helpful to avoid physically paying a cash deposit then and there. Some vendors might even accept other forms of security. Our team can always provide you with guidance on what these might be during the auction preparation process.
– Get a building and pest inspection
As we mentioned earlier, once you become the successful bidder at an auction you are officially the property owner! As exciting as this sounds, it can also become a true nightmare if you have not performed the relevant inspections beforehand to ensure you are actually getting what you believe you are getting.
Speaking to the agent so you can organise a building and pest inspection is something we recommend you do as part of your due diligence. Since there will be no second chances or opportunities to return your property, you definitely want to make sure you are comfortable with its current state before bidding even commences.
– Perform a sanity check!
When it comes to risk management, performing what we call a sanity check is one of the best things you can do to avoid problems down the line. It involves making sure the property you are looking at is considered suitable security for your loan.
From a bank’s perspective it will be important for your property to be located at a “low-risk” location. Main roads, high-voltage power sources, or very dense apartment living arrangements are often considered high-risk, so it is advisable to stay away from these.
A great mortgage broker can provide advice and guide you through the process of assessing your property’s risk to avoid potential issues. Our team at Rise High can moreover provide you with access to really insightful data such as our property valuation reports, so you can have a rough idea of the property’s true value before heading into auction!
2. During the bidding process
You have made your inspections, are confident about the property and have made all the financial arrangements needed!
Here are the steps you must consider as you start bidding for your dream property.
– Register as an auction bidder
This first step is all about opening lines of communication with the agent. Before you actually attend the auction and start bidding for your dream property, you must make sure to register as a bidder.
When registering, the agent will be interested in discussing a couple of things so we recommend you start this conversation as early on as possible. Although most of the times this can be done on the date of the auction, in some instances you might be able to do so a week or more in advance.
– Negotiate and reach agreements with the auction’s agent
Deposit requirements and settlement dates are two key factors your agent will want to discuss once you register as a bidder.
As a rule of thumb, you should be expecting to pay roughly 10% of the value of the property in deposit. However, negotiating a lower deposit is a possibility that you can negotiate when registering as a bidder.
In terms of settlement dates, your pre-approval might come in handy when looking to reach an agreement. With a pre-approval in place, you can often be more aggressive and push for longer-day settlements, which can be helpful at the moment of negotiating house prices. Again, this is something you can discuss at the time of registration.
– Be prepared: What should you expect at an auction?
Attending the auction on the day can be a pretty daunting and overwhelming process. Unfortunately, there is no “one-size-fits-all” approach, as every one can be different depending on how the agent runs the auction and what bidders choose to attend.
While some will be calm and orderly with all attendees bidding in turns, others can be loud and intense with people bidding aggressively for the property at hand.
Knowing you maximum bid will keep you prepared for either scenario. It will allow you to clearly identify when to keep going and when to stop, so your emotions don’t carry you away!
Having clarity on your budget and price range will keep you confident, avoiding other bidder’s strategies to get in your way.
If nerves do get the best out of you, exploring the options of employing an experienced buyer’s agent or requesting a family member or friend you trust, to bid on your behalf can be a solution of great relief. Being present at the auction itself is not necessary, and might provide you with the best outcomes without the stress involved.
3. Success! The property is yours!
Congratulations! It is time to pop the champagne, celebrate that your bid has been successful, and embrace the fact that your dream property is officially yours!
So what should you keep in mind now that you are its proud owner?
– Sign the purchase contract
Now that your bid has been successful we will need your very best autograph!
Signing your purchase contract and sending a copy straight to your Rise High Broker, will allow us to keep the wheels in motion and sort all financial aspects on your behalf as you embark on this exciting new journey.
– Pay your deposit
Depending on the conversations you would have had with the property’s agent, your deposit might be due on the date of the auction or, if the auction occurred during a weekend, on the upcoming Monday.
Transfer the funds into your agents’ trust account, or pay your deposit as agreed with the agent. If you discussed a different form of finance or guarantee, proceed with payment as required.
– Get your building insurance in place
From the moment your bidding is successful, you are physically responsible for protecting your new property.
Having a conversation with the insurance company within an hour of buying it is important to obtain the right cover. Generally, if you are talking to the right insurer you can get free cover up until settlement and you can request our team of brokers to support you in finding the right insurer to suit your needs.
– Get a conveyancer on board
With this particular one, you can probably let the dust settle a little bit and wait until that glass of champagne is over.
Getting a conveyancer on board to be your legal representative and help with the purchase of the property would be the next important step. Our team of experts works really close with conveyancers in the back end to ensure everything is done smoothly. We can recommend some really great ones to help out so you don’t have to get too involved in that process.
That’s it! You have successfully navigated the whole auction process and are ready to secure your dream property.
Keeping your best interests at heart, we also thought we would include some information on potential risks you can face and what you can do to minimise them as you enter this process.
Risks you should you keep in mind going into an auction
The most common risk people face going into an auction relates to the bank’s valuation of your property.
By now you are confident that the bank has done their assessment of your finances and are happy that you can afford the loan you have applied for. Nonetheless, they have not yet assessed the property to confirm it will be enough security for your loan.
Your bank will need to perform a property valuation, returning a positive outcome for the same value you paid. Although it is unusual for the valuation to come in at a different purchase price, it is still a possibility.
Risks that can affect valuation include your property’s location and condition. Major roads, intersections, cracks and other problems are important to consider. If you have performed the respective building inspections and our recommended sanity check, these aspects should not represent a significant threat.
Similarly, from a finance perspective, you will want to make sure to avoid any major changes to your financial circumstances. New liabilities like car loans, or having a newborn can affect your pre-approval. Keeping regular contact with your broker will be a great way to make sure you are really confident and safe by the time you go into auction.
Managing your risks at an auction
If you have taken all relevant measures, are in constant communication with your broker and have kept your finances in check, you should be pretty confident about your position. Still, there is one additional thing you can to to protect yourself against potential risks.
Remember we mentioned negotiating settlement dates when registering as a bidder? Longer settlement dates allow us to reach out to other lenders if need be. Minimising risks if lender’s valuation of your property was to provide negative outcomes.
With the benefit of extra time in hand our team can assist in managing problems by reaching out to one of our 90+ panel of lenders, providing great flexibility to protect you against the unexpected. Ultimately, keeping close communication with our team will provide you with the support you need through every stage!
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