HOW AUCTIONS WORK WHEN BUYING A HOUSE
By Trish Willis | Member of the Property Institute of NZ (IPAC)
Most people have had little experience buying a house at auction. This overview of the process will help you go in prepared and covers planning, bidding, the auctioneer and post-auction negotiation.
It takes a bit of nerve to bid for a house at an auction so if you have never attended one before, it will help if you go to one so you know what to expect.
If buying and selling at the same time, understand how much it costs to sell your house, and what commission to expect depending on the value of your home.
Auctioneers create an exciting vibe and the tension can be palpable. In this high stakes situation it is important to stay grounded and be confident your decision making is spot on. Remember, the auctioneer is not working for you, but aiming to maximise the selling price for the vendor.
PLAN FOR AN AUCTION AHEAD OF TIME
If your bid turns out to be the winner, you will be immediately committed to the house purchase. It will be too late to seek legal advice, get the property inspected, valued, or sort finances. However, none of this need be a problem if you go into the auction prepared.
Before the auction, ideally you will have viewed the property. You should get a copy of the Auction Terms & Conditions and the Sale & Purchase Agreement which the vendor's real estate agent will give you. This covers which chattels will be included in the sale, the amount of deposit you need to pay if you win the auction, and the final date for full payment. Ensure these legally binding documents are checked by your lawyer.
RECOMMENDED DUE DILIGENCE PRE-AUCTION
Before auction day, it is wise to have had a building inspection carried out, preferably by a licensed building practitioner or even better, an accredited property inspector. Also before auction day, you might want to get a property valuation to establish accurately how much the house is worth. This also protects you from over-bidding at auction and can assist with getting a loan. Now is the time to get hold of the LIM report (Land Information Memorandum) from the council.
Preparing to buy a house at auction can be an expensive process if you don't win on the day but can be a lifesaver if you do. It helps prevent buying problem properties and gives you the reassurance that you haven't.
This Buying A House Checklist centralises vital information from property-related agencies and organisations, all geared to protect people buying a house. It also includes first home buyer information about Home Start Grants and Kiwi Build.
AUCTIONEER ANNOUNCEMENTS & VENDOR BIDS
Finally, it's auction day. The auctioneer will read out the terms and conditions of sale and advise of the reserve price if one has been set. They also have to tell prospective bidders if the seller intends to bid during the auction, and make it clear in the instance that it is a vendor bid. Vendor bidding is only allowed under strict circumstances, for instance when the property has a reserve price that has not yet been met.
Besides using vendor bids to help reach the reserve, auctioneers and real estate agents can also use them to kick off bidding. They may also use pre-auction offers to get the auction started. The auction continues until there is one bidder left, and provided the reserve price has been passed, that bidder will be the auction winner. If the reserve isn't met, the seller can abandon the auction sales process.
POST AUCTION NEGOTIATION POSSIBLE
The highest bidder may still have a chance to buy the house through post-auction negotiation with the vendor through the real estate agent. However, at this point, the original terms and conditions are null and void, and new ones can be negotiated.
Auctions are exciting and heady, but the whole process will be easier to manage if due diligence and good preparation is done in advance.'
THINKING OF SELLING A HOUSE BY AUCTION?
In some locations (and for some companies) there is a strong push towards auctioning houses while others rarely auction.
We have seen some extraordinary prices achieved in some locations but this doesn't always happen. The location, the property type and value, economic climate or the real estate market are all factors that may impact on your decision whether to auction or not. You may just not have the nerve and there are other options available. Real estate agents are obliged to explain the different sales options to you.
Before you decide which method of sale to use, you should have received a copy of the appraisal for your property, also known as the Comparative Market Analysis (CMA).
Selling before Buying? Get free advice from NZ's independent real estate broker first.
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Disclaimer: The content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.
Page updated May 23, 2023 by Trish Willis | Member of the Property Institute of NZ (IPAC)
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