If you've had little experience buying a house at auction, it is well worth reading this overview of the process which will help you prepare, including 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.
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.
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 terms and Contract of Sale which the vendor's 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, 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.
This Buying A House Checklist centralises vital information from multiple agencies, all geared to protect anyone buying a house. It also includes first home buyer information about Home Start Grants and Kiwi Build - well worth getting up to date.
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 and when it 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, economic climate, value 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 why 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 advisor first.
You might also like:
- Advice about getting a free property appraisal
- Why vetted real estate agents are more trustworthy
- Tips for selling your home