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Buying at Auction

Updated: Jun 26, 2023

Are you currently looking at going to auction or preparing for an auction? Keep reading for guidance around the steps before going to auction, the benefits and risks of buying at auction, and pre-auction offers. If you have more questions regarding this topic, come see our mortgage brokers here at The Newstead Group.

Before going to auction

Before attending an auction, there are several crucial factors to consider.

Firstly, make sure you register as a bidder, a simple but necessary step that allows you to participate (actively) in the auction.

Second when going to auction it is important you secure a lenders pre-approval for finance. Obtaining a pre-approval gives you confidence as a bidder, establishes a budget; setting limits on your bidding at the auction.

Thirdly, ensure you have a sufficient deposit to meet the auction’s terms. Typically, auctions in Queensland require a deposit between 10% to 20%. It’s important to note that going to an auction with a deposit lower than 10% may disqualify you from participating. Understanding the auction’s terms, including deposit and settlement terms, is another crucial aspect to consider. Contact the agent beforehand to clarify these terms and determine if they align with your requirements or if you need to rule out the property.

Lastly, consider asking your broker to run a valuation report on the property using software such as RPData. This tool provides insights into property’s estimated value and past sale prices. Obtaining a valuation report ensures that you are making a purchase based on the property’s assessed worth.

By considering these factors, you can be better prepared and informed before attending an auction, increasing your chances of a successful outcome.

Risks of buying at auction

Buyers attending an auction may encounter various risks. One risk involves the possibility of purchasing a property that is not valued at the purchase price. Banks typically lend based on the property’s valuation, which means buyers may face the risk of losing their initial deposit if the property is not valued as expected. Additionally, not having finance organised before attending the auction can lead to exceeding one’s maximum borrowing capacity. It is crucial to understand your financial position and obtain pre-approval beforehand to mitigate risk. Another risk arises if there is not finance clause in place. Without a finance clause, buyers may face the potential loss of their initial deposit due to factors such as property valuation or serviceability (how much you can borrow). It is important that you are aware of these risks and take necessary precautions, such as conducting proper due diligence, having finance arrangements in place, and understanding the terms and conditions of the auction to minimise potential losses and ensure a successful auction experience.

Benefits of buying at auction

While there are risks associated with going to auction, there are also potential benefits to be gained. Auctions can occasionally present opportunities to secure a property at a price lower than its market value. Moreover, auctions offer a streamlined process, eliminating prolonged negotiation periods and facilitating a quicker property acquisition. One of the advantages of auctions is the transparency they provide. As a participant, you can witness the bidding process and have confidence that all buyers are competing on equal terms, ensuring a fair chance for everyone interested in acquiring the property. Additionally, some properties are exclusively sold through auctions as per the vendor’s preference. This means that attending an auction may be the only way to access certain properties that meet your criteria. While there are some risks associated with going to auction, at times you can also find a good deal. Auctions can sometimes provide an opportunity to purchase a property at a price point lower than market value. Auctions can also eliminate long negotiation periods, reducing the time to purchase a property. Whilst witnessing the bidding process you will have the peace of mind that you are competing on the same terms as all other buyers, meaning everyone has an equal opportunity to acquire the property.

Pre-auction offer

Submitting a pre-auction offer provides individuals with the opportunity to purchase a property before the auction takes place. There are significant costs associated with participating in an auction, making pre-auction offers can be a preferred alternative. When a property goes to auction, there is also a possibility that it may be passed in, indicating that the highest bid did not meet the seller’s expectations of the auction day. One advantage of a pre-auction offer is the inclusion of a finance clause, that can conclude before the auction. This allows the seller to assess whether the potential buyer has the ability to complete the purchase. Furthermore, pre-auction offers often require shortened finance timeframes to beat the scheduled auction date. As a buyer preparing to submit a pre-auction offer, it is crucial to make a strong offer to increase the chances of acceptance. By opting for a pre-auction offer, you can potentially secure a property without the uncertainties and costs associated with the auction process. It allows for a more controlled and efficient transaction, benefiting both the buyer and the seller.

Wondering what our mortgage brokers can offer you? Get in touch with us here at The Newstead Group and we would be happy to answer any questions you may have.

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