To conclude our three-part series of articles for those looking to purchase a property. This particular article will go through the process for buying property at public auction, where it is obviously even more important to be ‘ready to go’ on game day.
Summary (in order)
(a) Inspect the property.
(b) Due diligence enquiries:
(i) pest & building report;
(ii) strata report;
(iii) finance approval;
(iv) review the contract; and
(v) others, as required.
(c) Negotiate the terms of the sale (settlement date, inclusions etc).
(d) Auction.
(e) Exchange contracts.
(f) Complete the settlement.
When you buy a property at auction all the same principles of buying a house by private treaty apply. The main difference is that your due diligence enquiries must be satisfied by the auction day. If you are successful at the auction, you will be immediately bound to the terms of the contract. There is no cooling-off period when you buy at auction.
Inspect the property
The difference with buying a property at auction is that you have no idea what the reserve price is and you have no idea whether you will be the successful bidder. There is the risk that you will spend hundreds, even thousands, of dollars on due diligence enquiries only to be out-bid at the auction. Not much can be done to mitigate that, it is a risk of buying a property at auction.
Real estate agents will often have pest and building reports available for you to view. These will have been commissioned and paid for by the vendor. You should be careful relying on those reports for two reasons. First, the vendor is unlikely to provide you with a bad pest and building report. If they receive a bad report, they may simply disregard it and order another report with a different inspector.
Second, the contract for the report is between the vendor and the inspector. You are not a party to that contract and the report will specifically state that it is only for the vendor’s use. So, if there are any errors or omissions in the report it will be difficult for you to claim your losses against the inspector.
Negotiate the terms of the sale
You can still negotiate the terms of the sale contract when a property is listed for auction. If contract amendments are required, your solicitor will write to the solicitor for the vendor seeking those amendments before the auction. This should be done as early as possible, to enable the vendor, or their solicitor, enough time to respond. You should take a copy of the amended contract to the auction, in case you are the successful bidder. For abundant caution, you should also take a copy of your solicitor’s email to the vendor’s solicitor and their reply.
Auction day
Before the auction you will be nervous. Don’t worry, so will all the other prospective purchasers. Relax. The author of this article has always believed the mantra ‘if you can control something, then control it; if not, then there is no point stressing about it’. For example, you can set your limit and control the amount that you bid, but you can’t control what other people will bid. If another person is prepared to pay more for the property than you, then you must let that property go. There will be others.
On the day of the auction you will need to register as a bidder with the auctioneer. Remember to bring some photo ID so the auctioneer can identify you. The auctioneer will give you an identifying number (often a paddle) which you will hold up when you make a bid.
The vendor will set a reserve price with the auctioneer before the auction.
At the commencement of the auction, the auctioneer will usually give a speech about the attributes of the property before asking for the opening bid.
It is a good idea to have a strategy of how you will bid. You may want to make an early strong bid to blow the other bidders away, you may want to come in late and make small increases, or you may want to bid steady and consistent through the auction. Consider which method will be best for you and stick to that strategy.
Once the bidding reaches the reserve price, the property will be sold when the auction is complete. If the bidding does not meet the reserve price, the auctioneer will push the bidding as high as they can – perhaps using a ‘vendor bid’ – before adjourning the auction to speak to the vendor. When the auctioneer speaks to the vendor, the vendor will make a decision on whether to sell the property notwithstanding the bidding didn’t reach the reserve price.
If the vendor decides to sell, the auctioneer will announce that to the bidders and resume the auction. If the vendor decides to stick to the reserve price, the auctioneer will usually try to increase the bids again before passing the property in (ie concluding the auction without a sale).
A ‘vendor bid’ is referenced above. It is where the auctioneer makes a bid on behalf of the vendor to increase the price. They will often use a vendor bid where the bidding has stalled below the reserve price. The auctioneer must announce that they are making a vendor bid before the bid is made and they may only make one bid during the auction.
If the bidding exceeds the reserve price or if the vendor authorises the sale, the highest bidder at the auction will win the auction. If you are the successful bidder, you must sign the contract and pay the deposit as soon as practicable after the auction. A full 10% deposit is required, unless you have reached agreement with the vendor to pay a reduced deposit, or a deposit bond, before the auction.
Exchange contracts
The agent will then obtain yours and the vendor’s signature on the contract and the contracts will be dated on the day of the auction. At that point, both you and the vendor will be bound to the terms of the sale. If you want to cancel the sale you will lose your 10% deposit and, in addition, the vendor will be able to claim damages against you for their losses which may include the agent’s commission, their legal fees and if the vendor subsequently sells the property for a lower price they will be able to claim the difference from you.
Completion
In the final week before settlement, you will need to make sure that any money you are contributing towards settlement is ready and available for you to draw on. Your solicitor will give you instructions on how to draw that money two or three days before settlement.
In the 72 hours before settlement, you will need to conduct a final inspection of the property to ensure that the vendor has not left any rubbish on the property and that the property has not been damaged after the date of exchange of contracts.
The final settlement typically happens in the afternoon between 12.00pm and 3.00pm. You may not get the keys until later in the day, so if you plan on taking a day off from work to move into the property you may want to arrange for that day to be the day after the scheduled settlement date.
Ryan & Ryan Lawyers
Visit our website for more information about the legal aspects of property purchasing and selling, or get in contact with us today.
The above is not intended as legal advice. You should obtain legal advice in relation to your own specific circumstances.
