How to prepare for buying auction

How to prepare for buying auction

March 19, 2020

Ask anyone who's won, or missed out on a property sold at auction what they would do differently and you'd get a pretty long list of ways things could have been better. For those who have been outbid and need to try again, it can seem like putting the knowledge of hindsight to work is impossible. There is always a bidder out there more knowledgeable, more prepared, more confident than you are.

A big part of doing well at auction is about being well informed. Any kind of confusion or lack of clarity about what you need or what the home is worth is going to cause enough hesitation to let someone pip you at the post.

To prepare yourself for battle on the auction ground you need to do the groundwork. That means getting familiar with other competitors and having total confidence in your bidding power. For others, the biggest challenge is getting over stage fright. Those kids who would quiver at the thought of putting their hand up in class suffer the same embarrassment; outing yourself out there, sticking your hand up in front of all those people and maybe not coming up with the right answer.

It's time to do the prep work so that when you are called on to claim your new home you know when, and how to apply yourself.

1. Know how much you can loan

The first thing you need to do is secure a pre-approved loan from your lender. That means you know exactly how much you can spend and bid accordingly.

What happens if the bank refuses your loan?

If your winning bid was too high, and it's outside what the bank feels you can repay, your lending agent may reject your loan application.
Offers at auction are unconditional. That means you don't get to go through with the homeownership and you lose your deposit.

It's really important to know as well this preapproved loan doesn't mean your loan will automatically go through, the lending agent will want to check and make sure your purchase is worth the price you are paying. If the home is thought to be significantly less in value, they can still reject your loan.

Always make sure you have a conveyancer on board early, so you don't sign to buy until you are sure you are covered.

2. Set up your buyers' entity

In some cases you will not be making a purchase as an individual, you will be buying as a business or through a trust or self-managed super fund. In these cases, you need to respect the paperwork and red tape that comes with it. Make sure you set up your entity well in advance and have it checked to make sure it's watertight.

3. Know the property worth

Don't wait for the bank to tell your newly won home is a lemon. Research the market and know what you are buying. This will not only help you bid at auction, but it will also help you narrow your search down to the properties that are more likely to fall within your spending bracket. Looking at too many properties outside your budget will really get you down so stay motivated and fix your eyes on the prize you can actually earn and keep.

The easiest way to see the worth of a property is to compare it to similar actions and see their final bids. Get matches as close to your own in terms of land size, location, room numbers, age and home condition.

4. Go visiting

Get familiar with homes for sale and auctions. Go to as many open for inspections and auctions as you can with no intention to buy. Take your time getting to know the properties and what to look out for as you make your way through. Attend the auctions and notice patterns between home features and auction prices as well as how many people look through, how many people attend and how many people bid. It's a great idea to note the names of the auctioneers and make notes about their manner. Every auctioneer is different and will respond differently to their bidders. Come an auction you want to win you will hopefully already have seen this auctioneer in action and know a little about them.

Aim to visit ten auctions before the one you plan to bid on. Keep a close watch on who is bidding and how. What styles are successful and if you can spot any false bidders or professionals.

5. Have your conveyancer check over the sale contract

You don't have to wait until you win to see the contract or the vendors statement (also called section 32). These will be available for you to look over when the house is on the market. Get your conveyancer to have a look and make sure everything is correct and there are no surprises, and also let them know your non-negotiables so they can take those into account.

Now is also the time to draft any special terms you want to have met and make sure these are okay with the vendor before you start bidding.

6. Book a pest and building inspection

While it is required by law in many Australian states for the vendor to disclose any issues with the land and building, it's still good practice to book a third party to carry out tests. The pest and building checks will probably be carried out separately and can run for as much as $600, but it's a small price to pay for reassurance and confidence in your purchase.

7. Know who you are up against

If you have all green lights at this point it's time to focus on your winning bid. That means seeing all those other potential bidders as losers.

You will want to spend a solid amount of time with the representing real estate agent as well as viewing the property.

When it comes to opens, go to all of them, especially if that means you get to view the property at different times of the day and different days of the week. If you can't attend them all (or if you don't want to) ask family or trusted friends to go for you. As well as a thorough inspection of the building and grounds you are also gauging interest from other visitors. Subtly, I repeat, subtly note of the number of people there and get a feel for what they think of the property and gauge their interest.

You can and should ask the agent for information on how many people have been through the opens, who is showing interest; as in investors, families or business types, how many building reports have been requested, and how many people have asked for the vendor's statement.

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