Since the RBA has decided to keep the official cash rate on hold at an awesome 1.0% (the lowest cash rate in Australian history) and home values remain soft in most markets, many investors have recognised that it is a fantastic time to expand their portfolio.
Firstly, if you are in this position, congratulations, exciting times! Secondly, you have probably begun to notice that many of the properties you’re checking out are being sold via auction; an oh-so-popular means of sale at this time.
Whether you’re a seasoned bidder or this is your first rodeo, an auction is a place in which money, competition and emotions intersect; which can be an (understandably) stressful combination. So, we’ve put together some focus points, in order for you to feel as prepared as possible and avoid being swept up in the moment and missing out on, or paying too much for, that property.
Before the Auction:
- Finance. Unlike a private sale, the purchase of a property that is up for auction cannot be “subject to finance”. Prior to bidding you must not only have a loan or finance in order, but also have a deposit cheque, equal to the value of a 10% deposit ready to handover THAT DAY, should you win the house. Obviously, you cannot know the exact price that the property will go for, so your deposit should be equal to 10% of the maximum amount that you are willing to pay.
- Inspections. Similarly, you cannot make your purchase “subject to inspections”, as the contract terms are laid out prior to the auction. Occasionally, the owner may consider changing the contract, but your risk is that if they have multiple offers, they will pass on your offer and go with an unconditional sale that day. So, it is wise to have you building and pest inspections carried out prior to auction. These inspections cost between $300-$1000 but can save you exponentially more if you avoid wasting your money on a property that requires major work.
- Investigation. It’s time to put on your tweed and gather some intel, because being thorough is the difference between making a sound investment and wasting your cash. Research the market, the auction results of the area, the median annual rental yield and speak with several estate agents about the area, to gather a general consensus. From here you can judge the value of the property and set your maximum bid cap.
- Rehearsal. It pays to become familiar with the atmosphere of an auction. Head along to a few and get a feel for the process, this will help you to be more relaxed on the day. Even better, head along to auctions held by the auctioneer that is selling your property, this enables you to get used to their particular sales tactics and style and be better prepared on the day.
For property sold at auction there is NO COOLING OFF PERIOD.
- Rules. You know those scenes in sitcoms, when someone fake-bids at an auction and it’s so hilarious, do not do that. Even though I’m sure you weren’t planning on dummy bidding, it is worth mentioning that there are STRICT RULES that apply to how you must behave at each auction. These rules are always posted at the location of the auction and breaking them can results in substantial penalties, much less fun than those sitcoms would have us believe!
- Emotions. It’s a life changing purchase for most people, so we fully understand how emotional this can be, but it is important to avoid letting your emotions take the wheel. Make sure that you stick to your maximum bid cap and don’t bid over the value of the property. Because stretching your budget in the heat of the moment and then having to pull out later will leave you liable for the full 10% deposit. So, ensure that the purchase price is one that you can sign off on with confidence.
- Timing. Enter the bidding pool early and start low. By doing so the auction will move more slowly and it will give the vendor the opportunity to lower the reserve price. Plus, youavoid the stress of entering last minute at the higher end of your budget.
- Keywords. Two terms to be aware of at an auction are ‘on the market’ and ‘passed in’. When the auctioneer says that we are ‘on the market’ it means that the vendor is happy to sell that day (based on the current offers) and that the property will be sold to the highest bidder. ‘Passed in’, on the other hand, means that the offers do not meet the seller’s reserveand therefore they will not be selling at auction today.
- Sold. You are not legally bound until both the buyer and seller have signed the contract. If you are the successful bidder then immediately after the auction you will: be offered the contract, sign the contract, and pay your deposit. For a property sold at auction there is NO COOLING OFF PERIOD, once the contract is signed and the deposit is paid then the sale is binding and enforceable. #seriousstuff
If you would like any advice regarding where to invest and what rental outcome to expect please contact us here or call our Director Ji on 0433 915 454.