How to Buy a Property at Auction
Buying a property at auction can be an exhilarating and potentially rewarding experience. However, it requires careful preparation, a clear strategy, and a cool head. This comprehensive guide will walk you through the process of buying a property at auction, from initial research to the final hammer fall.
Understanding the Auction Process
Before diving into the specifics, it’s crucial to understand how property auctions work. An auction is a public sale where potential buyers bid against each other to purchase a property. The highest bidder wins, provided the reserve price (the minimum price the seller will accept) has been met.
According to the Real Estate Authority (REA), auctions are unconditional sales, meaning that if you’re the successful bidder, you’re committed to purchasing the property. There’s no cooling-off period, and you can’t make your bid subject to conditions like finance or a building inspection.
Pre-Auction Preparation
1. Research the Market
Before considering bidding at an auction, thoroughly research the property market in your desired area. Websites like homes.co.nz and qv.co.nz can provide valuable insights into recent sales and property values.
2. Attend Other Auctions
Familiarise yourself with the auction process by attending several auctions as an observer. This will help you understand the pace, terminology, and strategies used by both auctioneers and bidders.
3. Arrange Finance
Given the unconditional nature of auction purchases, it’s crucial to have your finances in order before the auction day. Speak with your bank or a mortgage broker to secure pre-approval for a loan. Remember to factor in additional costs such as the deposit (typically 10% of the purchase price), lawyer’s fees, and potential renovation costs.
4. Conduct Due Diligence
Before the auction, thoroughly investigate the property. This includes:
- Obtaining a LIM (Land Information Memorandum) report from the local council
- Arranging a building inspection
- Reviewing the title and any associated easements or covenants
- Checking the zoning and any planned developments in the area
5. Review the Auction Terms and Conditions
Carefully read and understand the auction terms and conditions. These will be available from the real estate agent before the auction. If you’re unsure about anything, seek advice from a lawyer experienced in property law.
6. Set Your Limit
Determine the maximum amount you’re willing to pay for the property and stick to it. It’s easy to get caught up in the excitement of an auction and bid beyond your means.
On Auction Day
1. Arrive Early
Arrive at the auction venue with plenty of time to spare. This allows you to register as a bidder, review any last-minute changes to the terms and conditions, and observe other potential bidders.
2. Bidding Strategies
There are several bidding strategies you might consider:
- Open Strong: Some buyers prefer to start with a strong bid to intimidate other bidders.
- Wait and See: Others prefer to wait until bidding slows before making their move.
- Odd Numbers: Bidding in odd increments (e.g., $503,000 instead of $500,000) can throw off other bidders’ calculations.
Remember, the auctioneer is working for the seller, not you. Don’t be swayed by their tactics to drive up the price.
3. Stay Calm
Auctions can be emotionally charged environments. Stay calm and stick to your predetermined limit. If the bidding exceeds your maximum, be prepared to walk away.
4. Be Clear
When placing a bid, do so clearly and confidently. Make eye contact with the auctioneer and state your bid in a loud, clear voice.
If You’re the Successful Bidder
If you win the auction, you’ll need to:
- Sign the sale and purchase agreement immediately after the auction
- Pay the deposit (usually 10% of the purchase price)
- Arrange for the balance of the purchase price to be paid on the settlement date
If the Property is Passed In
If the property doesn’t reach its reserve price, it may be “passed in”. In this case, the highest bidder usually has the first right to negotiate with the seller. Be prepared for this possibility and know your negotiating position.
Post-Auction
After a successful auction purchase, you’ll need to:
- Finalise your finance arrangements
- Arrange building insurance (this is typically required from the auction date)
- Work with your lawyer to prepare for settlement
Buying a property at auction can be a fast and exciting way to secure your dream home or investment property. However, it requires thorough preparation, a clear understanding of the process, and the ability to make quick decisions under pressure.
Remember, every auction is different, and there’s no guarantee of success. However, by following these steps and being well-prepared, you’ll be in the best position to bid confidently and potentially secure your desired property.
For more information on the auction process and your rights and responsibilities as a buyer, visit the Real Estate Authority’s website at rea.govt.nz. They provide comprehensive, impartial advice to help you navigate the property buying process.