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For most people, buying a home is the biggest purchase of their lives. Auctions are a popular way to buy a house. One reason is an auction can shorten a long and tedious house hunt to just an afternoon’s work. However, bidding and buying at auction is like sitting for an exam. Success needs homework: including market research, understanding the bidding process and having the right amount of finances.
Auctions are a popular way to buy a house.
Experienced Sydney western suburbs’ Real Estate principal, Elie Kaltoum, says the best way to learn is to first watch some auctions.
“For the first time it is daunting. They need to watch a couple of auctions before – just as a watcher – just to go there and see the feeling how the auctions are run.”
Elie Kaltoum says timing is key.
Arrive half an hour before it starts to have enough time to make a final inspection of the property on offer. It is also the time to get a last look at the documents of sale, such as the terms of settlement – because after the auction, the conditions cannot be changed.
”Actually, do the inspections. Educate themselves in terms of the property. Get familiar with the surroundings. Compare the prices. Touch the property, go there and feel it, see if that suits you. And once the property is suitable, they need to compare with recent sales.”
Elie Kaltoum says interested buyers should first get the necessary checks done.
“So you can seek a conveyance or a solicitor and say look, I like to carry out several inspections on a property before I go bidding on it: a building inspection, a pest inspection and if anybody has an interest over this land, as maybe road widening, or power lines going overhead, or maybe a major school may require the land.”
On the day of an auction, potential buyers have to register with the auctioneer, produce some proof of identity and get a number for the bidding. Most sellers set a reserve price, which is the minimum sale price that they will accept.
If the bidding reaches the reserve price, the property will be ‘on the market’ and must be sold in the auction. Nepalese-Australian Rajish says an auction isn’t a comfortable situation.
“The first time, I went to an auction, it was very daunting. The sheer number of people that was there for the auction - straight away I was on the back foot.”
He outbid on several occasions for a property and says he was disappointed. He warns that it’s important to keep a cool head during an auction and stick to your budget.
“Have a realistic expectation of the price you are willing to pay because it’s just not only the price of the property, and then comes the stamp duty and all the other expenses. If it needs renovation, how many are you willing to spend? So I think during auction people can get carried away.”
Rajish says instead of auctions, he prefers the agent to negotiate on his behalf with a seller.
“Personally, I don’t like auctions. For me the strategies didn’t work. I tried to be confident but if I didn’t have enough money to pay, no matter how confident I am, it’s not going to work.”
Greek-Australian Giota is more optimistic after going to an auction. She says if bidding at an auction is the only way to get the house she wants for herself and her family, she will fight for it.
“I don’t think I like competition very much. But I definitely think if I was going to see a property that was what I was looking for, I definitely, you know, I think it would be a challenge. But if it’s the property I really wanted, I think you gotta be part of that competition.”
If a registered buyer bids and the offer gets accepted at the auction, the new owner must meet as quickly as possible with the auctioneer.
Elie Kaltoum explains why.
“If you are the successful bidder at the fall of the hammer you are required by law to pay 10 per cent of the purchase price. It may be in the way of a cheque. You don't have to have cash on the day. You have to sign the contract and you need to have the 10 per cent.”
Unlike private treaty sales with a fixed price, there is no ‘cooling off’ period at auctions; the successful bidder has to settle the contract. If a property does not sell under the hammer Elie Kaltoum says 70 per cent of homes find a new owner in the two weeks after the auction. In a situation like this, the real estate agent will negotiate a price which reflects fair market value between the seller of a property and the prospective buyer.