Australia is in the midst of a booming property market, with vendors selling property at record speeds and struggling to keep up with the demand.
With a significant increase in the number of buyers looking to purchase property, vendors are benefitting from increased competitive tension at auctions. However, buyers need to be aware of the risks before considering making a bid at auction, especially if they need finance.
Here’s our cheat sheet for Queensland buyers looking to purchase property at an auction.
Seven auction traps to remember
1. You are bound by the contract if you’re the successful bidder on the day.
2. There is no cooling-off period (unlike the usual five-days for Queensland purchase contracts).
3. It's an unconditional contract, so you can’t request a finance clause or satisfactory building and pest report.
4. Stay calm and stick to your budget - Emotions often overtake reason, and buyers can end up paying more than intended.
5. If you need finance, the lender will value the property after the auction. If the valuation comes up less than the purchase price, the lender will rely on the lower valuation amount.
6. If the lender relies on the lower valuation and you don’t have the funds necessary to proceed, or there’s another reason why finance can’t proceed (e.g. the valuer advises flood risk or that it’s not structurally sound), you could lose your whole deposit plus additional costs, such as the vendor’s costs for re-marketing, and shortfall if it sells for less.
7. The settlement is usually four weeks from the contract date, which could be a challenge in today’s market.
Seven auction tips to maximise your chance of success
1. Research the property and previous sales history/comparative sales to ensure you’re confident about the value (CoreLogic is a great resource for sales history/comparative sales).
2. Ask your finance broker to pre-qualify you for your maximum offer (be prepared with details of your deposit, income and commitments). Your preferred lender may be able to provide you with a pre-approval, but remember:
- Not all lenders will allow pre-approvals (as they consider them to take up valuable assessor time)
- They take as long as a full application, yet are often not fully assessed, with lenders relying on system information without verifying it
- Lenders tend to load pre-approvals with lots of conditions (in addition to satisfactory valuation of the property), limiting the ability to confidently rely on them
- An experienced broker who thoroughly reviews, verifies and pre-qualifies you with lenders on their panel may actually be a better bet than a pre-approval from a lender who adopts a ‘tick and flick’ approach.
3. Ask your conveyancer to review the contract before the auction.
4. Conduct building/pest reports and searches before the auction (sometimes the vendor will provide these).
5. Ask for a five-to-six week settlement period when you register for the auction (the vendor may not always agree to these terms).
6. Stick to your budget when bidding on the day.
7. Have back-up funds available (e.g. cash support from family or liquidation of assets) in case the property doesn’t value at purchase price and your loan amount ends up being less than expected.
Our cheat sheet is the first step towards making a successful bid at an auction. We are here to help, so if you have any questions or need assistance with your finance, contact Marie Ryan in BDO’s Finance Solutions team.
Marie Ryan is an authorised credit representative 519653 of BDO Corporate Finance Ltd (ACN 010 185 725) Australian Credit Licence 24551.
Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product.