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Buying at auction can be a great way to score a hidden gem for a fraction of the market price. However, it’s also risky business!
It’s important to understand the pros and cons of buying at auction, and it’s very useful to equip yourself with some tricks of the trade.
Pros
For motivated buyers who’ve taken the time to do their research, buying a home at auction can have paramount advantages. There are additional risks involved with buying at auction, however this often results in a fewer number of buyers being interested in the property. As a result, prices can be a lot lower and you have the opportunity to score a great deal.
Auctions create a level playing field. Rather than a ‘first come first served’ system, all bidders are given an equal opportunity to secure the property.
If all goes to plan, it can also be a very fast way of buying a property.
Cons
As with most risky business in property investment, there are certain drawbacks that potential buyers must be aware of. Although buying at auction can pay off, there could also be some underlying reasons as to why the house is up for auction. The property may be selling due to the owner’s financial instability. This could suggest failure to maintain the home, and you may be fronted with unpleasant surprises and maintenance costs. The owner’s financial burden could also generate tax liens, contractor liens or a second mortgage.
Buying at auction involves a lot of cash.
Down payments are required to secure bids, however the amount varies depending on the property and auction house. The financing options available when purchasing a home the traditional way, are far more favourable than those available through auction.
Finally, winning the auction doesn’t necessarily make you a new property owner. Your winning bid may not reach the minimum reserve price, and the bank or lender is not obliged to accept your bid unless it meets the approval requirements.
Tips for Success
It may sound daunting, but we’re not pushing you into a house auction blindfolded. A few simple tips and precautionary measures can be the difference between a major loss or gain.
- Create some trust issues
- As trustworthy as they may appear, assume the agents are lying to you. This will ensure you adequately research everything you’re told. Agents often under-quote the selling price (usually by around 20%), so consider this when assessing your budget.
- Hit the books
- As with all large investments, it pays to do your research. Uncover the true value of the home by researching the value of other properties in the neighbourhood. If you’re serious about buying the property, contact a registered valuer for a balanced opinion.
- Work with an auction house to ensure the property is clear of underlying liens. Once you’ve established the property is free of dirty little secrets, familiarise yourself with the auction terms to avoid nasty surprises on auction day.
- Inspect the property
- Some house auctions do not allow inspections. Steer clear of these! As the saying goes, don’t judge a book by its cover. The same applies for auction properties. Without thoroughly viewing the home, you’ll be deprived of some integral information that won’t become available until you’ve made the purchase.
- Team up with a lawyer
- It may seem costly, but having a lawyer is a valuable tool when buying at auction. They can deal with agents on your behalf and will answer your questions truthfully.
- Be a smart bidder
- Don’t bid too soon and keep your highest price a secret! You’re likely to be the highest bidder long before you reach your limit. Lastly, the golden rule in buying at auction is- never bid until the property reaches reserve.
Do your homework and remember the important factors in buying at auction. Your dream home could be one bid away!
