Auctions can be scary but not if you are prepared….
There has been a bit of media coverage in the past week about a situation where a couple went to an auction and bid on a property, without having a formal finance approval from a bank.
The couple fortunately got approval, from a non-bank lender at additional cost.
On the fall of the auctioneers’ hammer, the buyer will be locked into an unconditional agreement and not be able to pull out of the deal if problems arise later.
A buyer must therefore complete all their enquiries and investigations into a property prior to the auction date.
Below are my tips if you are considering bidding at auction:
1. Register with the Real Estate Agent for the property. The agent will then give you a copy of the Property Pack that will contain the legal documents applicable to the property that can be reviewed by your solicitor. The agent is obliged to inform you if any preauction offers have been made by other parties on the property.
2. Attend an Auction. It can be intimidating to attend an auction for the first time. Attend a few auctions before you intend to bid for the property that you are interested in.
3. Get your solicitor to review the documents contained in the property pack (Usually, a copy of the auction contract, Title and LIM Reports). These are important documents, and your solicitor will be able to advise you on what you are letting yourself in for when buying at auction.
4. Get a builder’s report. Although this can be expensive, it is a small price to pay in comparison to the amount being invested in the purchase of the property and the possible cost of having to remedy defects in the future. You might decide that you are not going to bid at auction if the builders report has too many issues that needs attending to.
5. Sort your Finance. If required, you should ensure that you have an unconditional offer of finance in place from the bank. A general pre-approval is not sufficient as the bank will often want to approve the specific property being purchased. The bank may also require that a satisfactory valuation be obtained for the property prior to the auction date. In addition, you must ensure you have sufficient funds available for the deposit. This is payable on the day of the auction and is usually 10% of the purchase price. It is important to note that KiwiSaver funds cannot be used as a deposit – the monies must be readily available in cash in your bank account on the auction day.
6. Know your limit. It is crucial that you know the maximum price you can afford for the property, and do not bid over that amount. Buying a house is a very emotional decision and it is easy to get carried away in an auction environment. A buyer has no legal remedies if they overbid on a property and then are subsequently not able to afford to complete settlement.
Happy House Hunting!
Talk Soon,
Andre