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Storey & Gough issues its clients with a regular newsletter which highlights developments which have taken place in the firm. Our latest issue can be viewed below:
November 2015

An introduction to the auction process for home buyers

The Saturday auction is probably Australia’s newest pastime if our obsession with home ownership is anything to go by. So if you happen to be attending an auction and wish to make a purchase, there are a number of basic things that you should have an awareness of to help get you started.

The contract

As with any major purchase, examining the terms of the contract is extremely important to ensure that there is nothing objectionable. Therefore, before a purchase, allow a licensed conveyancer or solicitor to examine the contract so there aren’t any nasty future surprises.

Inspecting the property

For any person intending to purchase property, all inspections should be completed before they are bound to the contract. It may be a good idea for potential purchasers to obtain building reports from an expert in relation to how structurally sound the property is, and also condition of repair and suitability of structure reports. Furthermore, determining whether the property is liable to flooding for example, may also be a consideration for areas prone to natural disasters.

Financing the purchase

Obtaining proper financing prior to an auction is important, and lenders usually take into consideration the person’s credit rating and ability to repay the loan as some of the factors that a mortgage lender will look into. The types of loans that purchasers may utilise can be variable interest loans or loans at fixed rates which can be an attractive alternative if the fixed rates are low.

In addition to variable interest or loans at a fixed rate, purchasers may also borrow up to 95% of the value of the property. However, loans greater than 75%-80% will probably require mortgage insurance. The purpose of mortgage insurance is that in the event of the property being sold due to default protects the lender, and the insurer may pursue any losses incurred from the borrower.

The auction

Either prior to or at the auction, a reserve price will be set by the seller which is the minimum amount that would be accepted for the property. Upon reaching the reserve price, the auctioneer will inform those in attendance that the property will be on the market and that it will be sold under the hammer to the highest bidder. The successful purchaser will be required to sign the contract immediately and pay a deposit.

In the event that the reserve price is not met, the property will be deemed to have passed in and the seller may reduce the price to the highest bid, which would then signify that the property is sold under the hammer, and the exchange of contracts may take place. Alternatively, negotiations may be undertaken privately with the highest bidder.

For purchasers, it’s important to be aware that if contracts are exchanged on the day of the auction, the usual five day cooling-off period may not be applicable.

Dummy bidding

Auctioneers are generally required to note the people who wish to make a bid by completing a bidders’ record. Additionally, vendors are prevented from making more than one bid preventing an action of dummy bidding, which is a tactic used to raise the auction price.