Buyers guide to auctions.
Bidding for and buying a house at auction can feel intimidating if you have never done it before but a little bit of preparation and homework can make the process far less stressful and more empowering.
1. Pre Auction: Due Diligence
So you’ve found a house you want to buy and it’s being sold by auction process. First things first, you have to do your due diligence. What this means is reviewing all of the information made available, assessing and ensuring that you are ready to make an informed decision. Typically the agent handling the sale will provide you with a copy of the Title for the Property and the LIM. Those two documents should be reviewed by your lawyer. You will also need to have a conversation with your financier or bank and particularly in Christchurch you will need to discuss with your potential insurer for the property.
The vendor may provide you with a Builders Report. Be aware, this is there as a guide only. It has been commissioned on behalf of the vendor so if there is anything missing from that report, or anything not correct within it, you will not have any comeback. For this reason, it can be a good idea to commission a Builder’s Report of your own.
Typically in Christchurch you will also you will also get documentation around what has happened to the house after the quakes and what has been done to the house. Your bank and your insurer will likely want to take a look at this just to make sure that any repair strategy has been carried out correctly. Particularly for older houses in Christchurch, spend some time looking through the reports, through the insurance documentation consider getting your own Builders Report.
Some buyers get frustrated at the expense of this process, only to not be a successful bidder and having to repeat the whole process with a new property. It helps to think about what the long-term cost could be of not completing that due diligence only to find something critical is wrong with the property. This due diligence process is vital in Christchurch now following the rebuild, do not bid on a rebuilt or remediated property that does not provide the necessary basic documentation of the repair strategy.
2. Pre Auction: Conquering Nerves - Visit an Auction
The simplest and one of the most helpful things you can do is go to a few auctions to familiarise yourself with the process and the environment. Consider doing this well before you’ve found a place you're ready to bid for, so you can view the auction process and watch buyers bidding strategies.
Once you've found a property you’d like to bid for, see if you can find another auction called by the same auctioneer who will oversee the sale of that property. Anything you can do to make your bidding auction day more familiar to you will help you on that day. Feel free to ask the sales consultant you are working with to introduce you to the Auctioneer, but also talk the whole process through with the consultant, they will know you are interested in the property, they in turn will be keen to assist you to buy.
3. Pre Auction: Set your Levels
Before the auction, you will need to consider and have three numbers in mind:
- What you would like to spend - this would be a good deal for you.
- What you believe the property is actually worth.
- ‘The fighting fund’ - This is your absolute limit that you are willing to spend.
Similarly, the vendor will set a reserve with the auctioneer. This is what they hope to sell the property for. They will however, also have a lower number in mind that they are willing to consider selling for. Do note; the agent and the auctioneer are usually not aware of what this lower limit is.
Remember, bidding and buying at auction is binding. Once you have bid and bought the property, you will be required to pay a deposit straight away, sign the documentation and from that point on you are, in essence, the legal owner of the property with settlement to occur soon after.
4. Day of the Auction: Ready to Buy - Starting the Bidding
An auctioneer will normally ask for an opening bid from the floor, or they may make the opening bid themselves to get things started. This will usually be well below the reserve so it’s generally comfortable for you to make your first bid and get it out of the way. Bidding early, at a comfortable level, is a good way to ease yourself into the auction and build your confidence should there be competition down the track.
Once you’ve placed your first bid, two things can happen. Other people may begin bidding - you can see them, you can make a decision will you pay a little more and the auction will continue until there is a winning bid. Very much as you might expect. However, if you make a bid, and no one else bids, the auctioneer may make what is called a ‘vendor bid’.
5. Day of the Auction: What’s a vendor bid?
A vendor bid is essentially a counter offer for the vendor. It is always made well below the reserve figure. If you are still interested, you need to place another bid to have a chance of success. If it gets to a stage after the second, or third vendor bid at the most, the auctioneer will simply say something to the effect of, ‘If there are no more bids in the room, we will pause the auction and we will have a discussion with the buyer.’ Hopefully at that point if you can reach an agreement between yourself, the vendor and the auctioneer, all parties will return to the auction room, the property is on the market, the auctioneer will ask for any final bids and the property is sold.
6. Day of the Auction: What if no one bids?
In reality, if you have spent the time, energy and money to do the due diligence and to put yourself in a position to bid you need to bid so that the auctioneer knows you are serious about buying the property. If you elect not to bid, the property will be passed in by the auctioneer.
You will then have them, as extra competition and will likely end up in a multi-offer situation. In this case, you will be asked to make your very best offer, one chance only, and you may miss out completely. One of the big advantages of auctions is that you are only competing with the other cash buyers there on the day. Don’t lose the advantage because you are too nervous to bid.
If you would strongly prefer not to bid at auction, you can nominate a sales consultant to do your bidding for you. If you choose this option make sure you have complete faith that the sales consultant will follow your bidding instructions, and that they are fully informed of your bidding plan.
All the best with Auction, don't be frightened, just do your home work, and bid to whatever level you have decided before hand, if its enough you will have purchased and that will be a relief, if its not enough, no worries……next. If in any doubt, ask the consultant selling the property! They are there to help you, giving you the confidence and the information you need to buy your property at auction.
Christchurch Regional Manager