Pre-Auction Building Inspections – Everything you need to know
A real-estate auction involves competing sides bidding openly on a property during a scheduled date and time. The winner of the bidding signs a contract of sale on the spot and they are lawfully required to honour the deal. Therefore, if you are bidding for a property at an auction, it is absolutely crucial that you already have your Pre-Auction Building Inspection Report prior to the day of the auction.
If the report is not favourable, you’ll have the opportunity to walk away before the Auction Day and potentially save yourself tens of thousands of dollars in repairs and a ton of misery. On the other hand, you can use the insight to intelligently bid on the property and not get caught in the whirlwind of Auction Day. Also, keep in mind that other bidders may be willing to go much higher in the bids as they may not have a report outlining the defects within the property.
Sold at Auction vs Private Treaty
Before an auction commences the seller will usually set in writing a minimum sale price, called the ‘reserve price’. The auctioneer is not permitted to sell the property below the reserve price and it is not revealed to prospective buyers before the auction. The auction is generally opened with the auctioneer announcing the attributes of the property, and any relevant details such as restrictions on the title and the deposit required. The auctioneer then calls for, or announces, an opening bid, usually below the reserve price. The price is raised progressively as the auctioneer accepts more bids.
When the reserve price has been reached or exceeded, the auctioneer will usually indicate this by saying ‘this property will sell today’ or something similar. The person who makes the final bid must then complete the transaction by formally signing their offer to buy, which is then signed and accepted by the auctioneer on behalf of the seller. At this point the sales contract has been concluded and you will not have the option to make the sale conditional to Finance or Building Inspection Reports.
If the auction fails to reach the reserve price, the property is ‘passed in’ (does not sell). The auctioneer, on behalf of the seller, may enter into private negotiations with the highest bidder or other bidders immediately after the property is passed in, to try to negotiate a sale.
It is crucial to remember that if you attempt to purchase at an auction but it gets passed in, and you then proceed to purchase the property through a private treaty, you can now add special conditions into your offer to protect yourself.
Here are a few things that should be attended to prior to auction day:
Check your finances
Consult your Bank or Finance manager beforehand to calculate your financial capability. It is essential to check if you have the finances first before thinking about bidding for any property. Having a Pre-Approval from the Bank will always be your best bet.
Get a Professional Building Inspection Report
You need to know exactly what you’re bidding on and a Professional Building Inspection Report will help you make an informed decision about what your potential home is really worth. This is essential information to have at your disposal before Auction day.
Research your Location
Look at the locality before the auction. You can do this during the open house, which is conducted before the auction. Buying a property is a huge investment and knowing your neighbourhood is essential.
Do Some Test Runs
You can learn some bidding skills just by visiting other property auctions and observing. Don’t let your first active auction be the one where you’re trying to secure your dream home. Talk to real estate agents, purchasing agents, and auctioneers so you can familiarise yourself with the terminologies used during auctions. This can boost your confidence for when the time comes to bid.
Have a bidding limit
Some bidders become emotional and go overboard on the bidding day. You should set a bidding limit for yourself and stick to it. Ensure that your limit does not surpass your borrowing capability or Pre-Approved amount.
Consider a Buyer Agent
If you have never been to an auction or have, but you’re not confident about bidding, consider getting a buyer’s agent to do your bidding for you
In the long run, the decision to purchase a property without getting a Building Inspection is a huge risk you just don’t need to take. It’s wise to conduct a Pre-Auction Building Inspection with Total Home Inspections before you jump into an Auction and start bidding for any properties.