Buying a house at auction is exciting.
But like anything in life, there are pros and cons. One benefit of auctions is that buyers can move quickly and there’s a lot of transparency in the process. However, buying at auction can also be overwhelming and confronting, with a lot of emotional pressure.
Did you know there are also legal advantages and disadvantages to buying a house at auction? In this article, we’ll investigate these pros and cons to help you decide if buying at auction is right for you.
An auction happens live in a public place, so you can see exactly how the sale is unfolding. You can observe your fellow buyers and how much they’re willing to pay for the property.
Whereas in a private sale, buyers typically have no knowledge of the offers and negotiations happening behind the scenes. They must rely on the real estate agent’s honesty to get a gauge of the situation.
The transparency of the auction process ensures that all buyers have equal opportunity to place a bid on the day.
Due to the nature of an auction, most of the preparation work will need to be completed before auction day.
This includes engaging a solicitor to review the contract and negotiate terms if you wish to do so. If you don’t take the time to do this, you’ll miss out and have to accept the contract as is.
The same goes for securing finance and obtaining building and pest reports. Ensure you’ve conducted independent pest and building inspections and gained reliable pre-approval from a lender.
Keep in mind that while pre-approval is a great sign, it isn’t a promise. If you fail to secure final loan approval, you’ll still be stuck in the sale contract!)
Having a fixed date for the auction can mean less time for the seller and agent to fuss with marketing and inspections. So if you know you want to buy the property, this could minimise your competition and fast-track the process.
There are also fewer steps in the auction process compared to a private treaty. Because the sale price is determined at auction, this also avoids lengthy price negotiations between buyer and seller. What could take weeks for a private sale could be finalised within minutes at an auction.
Buyers also have greater certainty that if you make the highest bid at auction, the property is yours. This gives you a lot more assurance in the process.
However, it also means you need to have all your ducks in row. As mentioned in the point above, you should have engaged a solicitor to check the contract, gained loan pre-approval and conducted inspections.
Most real estate purchases in NSW are governed by the Property and Stock Agents Act 2002. It’s important to understand that there’s no right of termination or cooling off period under the NSW legislation if you’re the successful bidder at an auction.
In other words, when buying a house at auction, if you win it, you buy it. The buyer has no right of termination for any reason – not even if your loan application is rejected. (Another reason why pre-approval is so vital in that situation!)
If you place the winning bid at auction, you’ll be required to sign the contract and pay the deposit that day. While this can be a pro because it gives you greater assurance, it can also be a disadvantage if you change your mind or your loan falls through.
If you can’t settle the contract, you’ll be in breach and the contract will likely be terminated. You’ll lose your deposit and could even be liable for damages.
In NSW, it’s common for the contract of sale to stipulate that insurance is the buyer’s responsibility, either at the exchange of contracts or from 5pm the following business day.
This means you’d need to organise and pay for insurance immediately if you want to protect your investment from loss or damage. Your lender will likely also require proof that you have insurance when buying a house at auction.
Any time you enter into a contract of sale, there’s always a risk the other party will back out. This holds true for both private sales and auctions.
If you’ve entered into a contract for a property and the seller backs out, there are legal steps you can take and some consequences will likely apply. These include:
If a seller backs out of your sale contract, get in touch with our team so we can give you legal support.
Are you buying a house at auction? Make sure you understand all the pros and cons first!
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