baa Buying at Auction In-Depth Auction Guide to Help You Get A Great Deal Handy Auction Checklist So You are Prepared to Bid www.ljhooker.com.au Brought to you by ljhooker.com.au 1
Table of Contents Buying at Auction 06 Chapter 1: Doing Your Research 09 Chapter 2: Seek Expert Advice 10 Chapter 3: Get Your Finances Sorted and Set a Limit 12 Chapter 4: Understand The Hidden Costs When You Buy a Home 17 Chapter 5: Making a Pre-Auction Offer 18 Chapter 6: On The Day of The Auction 2 LJ Hooker ebook: Buying at Auction
20 Chapter 7: Rules of Auction 21 Chapter 8: Which Type of Bidder Are You? 23 Chapter 9: Understanding Auction Terms 25 Chapter 10: What To Do When Your Bid is Successful 26 Chapter 11: When a Property Passes In 27 Chapter 12: Settling The Sale 29 Auction Checklist Brought to you by ljhooker.com.au 3
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Introduction Welcome Auctions are exciting but for some can be a nerve-racking method of real estate transaction unless you understand the process. Naturally, vendors want to get the highest price from bidders outbidding each other, whereas buyers are hoping to snap up a good deal, while the selling agents are trying to get as many bidders through the door as possible. It s an exciting process and it can be your ticket to a great property. Several factors make auctions so enticing for Australians. The immediacy of the event means that the long house hunt can be shortened to an afternoon s work, and there are ample opportunities for a great deal for both sellers and buyers. The competition is clear-cut, and you are able to register and plan well in advance. The nature of auctions also means that the price is gauged by the crowd, rather than dictated by a seller across the negotiating table. However, it is vital to do in-depth research before making moves into the auction market. To get great returns from your bidding, read on with our in-depth auction guide. Brought to you by ljhooker.com.au 5
Doing Your Research Chapter 1: Doing Your Research When you decide to buy a home at auction, you have to treat it like an exam. And that means scrubbing up and doing your study! Knowing what properties are selling for around you is a key element of being a successful auction buyer, and there are several ways you can make this happen. Ask An Agent Speaking to your local agent is a quick and easy way to get yourself acquainted with the basics of the auction process. They can give you a clear picture of what is happening in your local market, recent auction results, local auction trends and clearance rates. They can explain the auction process, how it works, what is required and how best to prepare yourself. Agents live and breathe real estate so they are a great resource to tap into. LJ Hooker s mymarket Report This report is fantastic for keeping up with regional market trends. It provides information on the current state of the market, as well as predictions for which way it will swing. It discusses median house prices, key market trends and much more. The knowledge gained from this report can be invaluable and can give you an edge over the competition. 6 LJ Hooker ebook: Buying at Auction
Doing Your Research Attend Some Auctions One of the best ways to learn the ropes is to get down and see some auctions yourself. Contact your local real estate agent to find out where the next one is happening in your area and go along to watch how it plays out. Government Sources Websites like NSW Fair Trading are a great place to start when you wish to understand the legal processes behind auctions, as well as your rights and responsibilities. This is particularly important if you are bidding interstate, as there may be specific regulations you need to know. Another similar and useful place to do your research on auctions is the Real Estate Institute of Australia, or the relevant institute of your state. Wherever you decide to conduct your auction homework, make sure you are thorough! Understand the prices and trends in an area, and you will have made a crucial step on the way to a winning bid. Knowledge is power, and you should take in as much as you can. Brought to you by ljhooker.com.au 7
Seek Expert Advice 8 LJ Hooker ebook: Buying at Auction
Seek Expert Advice Chapter 2: Seek Expert Advice Sometimes, doing your own research is not enough. Buying a home at auction can be a complicated process, with lots of small legalities and purchase details that should not be overlooked. When you want to get the low-down on the fine print of the auction process, you should consult an expert. Seek a Solicitor Unlike private treaties, auction sales don t have a cooling off period. This means that once the gavel hits the podium, you need to follow through with the purchase. This can be daunting, especially if you get stuck in a contract that gives you the raw end of the deal. Getting a solicitor to look over the contract of sale before you go to auction is an excellent safeguard against any legal hurdles that can trip you up if you complete a purchase. Contact a Conveyancer A conveyancer can make the buying process simple by conducting many complicated affairs on your behalf. They will also organise settlement fees, stamp duty and many other details for you - a must-have if you are not confident doing this yourself. A solicitor can be a conveyancer, but not all conveyancers are solicitor - many are specialised. Make sure to ask your contact about their qualifications, and give full details of your situation so they can help you. This includes finances, how much time you have, and whether you want to negotiate down the contract. By engaging the services of an expert, you will make sure you get exactly what you want with no nasty surprises and the benefit of a specialist working for you. Brought to you by ljhooker.com.au 9
Get Your Finances Sorted and Set a Limit Chapter 3: Get Your Finances Sorted and Set a Limit As mentioned before, there is no cooling off period at auction. If the reserve is met, the hammer falls and you are the highest bidder, the sale is final and the property is yours. However, so are the costs. Make sure you are prepared! 10 LJ Hooker ebook: Buying at Auction
Get Your Finances Sorted and Set a Limit Get Pre-Approved The first thing to do ahead of going to auction is to make sure you will be able to back up your bids financially. This means engaging the right property lending specialist, and getting preapproval for a home loan. This puts you in control and will help create a stress free buying process. LJ Hooker Home Loans has a team of property lending specialists right across Australia and are experts in home loans. You get all the services of traditional mortgage broking, but with the added value of unique professional support around property buying right from step 1. As pre-approval can take a while make sure you get yourself sorted well in advance of the auction date. Work Out What You Can Afford Before auction, ask if you can really afford to buy this house. Balance up your income, the fees related to your property or loan, mortgage payments and any ongoing costs you might have. If you re successful at the auction, are you going to break the bank? If so, it is time to try another avenue or save for a while longer. Know Yourself, Know Your Limits Getting into a bidding war can be a heated affair, and if you lose your head you can bid well over what you intended. Before you go to auction, set your limit and most importantly, stick to it. Do not go over your pre-determined limit. Have Your Deposit Ready Generally, the winner of an auction has to pay a deposit on the spot. This is normally 10 per cent of the sale price, so make sure you have this at the ready. Consider bringing your own cheque book instead of a bank cheque as well. This way you can pay the exact deposit amount easily, as it will likely be a mystery to you until the close of the auction - try not to get caught out! Brought to you by ljhooker.com.au 11
Understand The Hidden Costs When You Buy a Home Chapter 4: Understand The Hidden Costs When You Buy a Home As we have covered, one of the most important parts of succeeding at auction is making sure your home loan is prepared well in advance. However, among all the planning and excitement, you might forget about the numerous hidden expenses involved with buying a home. These one-off costs should be noted, otherwise they ll be quite the hurdle to jump when you prepare to buy. 12 LJ Hooker ebook: Buying at Auction
Understand The Hidden Costs When You Buy a Home Loan Fees There are a number of fees associated with taking out a home loan so it s critical that you get a clear picture of what you re facing before you sign. Loan establishment fees can range from zero to $1000 so make sure you check with your lending specialist. Valuation Every lender requires a valuation of a property before they are willing to lend, this is to ensure that the property is worth the asking price. A standard valuation generally costs between $300 to $500. Lenders Mortgage Insurance (LMI) If you want to borrow more than 80% of the property purchase price you will normally be charged Lenders mortgage insurance. This insurance payment covers the lender in the event that you can t pay the home loan back. Get your budget and savings in order well before you buy to avoid this hurdle! The cost of LMI will vary depending on how much you borrow and the type of loan you select but it will be approximately $10,000. Building Insurance When you re spending your life savings on purchasing property it makes sense to protect it. While building insurance is a compulsory requirement from your lender, there are other insurance policies that you should consider. For example mortgage protection insurance will ensure your mortgage repayments are met should you fall seriously ill. Income protection insurance will also help pay the bills should you suffer an accident, major trauma or llness. Legal Help Buying a home is fundamentally a legal process so the help of legal experts, namely conveyancers and solicitors is critical. They will be an invaluable part of property negotiations and can help you through the paperwork. However remember they will charge a fee so make sure you factor this in. Some conveyancers will charge a flat fee while others will charge a sliding fee based on the properties sale price. Make sure you discuss fees and charges before you engage their services. Brought to you by ljhooker.com.au 13
Understand The Hidden Costs When You Buy a Home Building, Pest and Strata Having a building and pest inspection carried out on any property is usually a requirement by the lender but they are well worth investing in regardless. If you are considering purchasing a unit or apartment, it is also in your best interest to have a strata inspection conducted that is a report on the assets, liabilities and financial position of the apartment complex. While having a building, pest or strata inspection completed on the potential property will cost you initially, it could be an invaluable safeguarding against buying a lemon. Expect to pay around $400 for a building or pest inspection and around $200 for a strata report. Council Rates and Strata Fees Once a seller hands their property over, you immediately inherit all of the attached council and strata fees. While both owners of houses and units are obliged to pay council rates, it is only owners of units or apartments that will have to incur strata fees. Strata fees cover the property s grouped maintenance and building insurance fees and are collected by the building s owners or manager. These fees are ongoing costs that will continue to absorb your finances, generally quarterly, even after your initial property purchase payment, so it s important to incorporate these into your ongoing budget. The scope of strata fees will vary considerably depending on the age of the building, facilities, and location but you should expect to pay around $70 to $80 for the lodgement of application. 14 LJ Hooker ebook: Buying at Auction
Understand The Hidden Costs When You Buy a Home Stamp Duty This can be one of the biggest extra expenses you will need to pay when buying a home so it is really important you factor this in when you are budgeting. Stamp duty is effectively tax on the land, and the amount will vary depending on where you want to buy and how much the property costs. However some states, such as Victoria, provide concessions to first home buyers that can significantly reduce the impost caused by this tax. Sometimes the concessions can be up to 50 per cent of the overall tax, depending on the state and criteria, so it should not be overlooked. Everything Adds Up It is really important to consider all the extra costs that can / will apply to your property purchase otherwise the settlement time can be extremely stressful. As a general rule if you factor in an additional 5-7% of the purchase price, on top of your deposit it should be approximately enough to help you cover the hidden extras. For example if you were buying a property in NSW that cost you $520,000 you will be charged approximately $18,890.00 in Stamp Duty fees. If you were spending the same amount on a home in Queensland you would have to pay an additional $9450.00 in Transfer tax. These fees can really add up so make sure you factor them in early. Having a Little Bit Extra You may have done all your research and been prepared for all the major hidden extras, but you should always set aside a little bit extra for those expenses you are not expecting. Expenses like moving fees, utility connections, mail redirection etc. Brought to you by ljhooker.com.au 15
Making a Pre-Auction Offer 16 LJ Hooker ebook: Buying at Auction
Making a Pre-Auction Offer Chapter 5: Making a Pre-Auction Offer If you re impatient to get your foot in the door on a property, why wait until auction day? You can make a pre-auction bid to get a home before the bidding opens. Just make sure you do it right. Get It Write These steps will make your offer straight to the point, and this shows the seller that you mean business. Make your pre-auction offer in writing. Have a contract and deposit cheque ready. Set a time limit. Making a pre-auction offer is often about getting the house you absolutely want, so let the seller know you re in this for the long run. Make Sure The Price Is Right Don t jump in with an offer that is miles below the vendor expectations, as it isn t likely to be taken seriously. In fact, it may even make the seller reluctant to work with you. How s Your Timing? By waiting until close to the auction date before pre-offering, sellers and agents will have a concrete idea of the interest in a property. Agents will not disclose offers to you as a buyer but may disclose what offers the vendors refused to accept. You can use this to your advantage and undercut the competition with an eleventh hour bid, and secure a great home. On the other hand, early research and offers can get you a home before anyone else can do their homework properly. Pre-auction offers can trigger other parties to give up early, or spark an early bidding war. Done correctly, you can cut out the competition and swoop in on a property with ease. Make an offer that is realistic. Also remember that working for a quick purchase can mean the tradeoff is in the cost, so be wary of your budget. Brought to you by ljhooker.com.au 17
On The Day Of The Auction Chapter 6: On The Day Of The Auction On the big day, there are several steps you need to take before getting in amongst the bidding. If you haven t registered in the bidders record, now is the time to do so. 18 LJ Hooker ebook: Buying at Auction
On The Day Of The Auction In New South Wales, this is generally run by the selling agent. You will be required to provide identification such as a drivers license, as well as a letter of authority if you are bidding on behalf of someone else. Agents acting for a buyer need to provide their license number, while anyone with power of attorney can just sign up on their own. Should you be bidding for a company, you ll also need the organisation s Australian Banking Number. Remember, if you re bidding as a couple, then only one of you needs to register. What is Registration? Your details and the details of the auction are recorded, and you ll be given a bidding number. Don t think that this registering lets you see the details of others in the record though - not even the seller gets a look at who has registered to try and buy. These specifics are for NSW, so it s important to check up on your local government rulings for what else you may need to do on the day. Only registered bidders can be in the running for the property - latecomers may be able to get a late registration, but it s best to be prepared. Brought to you by ljhooker.com.au 19
Rules of Auction Chapter 7: Rules of Auction Sometimes, doing your own research is not enough. Buying a home at auction can be a complicated process, with lots of small legalities and purchase details that should not be overlooked. When you want to get the low-down on the fine print of the auction process, you should consult an expert. Once the auction begins, there are many rules in place that you will have to be wary of, lest you find yourself bound to a deal you aren t happy with. The auctioneer will outline all rules before the bidding begins. This can include their obligation to refuse bids after the hammer falls, to arbitrate bid disputes, and also to refuse bids that come from those who have not registered for the auction. There may be more specifics depending on where the auction takes place, so check the rulings and listen carefully to the auctioneer. It is in their best interests to ensure the auction runs smoothly too, as they can be fined up to $11,000 for accepting bids from unregistered buyers in NSW. In Queensland, a similar fine can be handed out for not showing the auctioneer s name or license. 20 LJ Hooker ebook: Buying at Auction
Which Type Of Bidder Are You? Chapter 8: Which Type Of Bidder Are You? When the bidding gets underway, you ll find some strong auction stereotypes emerge. These are common at many auctions, and can be easily handled if you know what to expect - and you may even recognise yourself in some of these. The High Roller These bidders tend to raise the bar early, as an intimidating factor. However, they can sell themselves short and end up paying more than they need to, or exhaust themselves early by flying too close to the sun and hitting the upper levels of their budget too soon. The Waiter This is a slow and steady bidder, who is unlikely to even be heard from until the closing stages. The drawback here is they enter the bidding when the level is already quite high, so may be stretching their budget with the first bid they make. The Newbie These bidders are common, but frustrating. By laying random bids all through the auction, the newbie can be a confusing bidder that does not often succeed. When at auction, you need to have a handle on your finances, keep a cool head and adopt traits of both the waiter and the high roller to have a good chance of victory. Luck needs to be on your side a little as well! Brought to you by ljhooker.com.au 21
Understanding Auction Terms 22 LJ Hooker ebook: Buying at Auction
Understanding Auction Terms Chapter 9: Understanding Auction Terms If you are new to the auction process, you may come across several terms that confuse you, which is the last thing you want in the middle of a bidding war. Here are some common terms to be aware of. Bidders Guide The bidder s guide is a document that must be provided to bidders by the selling agent before an auction. It gives information on how to register for auction and what paperwork needs to be filled out, the relevant privacy laws and the rules and regulations of the auction. Make sure to get one of these before you start to seriously plan out your bidding! Inspection Usually beginning about half an hour before an auction, the inspection period is important for anyone seriously considering getting in on a property at auction. It isn t just a final chance to see the property up close, it is also an opportunity to get a final look at the relevant documents for the home, such as the terms of settlement - as Consumer Affairs Victoria (CAV) says, you won t be able to change these if you win the auction. Vendor & Dummy Bids It s important to understand the term vendor bid and the difference between it and dummy bids. Vendor bids are a single bid or bids made by the auctioneer on behalf of the seller. The purpose of this bid is to help the property achieve its reserve price. The auctioneer is entitled to bid once on behalf of the seller or in some states as many times as they like. If this bid is to be made during the auction, the arrangements for making the bid must be set out in the rule displayed before the auctions starts and the intention to make a bid should be announced by the auctioneer at the start of the auction. A dummy bid on the other hand is a false bid made by a non-genuine buyer. All dummy bids are illegal and attract significant penalties for the vendor (up to $20,000 in SA and up to $55,000 in NSW), the dummy bidder and in some cases the agent if it can be proved they solicited the bid. Brought to you by ljhooker.com.au 23
Understanding Auction Terms Rises and advances This is the amount by which bids increase during an auction and is usually dictated by the auctioneer. They could be $500 or $5000, and do not necessarily have to be adhered to - but the auctioneer can reject your bid if they think you have not advanced the bidding by enough. Reserve One of the most crucial terms, the reserve is effectively the point at which the auction becomes live. If bidding does not go over the reserve then a negotiation by the highest bidder and seller may take place. This may continue for hours or days but usually a contract on the property is executed reasonably soon after the auction itself. However, once bidding goes over a reserve price the property is on the market and a winning bid is binding, so make sure you don t overextend your budget or get carried away in the heat of the moment. On The Market & Passed In During the course of the auction, the auctioneer may stop the proceedings and say they are seeking advice or instruction from the vendor. This gives the auctioneer time to discuss the progress of bidding with the vendor. If the bidding has reached the reserve price, or is close, the auctioneer will ask the seller if they are willing to adjust their reserve and sell the property for the highest price. If they are, the auctioneer will announce to the crowd that the property is on the market or rather that it will be sold to the highest bidder. If the bidding does not reach the reserve price or a price the seller is happy with, the property may be passed in. In this case the highest bidder may be given the first opportunity to negotiate a sale with the seller however this is not legislation in most states. 24 LJ Hooker ebook: Buying at Auction
Understanding What To Do when Auction Your Bid Terms is Successful Chapter 10: What To Do when Your Bid is Successful If you emerged victorious in the bidding battles, and saw the price surpass the reserve, then congratulations - you have bought a property at auction! Normally, immediately after the auction you will be required to sign the contract, and provide the 10 per cent deposit. This is why we want you to make sure your finances are in order - in Australia, there is no cooling-off period. Once you buy, you re locked into the deal. Once you have signed a contract it will be deemed that you have an equitable interest in the property and you should immediately take out insurance. Brought to you by ljhooker.com.au 25
When a Property Passes In Chapter 11: When a Property Passes In Of course, not every auction has a happy ending under the hammer. Sometimes bidding doesn t get above the reserve, whether because of a high price set by the seller or some cautious bidding on the buyers end. Sometimes, no-one has made a bid at all! Whatever the reason, when this happens the property is passed in, and does not sell. This is not uncommon - Core Logic RP Data noted at the end of 2014 that only 67.9 per cent of auctions reached a sale through 2014, and this is an excellent result! Power Play While this result may seem disappointing, it opens the door for you as a buyer to start or continue negotiations on the property. Vendors have usually become educated to the market during the process and can be more realistic with their expectations around price and conditions. If you find yourself in this situation be aware that all other parties can now compete as well so avoid making unrealisticly low offers in the wake of a property not selling under the hammer. 26 LJ Hooker ebook: Buying at Auction
Settling The Sale Chapter 12: Settling The Sale Finally, it is time to settle the sale of the home you have purchased at auction. Once the contract is signed and the deposit paid, it is time to approach your lender and finalise your mortgage. Some home loan details may need to be changed depending on the difference between final home price and what you were pre-approved for. Any special conditions you outlined will be undertaken, such as further inspections or repairs that you agree with the vendor to have done before you move. Once this has been organised and the paperwork completed between the conveyancers or solicitors representing each party, a moving date can be settled on, and the keys handed over. The full process generally takes around 4-6 weeks. Good Bidding, and Good Luck! It takes some hard work to successfully win at auction, and a degree of luck. But by preparing yourself along these guidelines and understanding the ins and outs of how auctions work, you give yourself a fantastic chance of making a great purchase. Happy hunting! Make sure you download our Complete Moving Guide to help you here. Brought to you by ljhooker.com.au 27
Auction Checklist Auction Checklist Be approved Make sure that your finance has been approved before attending any auction. This not only gives you a firm picture of what you have to spend, it also guarantees that you ll be able to come up with the cash if your bid is accepted. A sale made at auction is binding so you ll need to be sure you have the financing behind you. Know your limit It is essential that you set a maximum amount that you are prepared to spend before you start bidding at an auction. Auctions can easily become heated and it s easy to be swept up in a bidding war, resulting in parting with more money than you ve bargained for. If the price goes above your max, pull the pin. Cash on the hip Make sure that you ve got a 10 per cent deposit that you can access on the day, as this will need to be provided once the deal is done. Consult a lawyer Ensure that you understand all the legal implications and requirements of an auction purchase before you bid and that you understand all the conditions in the contract. Once you ve agreed to buy at auction, there s no turning back. 28 LJ Hooker ebook: Buying at Auction
Auction Checklist Lie of the land Never bid on a property that you ve laid your eyes on only once. Make sure you inspect the property as many times as possible, and at different times of the day, to see how it is affected by sunlight and traffic. Be sure it s in good nick Don t bid on a property without the proper due diligence. This means a building and pest inspection from a qualified specialist. What s it worth? Make sure you have a clear picture of the property s value before you go to an auction. Invest in an independent qualified valuer to get an appraisal of the property s true worth before you place a bid. Befriend the agent It is well worth getting to know the selling agent prior to auction to find out as much as possible about the auction process. While this will not result in getting a better price for the property, it will help show that you are a serious buyer. Provide the paperwork Before bidding, you ll need to register, and that requires producing certain identification. Make sure that you have your driver s licence, and other appropriate documentation to validate your identity. Brought to you by ljhooker.com.au 29
Good Bidding, and Good Luck! Get more tips, information and exclusive offers Subcribe to myljhooker.com.au 30 LJ Hooker ebook: Buying at Auction
Disclaimer This ebook does not necessarily reflect the opinion of the publisher. It is intended to provide general news and information only. The content does not take into account your personal objectives, financial situation or needs. While every care has been taken to ensure the accuracy of the information it contains, neither the publishers, authors nor their employees, can be held liable for inaccuracies, errors or omission. Copyright is reserved throughout. No part of this publication can be reproduced or reprinted without the express permission of the publisher. All information is current as at publication release and the publishers take no responsibility for any factors that may change thereafter. Readers are advised to contact their financial adviser, broker or accountant before making any investment decisions and should not rely on this ebook as a substitute for professional advice. This information is to be used as a guide only and is subject to change at any time. 2015 LJ Hooker Corporation Limited. Brought to you by ljhooker.com.au 31
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