buying at auction

[fitboy]

Hey everyone

I'm looking at buying a property to live in. One that I'm interested in is being sold by auction. I don't have any experience of this process and was wondering if anyone could share any tips on how to be successful with this process.

See ya

Fitboy

[regan]

Re: buying at auction

If it's held in an office... you basically turn up and register as a potential bidder and get given a number.

You wait until the property you want comes up in the list, then you bid against others in the room - if you stand at the back of the room you'll know who you're bidding against.

Ask the auctioneer just before your auction starts if there will be any agents bidding (ie. with fake bids - can't remember what the term is for that). By law they must identify them if there will be - then you'll know who not to worry about.

Wait until everyone else has finished bidding and if it still hasn't reached your limit, throw in 5k or 10k on the last bid - blow them out of the water.

Don't go over your budget with the closed room pressure pot.

Fine advise from someone who has brought one property... at auction. If only I could do it again now.....

r

[fitboy]

thanks

[hort1]

Hi Fitboy
First and final you have to know what you are going to bid to!!!
Don't go if you are not sure what your limit is.
You must be prepared to walk away if the price gets above what you are prepared to pay.
Good luck

Cheer's hort1

[fitboy]

Does anybody know if this subject has been discussed on this website before?
I've definitely take the advice about knowing the price for going into it.

See ya

Fitboy

[regan]

Does anybody know if this subject has been discussed on this website before?

Click on "search" above and pop the word "auction" in the search box - there are a couple of relevant posts that get returned in the search.

regan.

[hawkeye]

Hi Fitboy,

We've purchased three properties at Auction in recent times. (And failed on many other occasions)

The reason we've used the auction process so much is that they were in another city and we found anything decent went before we could even get to view it.

If your keen in a property do the due diligence. Do the stuff that doesn't cost too much. Then assess whether your still interested and that the likely selling price is within your range. If your still up for it. Spend the money on things like Builders Reports and Valuations if that is what you would normally do when purchasing. Remember all bids at the auction are unconditional and there is probably 10% of the purchase price required at the fall of the hammer. So you need to be confident of your finance.

If you can, go and see the auctioneer in action prior to your auction. Observe the process and you'll feel more comfortable on the day. You'll probably find the auctioneer has a fairly predictable method from one auction to the next and you'll even recognise some of the quips.

Some things we've noticed.

The Agent will under quote their estimate of the selling price. This can be up to 20% in my experience. This is limited to one company in one centre so I'm no expert. I believe this is to get people along to the auction and create an atmosphere.

The auctioneer will bid on the Owners behalf below the Owners reserve. This bids are usually flagged verbally by the auctioneer. Standing at the back of the auction room (the best spot I've found) it is sometimes difficult to place where some of the unflagged bids come from? This only happened at the beginning.

The size of the increments the auctioneer will accept show how close you are to the owners reserve. If someone tries to introduce a smaller increment and this is not accepted you are still some way from the property being on the market.

Keep your powder dry until the Owners Reserve has been met and the auctioneer says something that indicates the house is on the market.

If the bidding has progressed close to the Reserve when the last bid has been made then they will probably 'Take Instructions' from the vendor. This is known in the Real Estate game as the squeeze.

Outcome 1. They will put the house on the market and usually the person who thinks they have burnt off the competition will suddenly find they are faced with the serious bidders who were waiting until it was for sale before expressing their interest. This is a lesson I learnt early in the piece.

Outcome 2. They will come back and see if there is any more movement.
The firm I am familiar with give the highest bidder the right for first crack at a post auction negotiation. This is also a tool to help them achieve the reserve. In one instance with us the highest bidder, the negotiation amounted to the vendors agent offered a ridiculous amount take it or leave so as to open up the field for negotiation with other parties that might have been lurking waiting for the reserve to be met. We sunsequently purchased this property at slightly more than our final bid in the auction.

Once I was comfortable with the process it was actually quite fun participating but as other people have said don't get caught up in the excitement have a very clear idea of your maximum spend and good luck.

Hawkeye

[drelly]

Another thing to consider is "vacant posession"... I seem to remember someone saying that it can be an issue with auctions if the house is being sold under duress. You could end up trying to oust an occupant that doesn't want to leave! Perhaps someone else can elaborate?

[Monid]

Hi Dave, haven't chated in a while...

I believe this is primarily a problem with Mortagee sales, although most of the above advice also applies to these auctions if you don't make sure that that it will be vacant then you get the unpleasant job of trying to oust the current inhabitants rather than the bank, and they will either be the unhappy exowner who just lost a house or if it is tenanted the bums who didn't pay the rent so the first investor lost the house

Also be careful, sometimes they sell properties at auction because there is some defect which they don't want to investigate because it might trigger costs. So for example I saw one house at auction which had been relocated 7 years ago, but was never signed off by the building inspector. It might be that nothing needed doing... or it could have been just about everything...

As always do your due diligence.

David

[fitboy]

This stuff definitely helps, thanks.

Fitboy

[Spabath]

Yeppers! Remember auctions are binding, so I'd highlight checking out the buildings structurally/legally with council records, and if you have the time, $350 on a valuation is good insurance/great data if you are serious to buy on auction day!

[JohnL]

Obviously, its an unconditional buy. You need the finance pre-approved and access to the 10% deposit money on the day. Just watch that a banks prelimary approval, subject to viewing the S&P etc isn't total pre-approval. Make sure they are happy with the specific house you are trying for at auction.

You generally don't have a chance to do the usual due diligence as LIMs, building inspections etc are normally out of the question.

If you buy at mortgagee, the largest risk is that chattels aren't included in the agreement. Although it seldom happens, the previous owner can strip out plumbing, light fittings, hot water cyclinder etc etc after the auction but before settlement. Many novice investors don't allow for this when setting their maximum price, in fact over the last year there have been numerous mortgagee auctions where the sale went well above market value!!!

John

[graemeh]

If you buy at mortgagee, the largest risk is that chattels aren't included in the agreement. Although it seldom happens, the previous owner can strip out plumbing, light fittings, hot water cyclinder etc etc after the auction but before settlement.

How does that work? Surely the vendor (I guess the bank) is responsible for anything that happens to the place prior to settlement. Some things like removing garden plants, changing the taps etc would be hard to prove but removing the hot water cylinder seems a bit much to get away with.

[Marcus]

Hi Graeme,

From memory, I think it is to do with the wording "Excluding Chattels, fixtures and fittings" on the contract that gives them the right to strip the place bare.

Regards,
Marcus.

[graemeh]

From memory, I think it is to do with the wording "Excluding Chattels, fixtures and fittings" on the contract that gives them the right to strip the place bare.

Nasty! I forgot that the bankers don't lend on chattels so I guess they don't have them as security to the loan.

I think the hot water cylinder is probably going a bit far but the owner would be quite within their rights to take the carpet and anything else that wasn't permanently attached to the building.

Sounds like if you are buying at mortgagee auction it is worthwhile talking to the person losing their house to see how much they want for the chattels.