Buying Property On Auction: The Do's and Don'ts
Category Advice
Going once... Going twice... Sold!
As a buyer, you are naturally looking for the best properties available for the most affordable prices. Ie: you want a bargain. Have you considered buying a property on auction?
Whether it's a run-down residential property or a repossessed commercial building, buying property on auction can be a great way to start your real estate investment journey - provided that you choose the right one. This aspect of the property world has its own rules, so going in armed with proper research and good advice, you can avoid the mistakes that are often linked to buying on auction.
Reasons why properties go up for auction:
- Certain properties are difficult to value (Eg: a lighthouse or a repossessed home)
- Some properties are very run down and need plenty of renovation to fetch a decent asking price
Types of Auctions
- Voluntary auction: an auction facilitated by an auctioneer in a real-time environment, where buyers pit against other buyers and vie for the best price
- Bank auction: an auction arranged by the bank in an attempt to get repayment for a property well in arrears. These properties are typically sold at a discount in order to settle the shortfall with the bondholder.
- Sheriff auction: an auction held by a sheriff of the Court when the bondholder is unable to recover funds for the property. An execution creditor is asked to repossess it and it is sold to the highest bidder, often up to half the sale value.
- Property in possession: an auction arranged when the bank buys a property at a sale in execution, takes on the costs of handling the transfer, eviction, renovations and security, and still cannot sell the property due to complications with processes and litigation.
The Do's of Buying Property on Auction
Pick a property type
Decide on the type of property you want and become an expert in that kind of auctioned property. There are unique variables that come into play depending on the kind of property you choose. Knowing the ins and outs of your property type will only serve you on auction day.
Attend a few auctions first
Join in as an observer in the crowd to get a good feel of how the auction process works. This can be helpful in setting your expectations without the adrenaline rush that comes with being a bidder.
Be prepared to wait
Unfortunately, property auctions aren't always as speedy as depicted in the movies. In many cases, an auction can take weeks, even months, before the sale is official and documents are signed and filed.
Consider in-person and online auctions
If the timeframe of an in-person auction doesn't suit you, an online auction might be a better option. While in-person auctions still have their benefits, bidding online is easier, with a more streamlined process, including the post-auction meetups to finalise the sale.
Consider your budget
You must be able to follow through with the payments otherwise you stand to forfeit your deposit and even be held liable for Sheriff's fees, should you buy at a Sheriff's auction.
Be mindful sale conditions
Don't forget, these auctioned properties are usually still occupied. As the new owner you will be responsible for the eviction of the existing tenants. This process is time consuming and comes with additional costs that should be factored into your budget. Add to this the costs of renovating your new property for resale, and the figures quickly add up.
The Don'ts of Buying Property on Auction
Don't rely on costing issued by the Sheriff
All outstanding rates, taxes, municipal services, and body corporate levies will be yours to settle after the sale but these figures shouldn't be relied on. Be sure to confirm all figures yourself.
Don't forget the risks
The main risks of an auction often come down to this: you really don't know what kind of property you've bought until after the auction. You'll have little time to inspect it, or often no access to the property beforehand, so buying on auction really is a gamble. Understandably, there is considerable risk that you will find the property in a less-than-ideal condition.
Don't be unprepared
Bidding at an auction can be a thrilling experience, but remember to keep a clear head. Decide on your maximum bid and stick to it. Once the gavel comes down, there's no turning back. Understand the consequences of making your bid and remember that not every sale will be a bargain.
Don't be afraid to ask questions
Ask the auctioneer for a copy of the sale contract. Read it through with a fine-tooth comb and ask for explanations if something isn't clear. Consulting a property lawyer is never a bad idea either.
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Author: SAProperty.com
