When the hammer goes down on the final bid at an auction, the offer is final and there is no cooling off period. This contrasts with the situation where you purchase a property ‘through the Real Estate Agent’s window’ because the offer in this type of purchase can be made ‘subject to finance’ and it also includes a cooling off period (except in WA). In an auction you cannot afford to bid more than you can borrow. It is good to attend an auction in the security that you know your borrowing limits.
The process of acquiring the comfort of knowing how much you can borrow is called pre-approval and we can help you with this. At its simplest level pre-approval means the lender will assess your income and calculate the size of loan you can service. The lender will issue you with a conditional approval to borrow that amount of money subject to the valuation.
We recommend you go one step further and have the property valued by your lender prior to the auction to obtain your unconditional approval. This will involve a small cost whether or not you are successful at auction but we believe it is worth it for the peace of mind.
With these two aspects of your purchase guaranteed, you can then attend the auction and bid to your limit with a confidence that the lender will advance you the amount you require to purchase the asset.
Pre-approval means that you can be sure the finance package will be there when you need it.
A condition of the auction process is that a deposit – usually 10% of the successful bid – is payable at the completion of the auction. As this amount can be as much as $50,000 it is essential that you have pre-arranged this finance and this can all be a part of the pre-approval process.
We are well experienced in arranging pre-approvals for prospective buyers attending auctions. If you are considering buying at an auction, please call us so we can help you with a pre-approval.
Did you know?
In most auctions a non-refundable deposit is payable at the fall of the hammer. This is usually 10% of the full bid.
The meaning of the term non-refundable is that if you fail to go through with the remainder of the purchase, you will forfeit the deposit. In the purchase of an ordinary suburban home the deposit may be from $30,000 to over $100,000.
The common settlement terms in auction contracts vary between 42 days and 65 days. It is important to read the contract prior to the auction to ensure you can arrange finance within the settlement period.
If you fail to settle the full purchase price by the end of the time period, the vendor usually have options which may result in loss of your deposit or he may proceed with another sale and attempt to recover any losses he may incur if he sells the property for less than you bid for.
To ensure your pre-approval finance is processed as a priority, please contact us early if you are looking at purchase at auction.