Properties Under the Hammer: Buying at Auctions

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Properties Under the Hammer: Buying at Auctions

Written by Elizabeth McLachlan

Tuesday, 09 February 2010 06:50

Buying and selling property at an auction is something many people don't consider due to negative connotations like liquidations and insolvencies. Yet in countries like Australia, the largest percentage of residential sales happens through auctions.
Don't be fooled by the perception that you are going to get a bargain - not all sales at an auction are forced. It is therefore vital that you are prepared before purchasing any property on auction.

It is important to distinguish between Property in Possession and Sale in Execution: A repossessed property is when a homeowner has a substantial amount of money outstanding on his home loan and the bank then takes the necessary legal steps to serve the owner with a summons, take judgement, and in time attach the property. If the owner stays in debt during these stages, the bank will call on a sheriff of the court to sell the property on public auction or sale in execution. Here, the bank is also entitled to attend the auction and 'purchase the property back' if at any stage they feel that the bidding at the sale pose a loss to the bank. It is when the bank 'buys the property back' that a property becomes a Property in Possession (PIP).

Always take in consideration that prospective buyers need to register before the start of a public auction and pay a refundable deposit.

On the fall of the hammer you will be required to pay a deposit (usually equal to 10% of the purchase price), and the sheriff's commission. You will also be obligated to agree on the balance of the purchase within 14 to 30 days. As the buyer you will be responsible for any outstanding rates and/or levies, and the eviction of any occupiers.

A big advantage of buying property at an auction is that you will always know you didn't overpay, seeing that bidders who lost to your bid where prepared to pay almost the same amount for the property. You can also be guaranteed that the seller wants to sell (and is not just testing the market), and that no lengthy negotiation will be necessary.

Before you decide to buy on auction, attend a couple of auctions just to observe. This will give you the necessary knowledge on how it works and also the confidence that you will need when bidding on property.

Another good idea is to go and view the property before the sale to assess if there are any maintenance problems that may affect your bid. Also, try and determine the market value of the property. You definitely do not want to overpay.

Make sure that the seller doesn't owe the council any money for rates and taxes - one of the terms and conditions of the sale may be that the buyer is responsible for any of these outstanding amounts.

Pre-arrange your finance for you will be required to pay a deposit at the auction along with other auctioneer fees.
Ask to see a copy of the contract that you will be required to sign, and consult an attorney if anything is unclear. The auctioneer will read out the terms and conditions of the sale before the auction begins.