In recent years, an increasing number of home buyers have opted to forgo the traditional route of using a realtor when buying real estate. Instead, they are choosing to make their purchase through a real estate auction.
Before we go any further, it is important to be aware that each state of Australia has its own legislation in this area. Keep in mind that the information below is in general only and may not be entirely applicable to your situation.
In most cases, properties sold in Australia are done so using the traditional “offer and acceptance” method. However, property auctions are increasing in popularity, especially in areas where property prices are rising. This method does fluctuate in popularity depending on the percent of properties offered, as well as the state. In certain districts of some states bidding at auction is the only way to purchase a property.
There have been some instances where “misbehaviour” was reported in regard to auctions and the way they are conducted. As a result, the government has stepped in several times to set standards of conduct. This may cause the popularity of auctions to decrease in time.
This included times when the published “expected selling price” was set extremely low to entice buyers into attending the sale. Now, the price must be more realistic. In addition, friends of the auctioneer or seller are usually banned from making false offers in an attempt to push up the price and excite the crowds. In fact, some states now require that anyone wishing to bid register their interest before the start of the auction. The vendor also has the option of setting an undisclosed, reserve price. Until bids reach or pass this figure, offers are not accepted.
In some states, cooling off periods are allowed in property transactions. However, this does not usually apply for sales made by auction. Sales are made “at the fall of the hammer” (after no one has offered a higher price, the auctioneer will declare the property to be sold). This means that, regardless of what happens (such as the windows falling out), the property is now the buyer’s. As a result, it is crucial that you do your research before you attend an auction, if you have intention of making a bid.
Outstanding land tax and rates, building inspections, surveys, pest inspections, etc. need to be investigated. This can be an expensive process, especially if you miss out on several homes. Pest inspections, in particular, are very important. Ants, termites, etc. can be a significant and expensive problem because they can eat joists and rafters away completely. They even have the ability to eat away an entire door frame, while leaving behind the outside coat of paint.
In the event a vendor is prepared to offer written guarantees, be sure to read them carefully and keep a copy in the event you need it later.
At the “fall of the hammer” a deposit is required. In most cases, it is 10% of the sale price. The contract is usually the standard Real Estate Institute issue, while the settlement time is typically four to six weeks. Be sure your finances are completely in order before you start bidding.
If you are considering the purchase of a run down property as a way to obtain land, beware. The process of renovation can be very hard and should be completed only by professionals. Australian renovations can be very expensive. In fact, they are three or more times as expensive as they are in England.
The primary difference between the auction method and the offer and acceptance method involves when you can do research. With auctions, it is important to do your research before you start the bidding process. However, with the offer and acceptance method, you can do your homework after your offer has been accepted, but before the contract becomes unconditional.
The information above can be checked for each particular state by searching online for REI (Real Estate Institute) followed by the name of the state and “conditions of auction”. This will allow you to stay up to date.