Andrew Pine- Tips for Buying at Auction:
Buying at auction
Auctions are risky. Should you be the highest bidder at the drop of the hammer, you could be locked into an unconditional contract, giving you no ability to back out. It is recommended you contact a lawyer to discuss your rights and obligations when buying at auction. Your solicitor will also be able to review the contract so as to ensure you are not agreeing to onerous terms which could be financially crippling. The risks associated with buying at auction must be balanced against the rewards which are perceived by many as being a potential to pick up a property below its market value.
No cooling-off period
There is no cooling-off period should you change your mind. A cooling-off period usually applies to residential property transactions in Queensland. A cooling-off period also does not relate to contracts signed within 2 days of the auction. Not having a cooling-off period prevents you from being able to terminate if you change your mind. Cooling-off periods are an integral part of the property transaction, so it is recommended you contact a solicitor for advice on the operation of a cooling-off period.
The Contract you must sign immediately after the auction is not conditional on finance. You therefore have no ability to terminate the contract should your bank not be willing to lend you the necessary part of the purchase price. Such a circumstance could put you in the position where the Seller is forcing you to settle, but you do not have the necessary funds to pay the Seller the purchase price.
It is therefore recommended that you contact your bank well in advance of the auction so that you can be sure the bank will lend you any funds you require. Your lawyer can advise you whether your pre-approval is sufficient in order for you to bid at auction, but they should give this advice to you in conjunction with your mortgage broker.
Banks will often require a valuer to conduct a valuation of the property before they are willing to lend on the purchase. As the Contract you are signing is not conditional on a valuation, it is imperative that you receive one prior to the auction, or receive confirmation from your bank that no valuation is required.
No building and pest
Should you be the successful bidder, you are not entitled to conduct a building and pest inspection after the Contract is executed. The Contract is also not conditional on satisfactory building and pest reports. Should you find any defects in the property after the Contract is executed you are not entitled to terminate. You are required to settle on the contract (pay any remaining purchase price in return for receiving the property) and fix any defects at your cost after Settlement.
Given the significant risks associated with an auction contract, it is best to have a building inspection conducted prior to the auction date. Agents will usually be available to show your builder or pest inspector through the property.
Amendments to the standard terms
Properties sold at auction can often be labelled ‘as is where is’. You are therefore buying the property without many of the protections and promises a Seller usually gives a Buyer in a standard transaction. These protections can be deleted from the standard terms of the REIQ Contract (the standard contract for Queensland property transactions). Special Conditions reducing your rights may also be inserted by the Seller or Agent. It is therefore imperative that your lawyer reviews the contract prior to auction so that you are aware of what promises you are not receiving.
Buying at auction is risky and necessary legal advice should be sought from a suitably qualified property lawyer.
Disclaimer: Andrew Pine is a property solicitor practising in Queensland. Andrew is not qualified to give accounting or financial advice. This article is written solely as an opinion of the writer. This article should not be relied upon for legal, accounting or financial advice. You should always seek advice which is tailored to your individual circumstances.
About Andrew Pine
Andrew Pine specialises in property law, residential and commercial conveyancing. As a passionate part-time property investor, he brings years of valuable insight into the property market and property law.
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