Canberrans love a good auction, with many ACT home owners choosing auction over other sales methods to sell their properties.
In addition to driving competition between potential buyers, an auction provides the opportunity to truly test what the market is willing to pay – rather than relying on assumptions of value. This can be particularly useful in a volatile market, when no one is really sure where buyer sentiment lies.
For the seller, an auction can be a great way to get premium price for a property that might otherwise be considered fairly average. Location, history, style and layout all add up for someone who has been looking for the perfect place to call home. And when there are two or more bidders, the final bid may be well above what the seller had hoped to achieve.
On the other hand, auctions also provide the over-exuberant seller with a reality check, particularly if they have set the bar much higher than anyone is willing to pay.
From the buyer perspective, auctions can be fun and exciting…or downright stressful and terrifying for some!
We’ve all heard stories of people who have bid much more than they were originally prepared to spend, or changed their mind after the hammer went down. It’s not easy to make such a big decision on the spot, especially when faced with experienced auctioneers who employ clever tactics to drive up the price.
To find out how best to prepare for an auction (and lessen the chance of regret), Region Media spoke with Archie Tsirimokos – Chair of Meyer Vandenberg Lawyers, and an expert in property law.
“Auctions aren’t for everybody,” warns Archie. “It’s a stressful environment where you need to make decisions quickly, so it’s very important to go in confident and prepared.
“Many people don’t realise the consequences of bidding at auctions. If you are the successful bidder, you are deemed to have entered into a contract upon the fall of the hammer. The deposit – usually 5 or 10 per cent – is due right then and there, and you need to come up with the remainder of the price within a short period (usually 30-60 days).”
Archie says that reneging on the contract after the auction can have serious financial consequences.
“Unlike a traditional property sale, there is no cooling off period after an auction. If you change your mind and do not complete the contract, you lose your deposit and the seller can sue you for damages. i.e.: if you buy it for $400,000 and then don’t go through with the sale, and at the next auction they can only get $350,000 for it, they can sue you for the $50,000 loss.
“This is the case regardless of whether you change your mind, or can’t get finance from a bank after the auction.”
To reduce the risk of regret, Archie recommends:
- Do your research. Find out what the property should be worth by looking at recent sales in the area, or getting a formal valuation.
- Get pre-approval. Ensure you know how much your bank is prepared to lend you, so you can bid with confidence.
- Have a lawyer review the contract. The seller is legally required to make the sale contract available before the auction. Ask for a copy, and have your lawyer look it over to make sure you’re getting what you think you are.
- Set your limits. Set two limits: a general one and a maximum one. That way you know the price you are comfortable paying but have a small buffer in case you need to go a little over.
- Be mindful of your obligations. If you are the successful bidder, you are under contract to buy the property. Changing your mind means you will forfeit your deposit and may be at risk of legal action.
- Read the mood at the auction. Try to keep a level head during the auction so you can sense whether you’re nearing the finish line or other bidders are likely to go much further.
If you don’t trust yourself, or are worried you’ll get too emotional, Archie says that you might be able to ask your lawyer to attend the auction and bid on your behalf.
“It’s not common,” he says. “But most lawyers are willing to do it if their client is concerned about remaining calm or going over their limit.”
For more information about property law, including your rights as a seller or a buyer, visit Meyer Vandenberg Lawyers or give them a call on (02) 6279 4444.
Original Article published by Rachel Ziv on The RiotACT.