Buying a home at auction: the pros and cons
Buying a new home is a nerve-wracking process under any circumstances.
Throw in an auctioneer with their trusty gavel and the scene’s well and truly set for nerves to soar.
But it doesn’t have to play out that way.
If you’re prepared and well-versed in the dynamics at play during an auction, that heart rate will settle, and you’ll be ready to bid with a steady hand.
To get you off to a flying start, check out our pros and cons of buying that brand spanking new home at auction day.
The word ‘auction’ comes from a Latin word that means ‘to increase’ – and that right there is a very clear clue, friends. This method of sale is designed to encourage a buyer to pay as much as possible, without any ceiling price being disclosed. So tread carefully, be wary of falling for the auctioneer’s pressure tactics and stick to your predetermined budget.
No conditional bids
When buying at auction, there’s zero opportunity to bid on a conditional basis – for example, making an offer subject to financial approval. There’s no opportunity to pull out if you have second thoughts, or discover something you don’t like. You need to have your inspections done, and be sure you want to buy the house. This is where your solicitor can earn their keep by reviewing the sale contract before auction day, giving you the chance to identify any terms that might not be in your favour and negotiate with the seller’s solicitor to amend them.
No cooling-off period
The key difference between buying at auction and via private treaty is there’s no cooling-off period. That means if you place the highest bid on the day, you must be prepared to exchange contracts and pay your deposit on the same day. So if you find yourself bidding for the home of your dreams, come ready to sign, seal and deliver the deal on the spot.
It’s a quick sale
When it comes to buying at auction, there’s no room for messing about. If you deliver that winning bid, it’s done the second that gavel strikes. So as long as the reserve is met and you’re comfortable with the price range, you’re well-positioned to secure your home on the day – and settle entirely in as little as 30 days.
It’s legally binding
While we mentioned the ‘no cooling off period’ scenario in the cons, this can actually work in your favour. What’s legally binding for you is legally binding for the seller… so the price agreed upon under auction conditions is locked in. That means any later, external offers are a strictly no-go zone for the seller, meaning you can’t get gazumped at the last minute.
You could score a bargain
Here’s the thing – sometimes the reserve price won’t always be met on auction day. When that happens, the property is passed in. That’s when you pounce. While the seller isn’t exactly going to give the house away for a pittance, you as the buyer are now in a strong position for negotiation. You could end up securing the home for a price even below your predetermined budget.