Buying At Auction 08 Dec 2011
There is an increasing trend today for properties to be bought and sold at auction. If you are considering buying at auction for the first time, be aware that there are some matters which differ from the usual 'offer on paper' approach and which require your attention beforehand. Parry Field provide legal advice on a range of property matters including buying and selling property at auction.
Register your interest
Firstly, you would do well to advise the real estate agent of your interest. Then, if the vendors are considering a pre-auction offer, the agent will be able to contact you and, if necessary, help you to submit your own offer. Reference to a sale by auction does not prevent the vendors from selling prior to the auction date.
Secondly, all offers at auction must be unconditional. If you require a mortgage to purchase the property you must arrange finance beforehand. Generally you will be required to pay a deposit of 10% of the purchase price on the day of the auction.
Because you cannot make the agreement conditional on any matters, it is advisable to ask your lawyer to read and approve the auction contract before the auction. The contract contains the terms and conditions of the sale, legal description of the property and list of chattels. If you wish to change any of the details, e.g. the amount of the deposit or the settlement date, you will need approval from the vendors prior to the auction.
If you want to undertake any further investigations of the property you must arrange for those to be completed beforehand. Obtain a LIM report or a building inspection before the day of the auction.
Know the value and the process
Make sure you have a realistic idea of the value of the property and the amount you are prepared to pay for it.
You may need to look at other properties of similar value, or if in any doubt, obtain a valuation from a valuer.
Talk to the real estate agent so that you know what the auction process involves and, if necessary, enlist his or her assistance on the day. You may like to attend other auctions beforehand to familiarise yourself with the process.
Finally, be aware that if the property has a reserve price, the vendors may reserve the right to bid themselves. That right is generally assigned to the auctioneer and must be disclosed at the start of the auction.
The High Court last year considered a case where the auctioneer appeared to be taking bids from different parts of the room when in fact he was bidding himself on behalf of the vendor. On receiving a complaint, the Commerce Commission alleged that the auctioneer had engaged in conduct that was deceptive or misleading.
Although there was insufficient evidence in that case to uphold the claim, the Court of Appeal held that the auction must be conducted in a manner which does not mislead or deceive. It would be misleading of an auctioneer to create the illusion of real competition where there is none, and it must be made clear when vendor bids are being made.
So, if you have done your homework and consulted the relevant professionals beforehand, good luck with your bidding!