Buying a house at auction explained
Buying real estate at an auction can be either a bargain or a bust. Knowing what it involves and how to prepare for it empowers you to make an informed decision about whether to bid or not.
There are certain rules to the home auction game, and navigating the market successfully could help you secure a great deal. Here’s a guideline on what to consider.
How buying at auction works
It’s a public sale of a property to the highest bidder. It’s a fast process with no lengthy negotiation; there’s less competition, and you could secure a property at a great price.
You attend an auction and register for a bidder’s card, for which you’ll need your ID, proof of residential address and the registration fee (which is refundable if you don’t bid or if your bid is unsuccessful). You’ll have access to copies of the title deed, property plans and applicable zoning certificates.
Properties are sold as is, and you must follow through with the purchase. There will be conditions of sale, so familiarise yourself with them and prepare yourself for other costs that could be included, such as the sheriff’s commission (when relevant) and the auctioneer fee.
There are certain risks associated with buying at auction: you might not know the full condition of the house; if something goes wrong, you have no recourse, and you could get carried away and bid more than you can afford.
There are different types of auctions
Knowing which type of auction it is will help set your expectations and create a strategy to secure a good deal.
- Voluntary auction
Some owners choose to sell in a voluntary auction. This type of auction favours sellers in the hope of achieving a faster sale at a higher price and often has a reserve. - Bank auctions
If a seller is in significant arrears, the bank places a property on auction, usually at a reduced price. This benefits the buyer as the seller has to settle the outstanding rates and taxes. - Sheriff auctions
The bank applies to the court to auction the property to settle the debts of the owner. Buyers can get the property at a significant discount, but it’s sold as is, and you’ll have to settle any outstanding property debts.
Do your research
You’ll likely not be able to inspect the property before the auction, which means that you might not know everything you’re in for. However, to help you make your decision on whether it’s worth bidding for and to help you not overbid, use our free home property guide to access detailed property reports that show you valuations and key information about the area and properties in it.
Plan your financing ahead of time
There’s little use in bidding on a property if you can’t afford it. You can’t change your mind and go back on the sale because if you do, you will default and could face legal action. And unless you are a cash buyer, you’ll need a home loan to finance the property.
The good news is that you can arrange your finances in advance. Use our home loan calculator to check whether you can afford the property or what size home loan you can get before you go to auction. Getting pre-qualified lets you confidently bid, knowing that you can get the financing needed.
Also remember that you’ll be responsible for any outstanding levies, rates or work the home needs, so factor that into your affordability and keep it in mind when considering a bid or applying for a home loan.