Buying your first property at auction: A step by step guide

Buying your first property at auction: A step by step guide
Buying your first property at auction: A step by step guide

Buying your first property can be nerve-wracking and in the public arena of an auction, even more so.

While purchasing a home is a big deal, it doesn't need to be the source of sleepless nights and endless stress. Here's our step by step guide to buying a property at auction.

  1. Attend auctions - lots of them

    If you thought researching your first home was all about finding your dream home, in your dream area, within your dream budget, you were wrong. You also need to know how to go about buying your dream property. 

    There are only so many articles on how to bid at auction you can read (even if they're really good ones). 

    What you really need is to go out and watch some auctions. Not one or two, but many - at least a dozen. Get a feeling of what the buyers are in your prospective area. Are they all nervous first home buyers making it on their own, like you? Downsizers? Well dressed hipsters bidding on their first homes, with their mothers standing slightly behind them, to the left? 

    Take note of the bidders - they're your competition. Get familiar with the terminology - do you know what a reserve is? A vendor bid? Did you realise that the reserve can change? 

    Viewing lots of auctions will also allow you to see how far prices tend to go above the price guide, if they do. What looks like a $400,000 property on a listing website might look like a $600,000 one to some on auction day.

    Use the opportunity different styles of various auctioneers, too.

  2. Set your limit

    It's good to know well in advance how much you can afford to pay on auction day. There are lots of online calculators provided by lenders that will help you determine how much you can afford to borrow and pay for your first home. Remember, when it comes to budgeting for a big purchase, it pays to be prudent - keep in mind future career changes and any babies that might be on the way.

    It's not a bad idea to build a small buffer into your maximum - don't lose out on your dream property because of a bid that's $1,000 over your "limit". 

    Keep an eye on the
    hidden costs you might not have factored in - there's more to purchase costs than just the deposit. 

  3. Identify your potential home

    Once you've done your research, figured out where you can afford, driven around lots of suburbs and probably adjusted your expectations a little, you've come across a home you really love at an open for inspection.

    Chat to the real estate agent and keep in contact. If there isn't a price guide listed on the advertising material, ask them for an indication of what the vendor wants. Go to subsequent open for inspections and arrange some private inspections too (more on that later).

  4. Secure your finance.

    Unfortunately, there is occasionally a discrepancy between what you think you can afford and what your lender thinks you can afford, after they've had a look at the property in question, your income and your credit history.

    Before putting in a bid at auction, you'll need to know how you're going to pay for your new house. No finance, no purchase, and when you place the winning bid, you'll need to put down a deposit - there's no backing out, unless there's a built in cooling off period (which is best avoided and may require you forfeiting part of your deposit).

    Decide on the kind of loan you want and get pre-approval for your loan from the bank. While this isn't a guarantee that you'll get a loan, it's about as close as you can get.

    And while you're at the bank, get a cheque book. You'll need one to put down your deposit.

  5. Order an inspection.

    About a week out from the auction day, you should order a building inspection for the house. Just because it has four walls doesn't mean it's stable - there could be issues with the roofing, asbestos or structural damage. An independent building inspector should be able to spot the things you can't, and hopefully can save you from ending up with a dud. 

    Make sure you
    choose a building inspector who is independent and reputable.

    While you're at it, ordering a pest inspection can also be worthwhile - pest inspectors might spot termite damage that will cost you a lot of money down the track.

  6. Have a lawyer or conveyancer look over your contract.

    Seeing as this will probably be the first time you've seen a property contract, it's best to bring in the experts (actually, we recommend always getting a lawyer to look over your contract.)

  7. Figure out your strategy

    Now you know your auction lingo, it's time to prepare yourself on how and when you will bid. Part of this may be putting in an offer before the day. However, when you get to the auction, should you dive in with the early slam-dunk all-cards-on-the-table bid, or wait until close to the bidding has stopped?

    Much of this will become clear to you as you watch other bidders in action in step one. However, it'll make you feel that little bit better if you know when you'll be likely to bid and what the plan is if there are quite a few other keen bidders.

    If you're not entirely confident, you may decide to hire a buyer's agent to act on your behalf, some of whom employ a number of strategic tactics they have learned over years of bidding at auction, such as bidding in unusual increments.
Tags: 
First Home Buyers Auctions Investor Tips

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