Buying at Auction: The Pros & ConsBen Olsen
Most purchases involving residential real estate in Queensland are governed by the Real Estate Institute of Queensland’s (REIQ) Standard Conditions, including provisions protecting the Buyer’s right to termination. However, when purchasing under auction conditions, these standard safeguards can unwittingly be reduced or even removed. Here are the pros and cons of purchasing under auction, and what you need to know and be armed with when you go along to auction day.
Buyer’s basic termination rights under REIQ Standard Conditions
- Cooling-Off Period — The Buyer is entitled to a 5 day grace period in which they may elect to terminate the contract for any reason, and receive a refund of the deposit;
- Finance — The Contract is usually conditional on the Buyer receiving satisfactory finance approval; and
- Building and Pest — The Contract is usually conditional on the Buyer obtaining satisfactory building and pest reports (including pool inspection).
- No Cooling-Off Period;
- Contract not conditional on Finance approval;
- Contract not conditional on satisfactory Building and Pest reports; and
- The successful bidder signs the Contract and pays the Deposit at the fall of the hammer.
- Removes the negotiation process and subsequent power imbalances (if you are the winning bid, your offer is accepted);
- Speeds up the purchasing process;
- Engages both the buyer and seller and generally brings the process to a head;
- Allows the buyer to purchase at true market value rather than asking price;
- Auctions can have a higher success rate depending on the property and market conditions at the time; and
- If the auction does not meet the reserve price, you may have the opportunity to get a bargain post-auction.
- You may end up spending money (legal advice, building & pest report, etc.) without result if yours is not the winning bid, the property is withdrawn, if it is sold before auction or does not meet its reserve;
- Search enquiries are usually required prior to auction, for example, building & pest inspection report (if not already provided by Seller), Council enquiries and title encumbrances can be expensive and can take upwards of 1 week to complete;
- Overall less time to complete your property inquiries, including Building and Pest and Pool Inspection (as they must be completed prior to auction);
- No right to terminate under a 5-day Cooling Off Period;
- No right to terminate if Finance is not approved;
- No right to terminate if, through inquiries undertaken post-auction, the property has building and/or pest issues; and
- No right to terminate if, through inquiries undertaken post-auction, it is evident there are significant encumbrances burdening the land.
Before the auction:
- Contact the real estate agent to conduct pre-auction inspections;
- Contact your bank to obtain pre-approval for finance;
- Obtain a property valuation to clarify market price and to ensure you do not overbid;
- Conduct your own research into the market for similar properties;
- Obtain a satisfactory building and pest report;
- Clarify whether any chattels are included and/or excluded in the sale; and
- Contact Olsen Lawyers to engage in a pre-contractual review of terms, and to carry out necessary searches required before auction.
The Queensland government check-list for buyers bidding at residential auctions in Queensland:
Real Estate Institute of Queensland tips for buying at Auction: http://www.reiq.com/REIQ/Research/Tips_for_Buying_at_Auction/REIQ/Research/Tips_for_Buying_at_Auction.aspx?hkey=4be62163-6e43-4033-b542-a991dad8d8c4
Information current at 8 March 2018 – please note that as this information is general in nature and legislation is subject to change, we recommend you contact our office prior to bidding at auction.