Buying a house can be a stressful time and expensive journey for a person or family. For some it’s the first time that they are purchasing and this can be a very nerve racking process.
The process of buying a house will differ depending on whether the house is sold by private treaty or at auction.
Things are a little different if you end up buying the property at auction.
Auction means the sale of property by any means (including the internet) where the highest, the lowest or any bidder is the purchaser or the first person who claims the property submitted for sale at a certain price named by the person acting as auctioneer is the purchaser; or there is competition for the purchase of a property in any way commonly known and understood to be by auction. (Property Stock and Business Agents Act 2002 – definitions). “ A cooling off period does not apply to a property sold at auction. (However, if the property is passed in and negotiations take place and you purchase the property the next day, you can purchase under a cooling off period if the vendor permits this).
This is the process where a number of people gather either at the premises which is being sold or in an auction room — and bid for the property they would like to buy. Auctions can be quite scary for first-timers.
If you are the successful bidder you hand over your 10 percent deposit and exchange the contract then and there.
If the property is “passed in”, meaning the reserve was not met and bidding has stopped, the highest bidder can negotiate with the seller and a sale is possible. If you buy a property at auction a purchaser does not get a cooling-off period.
Prior to attending an auction you should ensure that you have had a lawyer at Taylor & Scott Lawyers review your contract and seek the relevant amendments. As your lawyers we will also ensure that you obtain the relevant reports before Auction.
What to do before going to Auction
On the face of it, this appears to be a silly question.
However, if you are not prepared properly for the auction process, you could get stuck in a situation that could be costly.
Some basic steps you need to address are:
- Have you done your homework? Have a look at the property, sales in the area you are interested in, for both auction prices and private treaty both by newspaper and radio. Attend some auctions to get a feel for the process.
- Obtain pre-approval from your bank. The amount you are able to bid is limited to your financial scope.
- How are you to pay the deposit? Cheque or deposit bond? You will need to seek the vendor’s permission if you would like to pay a less than 10% deposit or deposit bond.
- Provide a copy of the auction contract to Taylor & Scott Lawyers as soon as possible. Some contracts are over 100 pages and in order to protect your interests, we at Taylor & Scott want to provide you with our best advice and due diligence before auction.
- Allow time for any pre auction contract changes such as removal of the “release of deposit clause”, or reduction of the penalty interest rate.
- The need to obtain a pest and building report prior to auction (this can take a week to obtain).
- The need to obtain a survey report or building report prior to auction (these can take up to 3 weeks to obtain).
- How are you buying the property with a spouse or as a trust.
- Have you discussed the purchase with your financial advisor?
We will provide you with our advice in writing; discuss the contract, we will also discuss the pre and post exchange process and settlement process.
There may need to be some further investigation of the property such as changes in zoning to the property, the likelihood of road widening, development of the property, illegal building works and this may take a little time. We want to protect your interests, but we cannot give you financial advice.
Things to know when going to Auction:
- You cannot bid at an auction unless you give the selling agent your name, address and proof of identify (passport, drivers licence, birth certificate, Medicare card) Your details will be recorded by the agent in Bidders Record and you will be given a bidding number.
- Registration at an auction does not mean you must bid, but it gives you the right to bid. You can register for bidding on the day of the auction. The agent is not permitted to release your details to any other party.
- If you intend to bid with your spouse, or partner, only one of you needs to register.
- When you purchase a property at auction, if you purchase on the day of the auction, even if the property is passed in, but you buy it after negotiation, the contract is binding from that day. If you decide after “the fall of the hammer” at auction that you want a pest and building report, you can obtain one but you have no redress from the vendor should there be anything wrong with the property (such as termite infestation).
- You cannot contract out of an auction contract, except under very exceptional circumstances (such as fraud).
- Your bank will need to undertake a valuation of the property once you have exchanged and they will give you unconditional loan approval. If you own more than one property, even if it is interstate, the bank will need to undertake valuations on these properties too.
Private Treaty sale is where you negotiate the purchase of a house, including the price usually with the real estate agent representing the seller.
Once a purchaser finds the “right” property they make an offer to the Vendor’s agent who may go back to the purchaser to negotiate a price that the Vendor is happy with. If accepted the Purchaser may be asked to put a holding deposit. This shows the seller that the purchasers offer is serious. You can purchase a property which is a private treaty sale with a “cooling off period” (see below).
When you purchase a property under private treaty, you may have the option to purchase the property under a “Cooling off Period” This means that, subject to approval of the vendor, you can exchange contracts and give the agent a 0.25% of the purchase price. The vendor will take the property off the market for this period which is usually 5 business days (some contracts have a 10 business day cooling off).
The initial deposit you have paid is held for the duration of the cooling off period. Should you go ahead with the purchase, this amount is applied towards your overall deposit.
If you obtain a building and pest report or strata inspection, and the report is detrimental, or you have not obtained written loan approval, and you pull out of the purchase, you will forfeit the 0.25% deposit to the vendor.
Once the offer is accepted the next step is to exchange contracts with or without a cooling off.
When making a decision to buy a property the following steps are involved:
Appointing a legal representative
At Taylor & Scott Lawyers will check that the contract contains nothing detrimental and will negotiate with the Vendors solicitors to negotiate various terms to protect you.
The contract must include zoning certificates and a full title search showing any easements or restrictions that affect the use of the property, a sewer diagram as well as existing dealings over the property.
Your lawyer will also undertake any reports you require at this stage.
Prior to exchange Taylor & Scott Lawyers will review the contract of sale and prepare an advice and sit to discuss the contract with you. We will explain the implications of the Sale Contract and negotiate terms on your behalf.
Exchanging contracts clinches the deal for the Purchaser and you are bound by the terms and conditions of the contract. At this time you also pay your deposit.
Taylor & Scott Lawyers will also ensure:
That the sale contract is in the best interest of you and that the sale is subject to the satisfactory completion of all necessary conveyancing, inspections and finance.
We will make thorough inquiries of local council, water authorities and other government bodies to ensure there are no easements over the property.
Settlement is when the purchaser pays the balance of the purchase price, takes possession of the property and the keys.
At settlement the title deeds will go to your lender who will return them to the purchaser when the home loan is repaid.
At Taylor & Scott “ We Care For You.”