Purchasing a property at auction can be an exciting and rewarding way to secure a home or investment property in New Zealand. However, the auction process can also be daunting if you're unfamiliar with how it works. To help you navigate this process, we’ve compiled a guide on everything you need to know about purchasing at auction. If you have any questions about this process, feel free to reach out to one of the team members at Absolut Legal.
What is an auction?
An auction is generally held by the agent, on a specified date and time whereby the property is sold unconditionally. Auctions are favourable ways to purchase property as they provide transparency, quick purchases and avoid negotiations. Although there are many positives, the auction process also comes with risks, such as the possibility of paying more than you intended, or the pressure of bidding against others.
Preparing for an Auction
Before attending an auction, there are several key steps to take to ensure you're well-prepared.
1. Obtain a Pre-Auction Review from the team at Absolut Legal
Auction packs are generally provided by the agent when a property is going to auction. This includes documents like a LIM report, title, auction agreement and building report. The team at Absolut Legal offer pre-auction reviews whereby we examine the LIM, title and auction contract so that you know what you are purchasing. Our fee to complete these reviews are $350 inclusive of GST and disbursement, however, this fee is waived if you are successful at auction. The risk of not obtaining a pre-auction review is that you end up purchasing something that is not fit for your purposes, for example, has fencing or land use restrictions that go against what you are wating to do. There is also the risk that buildings don’t have the required consents which may mean you end up purchasing something that is going to cost you large amounts of money to get up to standard after you have completed the purchase process. Pre-auction reviews can ensure that all of this is prevented and the property you are purchasing is the right one for you.
2. Get an Unconditional Approval for Finance and Have the Deposit in Cash
Properties sold at auction typically require the purchaser to have finance already in place. This means that once the hammer falls, you are legally bound to proceed with the purchase, and you must have the financial backing to do so. If you have an unconditional approval of finance, then you know you will be safe in this instance and won’t have the bank refusing to lend on a contract you are bound to. If you are successful at auction, you will also need to pay a non-refundable deposit, which is typically 10% of the purchase price. Please ensure that you have this ready in cash. The team at Absolut Legal can check this if you are not sure.
3. Complete the Due Diligence Process
Before the auction, make sure youconduct thorough due diligence on the property. We highly recommend:
- Attending open homes and inspecting the property carefully.
- Obtaining your own LIM report – note if you rely on the one provided by the agent, you will not have a claim against the Council. Please be aware of this.
- Obtaining a builder’s report to identify any structural or maintenance issues with the property – note if you rely on the one provided by the agent, please ensure you are happy with this.
- Obtaining insurance for the property.
- Setting up an aside agreement if required – note that these can be set up if you need to delay payment on the deposit, need to change the settlement date, or need to make any other amendments to the auction contract.
You cannot make the sale conditional on the above points reports unless an aside agreement is in place, so ensure you're satisfied with the property's condition before bidding.
The Auction Process
Before the auction begins, you’ll need to register to bid. The auctioneer will begin the bidding at an opening price, and bidders can proceed to place their bids from there. Once the biddings lows or stops, the auctioneer will bring the hammer down and announce the winning bid. If you are the highest bidder, the auctioneer will close the auction and declare you the winner (so long as you meet the reserve price).You’ll be required to sign the sale and purchase agreement immediately after the auction and pay the deposit. The agreement will then be sent through to one of our team members at Absolut Legal and we will contact you to begin the purchase process from here.
Conclusion
Purchasing property at auction can be a fantastic way to secure a home or investment property, but it’s important to approach it with caution and preparation. Ensure that your finances are in order, you’ve conducted the necessary inspections, and you have obtained a pre-auction review from the team at Absolut Legal. Just remember that once the hammer falls, it’s final — so make sure you’re ready before you bid!
