Auctions used to be a rare way to purchase a property and were usually reserved for high-value luxury properties. It has, more recently, become a common way to sell a property. If you’re a first home buyer, the idea of an auction can be daunting compared to that of a traditional private treaty sale. You don’t have to rule out auctions though, just be aware of the differences.
Private treaty sales are usually based upon an asking price. When looking at properties you can see that price and make an offer accordingly. It is uncommon for a home to sell above that price as most offers will be less than that. You know based on that asking price whether that property is a possibility for you. At auction that isn’t the case. Vendors can supply a guide price, but you’ll have to do your research into other properties in the area. Find out what they have sold for to get a realistic idea of cost and determine if the property is within your budget. On the day this may even go out the window if another bidder is especially enthusiastic about the property. There is however the potential to get a good price if there is less interest in the property.
When negotiating a purchase via private treaty the process can seem endless. You make an offer, you receive a counter offer and negotiate back and forth, all through an agent making the process even longer. At an Auction you know on the day if you’re successful. Your offer (or offers) are accepted or outbid in real time. There’s no waiting if you have the highest bid and that bid has met the reserve price, the property is yours to purchase. There is a downside to this though. Sometimes the pace and excitement of an auction can create a sense of urgency. This can lead the inexperienced to bid higher than their budget. Always go to an auction knowing what your budget ceiling is and if the bids go above it, walk away.
Once an offer has been accepted in a private treaty sale a contract is drawn up and, with the help of your solicitor you can negotiate the conditions of the contract. Once the conditions are met the purchase is finalised and you can take ownership of the property. Many people are under the misconception that contracts can’t be negotiated. This is not the case. You can negotiate the conditions of an auction contract, it just has to be negotiated before auction day. Again, it is always advisable to have a solicitor assist with the contract. The disadvantage here is that you may have to pay expenses for negotiating a contract on a property that you may not purchase if you are outbid.
In NSW a private treaty contract has a cooling off period of five business days. If something happens and you can’t go through with the purchase in this time, you can back out with a small penalty (0.25% of purchase price). Auction sales contracts do not have a cooling off period. If you can’t go through with the purchase you will be penalised, usually losing your deposit.
One of the most important steps is to find a great conveyancer protect you during the purchasing process.
It is advisable to get a building and pest inspection to ensure that the property you’re purchasing isn’t unsafe or going to present unexpected costs after you’ve bought it. Most private treaty contracts will have a clause pertaining to building and pest inspection results. In the contract period, you can arrange for inspectors to visit the property and provide a report. If there are issues you can negotiate the terms of the contract based on the report. Once again at auction things are very different. If you wanted to get an inspection, this has to be arranged before auction day. While the timing of the inspection may not be an issue, you may end up footing the bill for inspections that, you may discover on auction day, where never in your price range.
If you are open to purchasing through private treaty or auction be prepared by considering these differences. You’ll have to approach them differently. If you need help with either private treaty or auction CM Lawyers can help. Contact our property law team for help with the process of buying your first property.