Buying at Auction – What to Know
Bound to purchase if your bid is successful
Buying a property at auction, as exciting as it may sound, can be a very risky financial decision to make. First of all, when registering for the bid, you acknowledge that you are legally obliged to sign a contract to purchase the property if you are the successful bidder or you will be in breach of the auction terms.
Signing an unconditional contract
The contract that you will sign will be unconditional which means you will have no contractual right to terminate it. It will not even be subject to a cooling-off period. In other words, by signing the contract you are prepared to accept the condition of the property as it is and you have sufficient funding to pay out the Seller at settlement. You will also not be able to change your mind about the purchase.
What if I breach the unconditional contract`?
In an auction setting, you will generally be required to pay up to 10% of the purchase price as deposit for the contract. As the contract is unconditional, the deposit you pay will be non-refundable except in the event of the Seller’s default. If for any reason you are unable to settle on the settlement day, the Seller has the right to terminate the contract and:
- forfeit the deposit that you pay;
- sue you for losses; and/or
- recover any deficiency in the price if the Seller resells the property.
There are many external factors which may affect your ability to settle on settlement day including a delay by the bank if you are obtaining finance. Although in most cases this is beyond the Buyer’s control, the bank is unfortunately not a party to the contract and the legal obligation to settle is on the Buyer and not the bank.
What should you do?
The loss of the deposit and the potential legal action by the Seller in the event of default can have huge financial consequences to an unwary buyer at auction. As such, make sure you are fully prepared before going to an auction, including:-
- completing your due diligence beforehand (e.g. building and pest inspection, legal searches on the property etc.); and
- if obtaining finance:
- speaking with your banker or broker in regards to your borrowing capacity and to organize your finance pre-approval; and
- once the contract is signed – making sure you fulfill the bank’s requirements for settlement ahead of the settlement date.
If you require assistance before you bid at auction, we can review the proposed contract and provide you with advice before signing. Do not hesitate to contact our friendly Property Law team on 07 3808 7777 or send us an email at email@example.com.