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Buying at auction: your responsibilities and the 'grey areas'

Posted on 21 November 2016

When people are considering selling their home, they have two main choices: private treaty, or auction.

Private treaty - with an asking price and 'offers' being presented by the buyer to the vendor - is the most popular choice, but there are plenty of benefits of a sale by auction as well.



In competitive real estate markets, it can be the best way to boost price, and it can be an effective and timely selling method with a handy deadline that reduces stress for the seller.

But what about the buyer?

There can be benefits for the buyer, too, with no lengthy negotiation periods, a level negotiating playing field and greater transparency among your competitors, and of course the possibility of a bargain.

However, there are also things buyers need to bear in mind when the house they are interested in is being sold at auction.

No cooling off period


'Cooling off' basically means changing your mind when you agree to buy a home by private treaty. So if you find out something you weren't aware of before, or you just have a change of heart, you can legally just pull out.

But when you buy at auction, there is no cooling off period. And no exceptions to this rule.

What about if you really do change your mind? What if house or pest inspections, for example, come back with extremely negative reports, even about structural damage? Or you realise that you simply can't afford it, even due to some sort of emergency? It doesn't matter: technically, you must settle the contract.

In practice, this means that when you register as a bidder at an auction, you normally need to do so as an 'unconditional' buyer. This means you cannot put any conditions like 'subject to finance' or 'subject to sale' on your bids.

This puts some responsibilities on your shoulders as a buyer. You need to have done all of your property inspecting and market research, checked over the contract and understand the deposit size and payment terms, and got any and all of the legal questions and qualms in your mind answered by the time you start bidding.

Because if the auctioneer exclaims 'Sold!' and points at you, you need to sign the legal contract immediately.

If you refuse to sign the contract, you're in trouble and the consequences can actually be very serious.

The biggest risk is that - if you actually have the money - you could be forced to pay it. And if you don't have the money, you could be responsible for the big costs of re-auctioning the property, plus any shortfall between what you offered and the subsequent, lower winning bid.

The 'grey areas'

A final thing to consider is the legal 'grey areas' created by auctions - and there are plenty of them! In short, a contract is only a real contract if it's presented in writing. So, while a verbal contract does have some weight, the law has limits if the successful bidders really do change their minds before signing on a dotted line.

So imagine that you're the winning bidder, you walk inside for a cup of coffee and to sign a contract, and you overhear someone mention that someone was murdered in the master bedroom. Can you be forced to buy it? Technically, no.

Similarly, the vendor cannot be forced to sign a contract with the winning bidder either. Imagine that you're the winning bidder at $500,000 but someone turns up late after the gavel has dropped, hasn't even registered as a bidder and offers $550,000. Can the vendor sell to them? Technically, yes - because it's their house, not the government's, the auctioneer's or the winning bidder's.

So if you're really nervous about bidding at auction, talk to your lawyer. It might cost you a three-digit amount, but save you much, much more than if you get it wrong and make a fundamental mistake.

 

 

By Darel McBride

 

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