What to do when you're buying at auction

Housing Market Written by Squirrel , Feb 4 2016

We've all shopped on Trade Me at some point and experienced the thrill of the bidding war. Impatiently hitting refresh to see if someone has laid a higher bid than you on that bed base or video game, and the satisfaction of seeing off a rival bidder and winning the item you wanted.

Of course, it doesn't always work out like that. With more than 3.7 million accounts active on the site, you're always going to lose a few auctions. While that might be the end of the world when you're buying a set of mugs, losing an auction when it comes to something bigger (like, say, your first home) can be quite devastating.

Understanding how to get ahead at auction is a skill many New Zealanders will have to learn. Statistics from the Real Estate Institute of New Zealand show that in the year to October 2015, the number of properties sold under the hammer went up by 43 per cent to a whopping 22,000.

So, if you're in the market for a mortgage to secure your very first home, here are a few ways to prepare yourself for the auction block.

Prepare for the commitment

Trade Me auctions can fail to work out for a number of reasons. Someone doesn't pay the required money, or extenuating circumstances mean the vendor has to pull out, or even revert to the classic "it got lost in the mail" scenario.

However, when it comes to buying property, you're committed to the process and have to follow through. If a home goes past reserve, your bid is given the green light and the auctioneer calls it a day on proceedings, you're legally bound to go ahead. It's why you should make sure your home loan is in order, you're not going over a predetermined budget and aren't paying much more than you should for a property.

But don't let that put you off ever making a bid! Under the Fair Trading Act, you can actually renege on your bid any time before the hammer falls. After this concluding act though, everything is quite set in stone. It's also a reminder of the importance of getting pre-approval for your loan - then you'll know exactly what you can spend! 

Watch out for the vendor bids

These are bids laid down by the person selling the home, usually introduced by the auctioneer - not something you'll find on Trade Me! These can only occur at a specific point in the auction: when there is a reserve price that hasn't been met, and when the auctioneer specifically states that a vendor bid is being placed.

The Real Estate Agents Authority adds that the phrasing has to be very clear about this. For example, "the bid is with me" is cited as an inaccurate statement from an auctioneer. Keep an ear out for these bids, as they could be signs that a property isn't going as high as the vendor wants it to go. 

In terms of what they do, they're basically there to inflate the price that a home will sell at. When you're buying a property, they are a clear signal that it hasn't hit the reserve price - and bids aren't going as high as the vendor wants them to. A bargain could be in the pipeline! 

Which means... Do your research

When it comes to buying your first home at auction, you're likely to be more than a little nervous. But with the right professional aid and a lot of research, you might find yourself in a great position to secure a deal. Recent Barfoot and Thompson results also show a number of auctioned homes being withdrawn, which suggest you might be able to get homes for below a listed price too.

Sound mortgage advice will give you a clear vision of how much you can spend, close inspections can indicate how much a home is worth, and a cool head can get you ahead of the bidding competition.

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