Buying at auction – make sure you can pay the deposit!
Auctions. The expression, ‘let the buyer beware’ has never been more relevant. Sellers rely on the buzz factor; the potential for buyers to get over-excited and bid higher than they’d planned. Let’s face it – a property is far more attractive when someone else wants it.
But there’s always potential for a buyer to get caught up in the heat of the moment and bid beyond their means. That’s not a place you want to find yourself.
In a recent NSW Supreme Court decision a woman was ordered to pay over $400K in compensation because her cheque bounced. She’d placed the winning bid at an auction for a Sydney property and duly written the cheque for 10% deposit on the day, but it was dishonoured and the contract was later terminated by the sellers (vendors).
While they went on to sell the property to someone else, they got less for it. So they sued the woman for breach of contract and she had to pay the difference in sales prices, plus interest and legal costs.
An expensive lesson. Know your ceiling and stick to it because when you buy at auction it’s considered final. You don’t get a cooling-off period, which is the 5-day period you’d usually get to change your mind if you bought outside of an auction.
That means it’s too late to have building or pest inspections done. They’re known as ‘pre-purchase’ inspections for a reason. Buying at auction basically means you accept the property as it is (warts and all!).
You should also know that if you’re the highest bidder and the property gets passed in (ie. it hasn’t reached the minimum price the vendor set, or ‘reserve’), negotiating with the vendor and agreeing on a price that day means the same auction rules apply. You’re locked in with no cooling-off period.
While the Supreme Court decision may be good news for vendors, suing for breach of contract still carries risk. Winning isn’t guaranteed. They must be able to show they’ve lost money or been unable to proceed with their plans, like buying a new house. The Judge might rule in favour of the reneging buyer if they have a good argument, such as if they’ve suffered a critical illness after the auction date, or can successfully place the blame on someone else (eg. the agent who didn’t properly advise them of their responsibilities).
But auction bidders take heed. In the words of Merrill Phillips, Conveyancer at Stacks Law Firm Taree, “Be prepared. Do your homework, get legal advice, check your finance is in order, and only when everything is ticked off, attend the auction.”
Because once that hammer goes down you’re committed.