Buying a property at auction - question

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15 years 4 months ago #15199 by hilldweller
Currently engaged in 'dialogue' with friends over the purchase of a new property. Is it just me or is buying at auction without having finance absolutely definitely sorted beforehand an incredibly risky thing to be doing? I had always thought that you simply couldn't bid at auction without having the finance sorted, but it appears that it can be and is done. So how common is it? Am I just ridiculously risk averse or old-fashioned or something?

And, purely hypothetically (I hope!), what would happen if a purchaser was unable to come up with the dosh on settlement day?

hilldweller

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15 years 4 months ago #231376 by Seaside
As I understand it, if you win the auction, you go straight to unconditional and have to put your deposit down on the day. If you don't get the finance sorted by settlement, then you lose your deposit.

Edited to add that the real estate agent should be able to provide you with the LIM prior to the auction - the seller will have got it from the Council, as contracts (when not sold by auction) are almost always condition on the LIM.

Kids, beasts, and chillies in Swannanoa South.
www.farmaway.co.nz

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15 years 4 months ago #231380 by ame
Yes, very risky.

When you buy at auction you need to have all your ducks in a row. That is to say you need to have checked the LIM/PIM and title, surveyed the property, and arranged finance. If you 'win' the auction you own the house- it's yours, together with any problems that you didn't spot. You are also legally obliged to pay up (it's a contract, after all).

We have noticed many properties for sale by auction that don't actually sell. Then they are re-advertised with a price attached for a normal sale. My theory here is that Estate Agents want money, so they entice the buyer to go to auction. They get a (significant) amount of money to arrange and run the auction regardless of whether it sells. If it doesn't go at auction they then get the buyer to sell it conventionally, then collect the fee for that too. Nice.

Oh, and if you want the definitive answer, speak to a lawyer.

A

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15 years 4 months ago #231385 by reggit
Article in paper this weekend about this...need to have your finance sorted, and the banks are now requiring a market valuation and builders report on property before you go to auction...which is also risky as you might not be the winner but have to put that money in up front for these things!

Hopefully this will dampen the auction market a bit, as I personally feel that the last few years' trend towards auctions combined with easy credit is largely to blame for the ridiculous increase in property prices well over the actual value of the properties...

If your friends have a place in mind they can always make an offer prior...why on earth do they want to go to auction with no finance secured, when banks are getting so tough on new lenders????

Take a break...while I take care of your home, your block, your pets, your stock! [;)] PM me...

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15 years 4 months ago #231433 by DrVee
There is no law saying you MUST have finance before going to auction, but, if you win the auction, you MUST legally complete the sale, including paying your deposit then and there.

So if you didn't have finance pre-organised and didn't know your financial limits, you might be up the poo if a bank/financial institute declines to give you the loan/credit required.

The simple answer is to have a pre-approved mortgage and go to the auction knowing exactly how much you can bid. And to not bid over this amount.

Friends of friends bid well over their pre approved limit for a house - bank would only loan them what they were approved for so they ended up selling their cars etc to raise the extra deposit for the house.

So yes, incredibly risky thing for them to do, but there is nothing stopping them from bidding at an auction. It would be their own stupidity if they won the house then couldn't get the finance.

[SIGPIC][/SIGPIC]Nah, just shoot it.......

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