Buying at Auction: What to Know Before the Hammer Falls

Buying at auction works very differently to a standard purchase, and the differences can be costly if you do not understand them going in.

The most important thing to understand is that an auction purchase is binding the moment the hammer falls. There is no statutory cooling-off period, so once you are successful you are bound to complete the purchase on whatever terms the contract states at that time, and you lose the cooling-off rights you would ordinarily have. For that reason, it is really important to have the auction contract reviewed before you bid. Any questions or negotiations about the terms need to happen beforehand, not after, as there is no opportunity to change them once you have been successful.

Auction contracts are also generally not subject to finance. There are usually no provisions for a cooling-off or finance period, which means you need your finances secured, or at least pre-approved, before you enter into an auction contract.

What happens if your finance falls through after the auction? Unfortunately, you remain bound to complete the purchase, which places you at significant risk. Your first step would be to speak closely with your broker to see whether there are alternative financing options. If you cannot settle on the required settlement date, the vendor can issue a notice to complete, which essentially gives you around two weeks to resolve the issue. If you still cannot settle within that period, the vendor can terminate the contract, retain your full deposit, and, where they resell the property for less than you had agreed to pay, potentially pursue you for the difference.

If a property is passed in at auction, there will generally be discussions with the highest bidder, who has the first right to negotiate a purchase. Where that is unsuccessful, the property returns to the market for other buyers.

If you are thinking of bidding, have the auction contract reviewed before auction day.

We have prepared this article to share general information. For personal advice, book a consultation with our team.