If you’ve found a property you’d like to buy as your first home, is it better to buy at an auction or privately? Before you set your heart on your perfect first property, it’s a good idea to understand the different ways you can make the purchase.
Buying at Auction
Before auction day
Organise pre-approval on your home loan. In order to bid at an auction, you should consider pre-approval on your mortgage. This gives you conditional pre-approval for a loan up to a certain amount, so you’ll be able to bid with more confidence in your budget.
Have your deposit ready. You’ll have to pay your deposit on auction day, so make sure you’ve sorted out how to do it. One of the most common ways is by bank cheque, which you can arrange with your bank ahead of time.The property is sold that day to the highest bidder. If that’s you, you must pay the non-refundable deposit immediately. In addition to this there is no cooling off period, unlike at a private buy – meaning you’re committed to buying the house.
Have inspections done and review the contract with a solicitor. When buying at auction, you should have your solicitor or conveyancer review the contract and arrange building and pest inspections for before the auction day.
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‘For Sale’ is the standard term for a private sale (or treaty), where the property is purchased from the seller using an estate agent as an intermediary.
The estate agent will tell you the seller’s asking price, and it is then up to you to meet that asking price or make a counter-offer which will usually depend on your financial situation and what you feel is right for you in your circumstances. Generally you shouldn’t make an offer until you have pre-approval on your loan and your solicitor has reviewed the contract, but the real estate agent you’re dealing with should be able to provide further information on the best course of action to take.
If the seller accepts your offer, you pay a refundable deposit and have a cooling off period (usually five days) which is when the building inspection and strata reports can take place. If the reports identify any major issues or repairs, you may be able to renegotiate the offer.
It can be less stressful to buy a first home privately instead of at an auction. Even if you’re not the highest bidder at an auction, you need to pay for the building and strata reports before the auction takes place, which can sometimes add up and become a large expense if you don’t manage to win a number of auctions in a row.
These reports can be done during the cooling off period when a home is bought privately, which means an offer has already been accepted.
In a private treaty the holding deposit is generally refundable. At an auction, the 10% deposit is non-refundable. The cooling-off period in a private buy can reduce the pressure but delay the outcome, while the immediacy of an auction means you know on the day whether you have successfully purchased the property.
The seller usually decides whether the property will be sold at auction or through a private treaty. It’s good to understand the differences so you have an idea of the different processes which could get you through the front door of your very first home as an owner.
Buying your first home is a huge and exciting step, which comes with a number of additional financial commitments. Consider how to protect your finances and financial commitments, should the unexpected happen to you, with Income Protection and Life Insurance.
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