3D image of isolated gavel and small house.
BY LUCY CORRY
IF you're keen on a property that's going to auction, preparation is everything. A successful bid means you are immediately committed to buy the property; you cannot seek legal advice, arrange finance or even get the property valued or inspected when the auction is over.
That means you need to do all your due diligence in advance of auction day. Before the auction (usually after you've viewed the property), the real estate agent working for the seller should provide you with a copy of the terms and Contract of Sale, which sets out what chattels will be included with the property. This document will also tell you the amount of the deposit to be paid by the successful bidder, and when the balance of the payment must be made. These documents should be checked by your lawyer.
You should consider having the property checked (preferably by a qualified inspector who has professional indemnity insurance and carries out their work in accordance with the New Zealand Property Inspection Standards and obtain an up-to-date Land Information Memorandum (LIM) from the local council. It's a good idea to get a valuation of the property, especially as you are likely to require one if you need a loan. Some websites provide free estimated market values that may be useful.
There's a lot to take in at an auction and it's easy to feel overwhelmed. If you can, go along to one as an observer to see how the process works before you actually want to buy. Remember that the auctioneer is working for the seller and they want to get the highest price possible for the property.
At an auction, the auctioneer will read the terms and conditions of the sale aloud and announce if a reserve price has been set. They must also state whether the seller has reserved the right to bid during the auction. This is called 'vendor bidding' and it is only allowed under strict circumstances, such as when the property being auctioned has a reserve price; when the reserve price has not yet been met; and the auctioneer has made it clear that the bid being made is a vendor bid. They must do this by saying, 'this is a vendor bid' rather than using any jargon.
Auctioneers sometimes use vendor bids as a way to start off the bidding, or to move the bidding towards the reserve price.
Vendor bids can be made by the auctioneer, or another person working on behalf of the seller, such as a real estate agent. An auctioneer can also use a pre-auction offer to start the bidding.
The auction continues until there is only one bidder left. At that stage, if the reserve price is reached or beaten, the highest bidder will be the successful buyer.
If the reserve price isn't reached, the seller can tell the auctioneer to stop the auction without selling the property.
If the auction is stopped without a sale, the highest bidder may have the opportunity to negotiate with the seller (via their agent) after the auction. If this happens, the terms and conditions of the auction no longer apply and you can negotiate new ones.
For independent advice on buying property, check out www.buyingahome.reaa.govt.nz