Buying your first home is a big step, but when it comes to buying a home through an auction, there are important things to think about to make the best of our resources.
Disclaimer: The below guide is general in nature and do seek individual financial advice to see how this applies to your situation. I am available to help at no cost to you (T’s and C’s apply) Contact us
Understanding Unconditional Offers
An auction is when people bid on a property they want to buy and the highest bidder wins. If you win the bidding, you have to buy the property, no turning back. This is called making an “unconditional offer.” It means you promise to buy the property without any extra conditions or requirements.
The Valuation Puzzle
Before getting a low deposit loan unconditionally approved, your prospective home needs to be valued. This is to find out how much your home is worth, and this is conducted by a professional valuer. This service costs tends to cost anywhere from $800 – 1500.
But here’s the tricky part: to make an unconditional offer at an auction, you usually need to get a valuation first.
The Problem
This is where things get tricky. Imagine you pay for a valuation before the auction. If you win the auction, that’s great! You’re all set because you can use the valuation.
But if you don’t win the auction, you’ve spent a good amount of money on the valuation without getting the home. You will get nothing in return for this.
Playing it Safe: A Smart Approach
Considering the possible money risks, it’s a good idea for those with a low deposit to be careful about auctions. Instead, you might want to think about other ways to buy a home where you can do things like get a valuation before you make any commitments to buying.
One way that I have found clients have some success, is by going to the auction but not bidding. I’ll repeat that for clarity – Do not bid. If the property does not sell at auction, because the bidding did not go high enough, you may be invited to put in a standard, conditional offer on the property. With this, you can put the conditions your adviser recommends, like valuation and the appropriate number of working days to get finance unconditional. This means that if your offer is successful, you can then get a valuation knowing that you have a very strong chance of following through with the purchase of the home.
This will allow you the time to get the valuation and the certainty that if you pay for this, you are then able to purchase the property with some certainty, assuming all other conditions line up.
Make sure to discuss this with your adviser
Talking to your adviser about different ways to buy your home can really help, including how to put in conditional offers.
