Auction Preparation Video

Hey there guys. So you found a house on realestate.com you've walked around the streets and found another house that you like. You've driven past one in your local neighborhood and you're keen to buy it and you find out that it's going to auction and there's no way around it. You have to go to auction. My name is Aaron and I'm from Diagnostics and Finance and I'm a broker.

My name is Judy Hogarth and I'm from KLH Conveyancing.

And we're going to talk about some steps to strategically get you prepared to go to an auction and have a successful outcome so that you can have your kids in the backyard playing in this great house that you found. You can see yourself cooking, sitting and relaxing. Could be by the fire in winter or as we're going into summer, right when we're recording this video, getting out and having a nice drink on the deck, a fresco or whatever you've found. So the first step, let's look at the strategy. What would we need to do first, Judy?

Well, ideally you would want two weeks before the auction.

So we need time.

You need time. So if you found a property that's going to auction at the end of the month and it's the beginning of the month, that's perfect. At that time you would want to be contacting your broker or bank representative and your conveyancer.

And we need to put a strategy in place. So that's around what is your deposit level? First home, second home, a big deposit or a small deposit. We need to put your deposit together in a conjunction with your income and liabilities. So those big items can need to be sorted out straight away. And in that first step of strategy we, we can get those items and we can get you in touch with conveyancing, banking and broking from there. So we get the strategy. And if we don't need the bank's backing, sometimes people don't need the bank.

That's perfect. That would be okay. I would still need at least two weeks before the auction. If you don't need the banks, even if actually you do need banks, two weeks is an ideal time. If you go back to where we talk about cooling off periods or exchanging without a cooling off period. It's roughly that 10 day period that you would need before an exchange. Auctions are exactly the same. So we could do everything you would need to have done within 10 days.

And when you need the bank's backing for a pre approval, which is another step to know what your limit is to when you go to the auction and start bidding. It's the same timeline. So a pre approval with a bank is the same process that you would do to get a formal approval. And except one step, and that one step is we don't know what the house is going to be. We don't have the contract and we don't have a purchase price on it because the purchase price is what the strategy is. The real estate agent to look at how they can get the real market value for their client. So we still need the same timing and typically, or generally speaking, it's usually around that 10 business days that we need to get the pre approval. Some banks go longer, some banks go shorter. And, and the biggest problem that we have with pre approvals is that we don't have a financial loss. So the banks aren't willing to usually go faster, they'll just go at the normal pace.

Yes, yeah, that's exactly right. So heading into an auction, Aaron, would you have unconditional loan approval?

We can't get unconditional loan approval going into an auction. All we can do is go down the line, let's not talk pre approval, let's say conditional approval. Everything is ticked off except for the bank valuation.

Because there are steps, there are steps involved in getting loan approval. The first one is a pre approval. So what are those steps?

What are those steps? So it's like if you picture a triangle and you've got the bank at the top, you guys here and the property here. When you go to a pre approval, it's more assessing your income and liabilities and things and what you look like as a person. But the bank's also helping you buy the property and it's going to go on the title deed. So. So they have to check the property independently of you, the agent and everyone else. So the bank wants to be happy with you and happy with the property and in auction they can only be happy with the property after you win it.

Yes, that's a really good point.

So contracts, we're talking about giving ourselves two weeks. Why is that important and what are we doing in that time other than the finance?

Other than finance. So whilst you're working away with your broker or bankruptcy representative on getting finance, I'm reading through the contract and making any changes that we require. So there could be special conditions or further questions that we may have in regards to anything the contract brings up. So I ask the vendor solicitor to ask the vendor about those and making any changes and then I'M advising or requesting as to whether you would like searches carried out. So you may have pest in building reports done. And the other thing that we would request is the council's records. That process can be about a 14 day process, so it's a good idea to have that time that if you want to make that inquiry, we can do that with plenty of time to get the results back before the auction.

And I think some of this stuff that we're doing will cost a little bit of money, won't it?

Yes. Yeah.

And I suppose if you're buying a million dollar house and I'm just picking a million dollars and you're going to win at auction and we're going to win without having a formal approval or an unconditional approval in place these pre inspections. Paying a little bit of money is going to be better than not paying it, not paying at all and winning something that looks good for you but on PayPal or have a highway through it or. That's exactly a whole range of things.

Yeah, that's exactly right. So, because the biggest question that we get asked is, oh, you know, I might not win the auction, so I don't want to spend a lot of money leading up to it. But the reality is if you don't spend that money and you do win at the auction, you could be at risk of a whole lot of unknowns about the property. Each auction you go for, you have to ensure that, you know, you take every step along the way. So you go through the pre approval process and get conditional approval and you have done your pest in buildings, you have done a contract review. Because if you do win that property, you need to know everything you would if it was under a cooling off or if it was going to exchange unconditionally. Because at auction, the moment that Hema comes down, you are bound by that contract. There's no, oh, I found this out about it and now I don't want to purchase it. It's a bound contract and we don't.

Want to be there in the bad place. What about deposit level? Because. Because we all know prices are pretty high at the moment and some people might have a 10% deposit of a 1 or a 2 or a $3 million house sitting in their bank account. But sometimes that's not the case. What is the normal process with deposits?

So if you have spoken to your broker and they say that you might have to pay a 5% deposit, you would come to us and we need to know that and then we just let the vendor Know that there will be a 5% deposit payable on exchange and you can do that. But at the auction you will need to pay a deposit. So whether it's happening on a Saturday or a Thursday night, there will be a deposit payable and you'll need to ensure that you have arranged to have that happen. So you may get a bank check made payable to your highest bid. It could be more then it could be 10% of the purchase price. It could be more than 10% of the purchase price, but at least it's something otherwise you could speak to your broker about maybe a deposit bond.

Yeah. So deposit. So 10% typical contract, 5% is negotiated and deposit bonds. So deposit bonds. A broker, hopefully me, would be able to organise a deposit bond. And sometimes we need to clarify with the conveyancer around who's going to issue the bond and which ones they're going to accept. But you really do need permission if we're going to use a deposit bond. The mechanics of a deposit Bond takes me 10, 15 minutes to get. But we do need to have permission to use a deposit bond. There are cases that if you win and you only got a deposit bond and you can't fulfill the contract, that can be a little bit of an issue too, even though everything's lining up. So deposit bonds are like an iou, it's an insurance certificate that you actually will have the money at the time of settlement and it's not money for the settlement. And in the event you can't settle, the vendor will make a claim on that insurance IOU certificate.

Yeah, yeah. So next step.

So cooling off. So sometimes we all know when we go into a buy house that we like to have a cooling off. We want a breathing space when we've got it done. Is there any such thing when we go for an auction?

That's not.

There's not.

There is no cooling off periods, there is no breathing space. And I guess that's why you do need to be 100% prepared to be the highest bidder and to win at auction.

So I suppose the timing thing is the most crucial here because if we're not got a cooling off period and we need to do the checks and we need to prepare our deposit, all that takes time. So when people come to us at Tuesday or Wednesday in the week of the auction on Saturday. Yeah, that can be very stressful, not only for you guys, but for us as well. But you're potentially going to miss out on a bunchload of information if you win.

That's exactly right. So the most typical time I will get a contract to review for an auction is Friday afternoon when the auction is the Saturday. I can do the review. That's not a problem. Doing the review takes me 45 minutes and I can give you a verbal over the phone. That's not the issue. The issue is that you miss out on all those searches that you could get done if you have more time. So pester building council records, just anything that getting your finance together. Do you have the deposit? There's a lot of steps that we're going to check off in such a short period of time. That's why it is essential that if you can, the more time you have before an auction is always preferable.

And to put it blunt, if you came to me as a broker or even some banks, Friday afternoon, typically after lunchtime for an auction on Saturday, it's not going to happen.

No, it won't happen.

Not for a finance point of view. So next step is auction readiness. So we understand our limit now. We have all the checks and searches done and we now know the auction is just tomorrow.

Yep.

We're pretty nervous, aren't we?

Yes, very anxious. Are we going to win?

Are we going to win? How many people are registered for the auction?

Find out on the day.

Actually, on that topic, how many people were at the auction? You know, one of the things oxygen ready auction readiness you can do is actually ask the agent how many contracts they've issued. So one of the little things to think about is that when you're getting advice from broker and conveyancer and a good real estate, even though they work for the vendor, you can actually find out some information to help you be ready. Like if they said I've issued 20 contracts, you now you potentially are competing with 20 people.

Yeah.

You might find that only 10 show up on the day.

That's true.

So keep observing. So I suppose oxygen readiness is keep observing. So on the day of the auction, I'd probably say look through the house again, make sure you're right to do this. You can always walk away, but if you're confident, go through the house again. Then when you're in the crowd, look at how many people registering and keep hold of that limit. Yeah, I can't advise you to go over the limit. I'd rather you go under safer of your budgetary limit. And emotion emotion is a big one. We can get carried away with auctions, can't we? Yeah, yeah, I've done it on ebay. Ebay is not as serious as A house. But being auction readiness, observing, understanding how many contracts are out there, looking at who you're going to be bidding against, making sure you've got that support person. I think it's a really good thing if it's a husband and wife team or a partner team, whatever team, mum, dad, team, first home buyer, one person. We've had clients that are really excited after auctions, like, oh, that was great, I've got to do it again, even though I didn't win. So it's like a big buzz that people love. But be ready to stick to your limit and be ready to walk away if it goes way out of your price range. Because the last thing we want is we want you to spend a little bit of money to be prepared for the auction so you know who you're getting into. But we don't want you to be financially ruined because you've gone too high.

Yeah, yeah.

Okay. The win.

The win. So then you win, which is fantastic and very exciting. So what happens then is if we have made changes to the contract beforehand, so two weeks before we've done the letter and they've come back and we've got all those and they're all agreed at the auction, it's okay if they're not made to the contract. Some agents or auctioneers, they will make the changes before you sign, but if they don't, it's also okay because when we get that contract back, those agreements are running parallel with the actual contract and what's happened so we can make those changes when they come back. There's a mutually agreement there. So what we would suggest then is we get the signed contract after the auction. We also might not find out the next day. So if it happens on a Saturday, we might not find out on Monday or Tuesday. We might get the letter on Wednesday with the contract. So it's always good to keep us updated. Just send a little email after the auction. I don't mind getting the emails on Saturday. Just, we won. Fantastic. And then that way we know the first step, I will say, is congratulations. Now go back to your broker because they've got some stuff to do do after that.

That's right. And remember, we told you you're going to have to have the deposit ready on the day. So typically we might usually find auctions on a Saturday. So is there a tip on how we can pay the deposit on the day?

Yes, through eft.

Yeah.

Yeah. I would suggest that you call your bank before to increase your limit to make sure that if you are paying Cash, you can transfer that, the entire amount you need to. Or bring the bank check ready for whatever your highest bid was. If it was a million dollars, that's your highest bid. Bring it for the 100,000 or the 50,000. If we've requested a 5% deposit and then if you've only bid 900 and that's what you win, that's okay. It's okay to pay more because it all comes off the purchase price. That's okay, that's good.

And so we get to the next day and we come back to the broker. Now we had the pre approval in place and we had everything ticked off except for the bank valuation. Because we now know what the purchase price is. We now have the contract with all the terms in it. This is where, generally speaking, a lot of banks will allow us to do an upfront valuation. So we can start the ball rolling on Monday typically or on Wednesday, depending on how quickly the contract can get turned around from conveyancing and or real estate agent. So we go down the line, we order the bank valuation. This is where the bank just does their check because they're going to go on a title deed and they're helping you purchase the property so they'll do their check. We talked about the triangle before. Bank has to be happy with you. We've already ticked that off. Now they just have to be happy with the property. That takes about three days. And some people ask me about what happens if the bank valuation comes in lower. And it's not necessarily that case. It's something I wouldn't be worried too much about because what is the market value? The market value is actually who is willing to buy the property at a certain or desired price. So you are the market value. There are some minor exceptions to that rule, but in the main you are the market value. So the bank is really just doing their checks so that they can be. Because they're highly regulated, they can, they can be confident in giving the money to you to be able to buy the house. So the bank valuation time frame, typically three days and then usually up to one to two days post getting the bank valuation report. We can get formal approval now that will differ. Some bank valuers will get out there on the I order in the morning, they're done by the afternoon and we're done in two days. But it's good to have a good reasonable amount of time after the auction. Not to stay nervous or anything, but to be able to understand that that's when it's all going to come Together and go forward from there. So we get the formal approval and things how. What's the next step after that?

You can just drive through settlement, settlement real smooth.

We know we can get in the house.

Yeah. And then you move in. So why is it important to break down each step of that little spinny wheel to see if we win?

Well, it is. It's like that carnival wheel that you come up and you're trying to win a prize and in this case it's the house. But if you look at the spinning wheel, we need that step here to understand what your strategy is. We need to have your pre approval. We need to have the time that allows for that strategy and pre approval and contracts pest building review at the same time. Then it's good to think about how ready you are, what your limit is, what your comfort on buying this property. Asking those. Do you have your deposit ready? Your EFT changes to be able to transfer money on the day. Most modern phones will do that, or computer or laptop, whatever you need. And you know, even as simple as asking how many contracts are being issued just so you know and understand what you're going to be in for and then when you win it. That's awesome. We like to be winning things.

Yes.

I don't know who doesn't like winning things.

Especially when it's your dream property.

Ideal, ideal position and the bank valuation, formal approval and then driving it home to settlement. So starting at the top end, coming around the wheel to get a successful auction exchange. So thank you for listening to us today. Hopefully you got some value out of what we're talking about. We would love it if you could put a like a comment and share this out. Everyone knows someone going through the nervousness of auction. Some people are really cool about getting an offer off the table, get it out of the auction hands. But there's always someone that someone knows going through an auction. And don't be scared, you might get a bargain. You don't necessarily have the doom and gloom going over, but you could get a bargain.

Awesome. Thanks for having me again, Aaron.

We like doing videos. Cool. Enjoy guys.