Cooling off period, finance approval, negotiating terms and auction quote ranges – Preparing for auction #2 (Ep.78)
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In this week’s Ep#78, Dave, Cate and Pete take you through:
Can you have a ‘subject to’ clause at auction? A common misconception is that ‘subject to’ clauses cannot be introduced in an auction. The Property Buyer explains that although very rare, everything is negotiable.
Cooling off periods – what are they and when do they apply? A cooling off period is a purchaser’s right to terminate the contract without needing to validate their decision. The cooling off periods and penalties varyState by State, so it’s important to know your legislative rights and any penalties that may follow.
Boardroom auctions vs public auctions. The Property Buyer takes you through the key differences between boardroom auctions and publicly scheduled auctions that you need to know about to put your best foot forward.
Getting yourself finance ready. With turn-around times improving, it’s possible to be finance ready if you plan to go to auction in three weeks’ time. However, it’s incredibly important to move with speed and have your finance arranged as early as possible. The Property Planner shares the critical need to be able to juggle multiple balls at the same time, rather than focusing on one thing at a time.
What prep do you need to do to get ready? If you want any variations to the contract or deposit terms, these need to be arranged before the big day. Doing your market research, planning and setting your bidding price point and strategy is critical and likely to take more than an afternoon. Ensure that you have not left this to the last minute!
What is an auction quote range and why you shouldn’t rely on it. In a moving market, an auction quote range at best can be wrong and unreliable, at worst, it’s misleading. In determining a quote range, the agent is permitted to cover historical sales prices, (in Victoria for example; over the last 6 months), which could be 15-20% lower than the current market. The best thing is to do your own research and collect your own comparable sales.
Where to stand at auction. The Property Buyer shares with you the key vantage points to give yourself the edge over the competition.
The differences between auction campaigns and private sale campaigns. The Property Buyer explains the key differences that you need to be aware of to handle a successful purchase.
Valuation shortfalls.If you know the market and you’re not paying a ridiculous price, it’s unlikely that a valuation will come in short, particularly in a seller’s market where competition is fierce. The Property Planner and Buyer discuss the Plan B strategies to have in place as a safety blanket in case the valuation comes up short.
And of course, our ‘gold nuggets’
Stretching budgets and changing sentiments. The gap between what a buyer can actually spend vs what they planned to spend is getting closer as we see buyers revise up their limits to compete in this market. We made a prediction that APRA would step in with macro prudential measures late this year or next, now every man and his dog is reporting on the potential for APRA intervention. Although APRA Chair Wayne Byres recently stated that APRA has no mandate to target the level of housing prices – they are simply a risk factor, not a goal.
Tips to increase your borrowing power.The Property Planner and Buyer share the insider scoop on how you can increase your borrowing power to maximise your buying power.
Banks and economists revise UP their expectations for 2021. NAB is the latest bank to jump on board and predict 15% national price rises for 2021. This follows ANZ upping their predictions in late March to 17% growth this year. Recent reports tip Sydney and Perth to exhibit 19% capital growth each, 18% for Hobart, 16% for Melbourne and Brisbane and 13% for Adelaide.
Everyone says no you can’t, and you actually can, but it’s highly unlikely that the parties will agree to it.
When you go to auction, you are bound by auction rules – no cooling off period, but they do not specify that you can’t negotiate something.
I’ve bid at auction with ‘subject to’ clauses before – subject to wife liking it.
This is why vendors won’t normally go for a subject to clause, because if the buyer pulls out, it’s back to the drawing board.
Getting these kind of clauses across is easier in a weaker market, a buyer’s market, but not a seller’s market.
They may do a deal prior with you – Eg: auction needs to hit x level before they will accept your bid that has conditions attached.
You could negotiate in a cooling off period – anything can be negotiated. Someone wanted the cat and wanted it to be included in the chattels.
Variations all around the nation – it means you can change your mind and you don’t need a clause to validate your decision.
Some states have penalties for cooling off, like VIC.
What is the difference between boardroom auction and publicly scheduled auction
Sometimes they are very similar.
A publicly scheduled auction means that it was advertised and you’re bound by auction rules – for the three days prior and three days after the scheduled date for the auction.
If the boardroom auction occurs a week prior and the date advertised is Saturday next week, you’re not bound by auction rules.
It’s a simulated auction – it’s transparent, you can see who your competition is, it could be onsite or in a boardroom, they just call it a boardroom auction.
Must be advertised by a minimum period of time, but agents can bring the auction date forward.
A zoom auction is great, you can see everyone, it’s transparent.
You can read body language when the face is in their whole screen.
People turned the screen off when bidding.
You’re better off having a plan and bidding with confidence and not worrying about who is reading your body language.
If you’re going to auction in 3 weeks time
Speed of you choosing your lender (take into account turn-around times).
Getting all of your documents in order.
You should talk through it with your strategic mortgage broker.
It is possible, the sooner you get pre-approved, the better.
Often you find people do one thing at a time, eg: getting their pre-approval in order but their plan and strategy isn’t set yet. If you can be moving both things at the same time, it will be most advantageous to you.
Other than getting finance organised, what else do you need to have ready?
Deposit and terms finalised, agents will call for a 10% deposit, contract in place, nominated settlement date.
If the buyer wants any variation from that, they need to chat to the vendor and vendor solicitor to make sure it’s all agreeable.
Make sure you’ve had a legal review prior to auction day.
You have to have a plan – know what you’re bidding to with some logic and sense to it. It can’t be done in an afternoon, it should be done long before auction day, in case someone triggers an auction before auction day.
Often people leave those types of things to the last minute and it might be too late to negotiate the deposit or settlement period. The sooner you get these things organised and clear, the better chance you give yourself of being able to purchase a property.
What is an auction quote range and why is it not always representative of the price?
QLD – they don’t quote a range, they leave it to the buyer to do their homework.
At worst, the auction quote range can be misleading and at best, wrong and unreliable.
It’s very rare in a seller’s market that the auction price is reflective of the final price.
The time permitted to cover historical sale prices is 6 months – which could be 15-20% lower than where the market is currently at.
Do not use automated valuations as a guide.
You need to spend time tracking comparable sales, track the details of the property.
Attend the auctions, even if you’re not interested – look at comparables, similar price point and similar area. Do a scan and remember the players – you may need to use your phone.
Where to stand in an auction
Stand where you can see who is likely to be bidding – you can ask the agents, who is likely to bid. If someone is holding a brochure, they’re probably not bidding.
Stand where you know you can have a direct battle – towards the front where the auctioneer stands.
If Cate’s there, hide behind the tree.
What happens if you bid but you can’t settle?
In some states you need to register to bid, provide your photo ID. That’s not the case in Victoria.
You’re expected to go inside if you have bid.
If you’ve signed the contract, you’re bound to the deal.
You’ll forfeit your deposit and the vendor can sue you for damages if they on-sell and get less than what your winning bid was, accommodation costs, bridging.
What differences between auction campaigns and private sale campaigns should buyers be aware of?
An auction campaign, if it runs all the way, it is a transparent process. You’ve got an amount of time where you know you have time to do the due diligence.
With a private sale, it can be sold within an hour or a day, so you need to move swiftly.
Not all auctions run to auction day, but the agents are bound to tell everyone who had interest in a property when the auction will be brought forward or the boardroom auction.
The agent has more autonomy with a private sale, they can determine the process and how they are willing to deal with prospective buyers.
In a hot market, you arrive at the property and there’s a queue of people and buyers asking agents questions, you know you’ve got competition. The agent will determine how they are willing to deal with competitive bidding.
Tough to navigate because buyers don’t always know the rules – agents can get a bit creative.
Property valued at less than the purchase price
If you know the market and you’re not paying a ridiculous price, it’s unlikely that a valuation will come in short.
It’s a particular risk if you’re above 80% and the higher the LVR the higher the risk.
Can you go into a higher LVR level than you need to?
Do you have a Plan B lender with a different valuer panel?
Have you got buffer funds or family and friends who can give you buffer funds. Want to make sure you don’t lose the deposit if there’s a valuation shortfall.
The buffer funds is what people rely on when there’s a shortfall.
Typically, in a contracting market, where valuers get a bit skittish.
David Johnston- The Property Planner’s Golden nugget: Control the controllables, know your market, have an excel spreadsheet and track: addresses, what the property sold for, date it sold, location relevance, what was the land size, how do you compare the land, street rating, frontages, comments on the internals, quality of interior, how does the yard stack up, potential to renovate or extend, parking.
Cate Bakos – The Property Buyer’s Golden nugget: Make sure you allocate enough time to do the full research, planning and preparation on auction day. People spend more time planning a holiday. This is very important, it’s a very expensive and valuable move you’re about to make.
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