Buying a home at auction can be a complicated process, and ideally, you should have a conveyancer look over the contract and help you determine if the provisions are favourable. Before going to any auction, ask the auction house to send you a copy of the contract, and then ask your conveyancer these five essential questions:
1. Can bids be retracted?
When bidding at an auction, you may accidentally nod or raise your hand toward the auctioneer and enter a bid that you didn't mean to enter. If that happens, you need to know if the bid can be retracted. In many cases, the contracts regarding auctions state that no bids can be retracted.
2. Is the winning bidder guaranteed to be the buyer of the home?
Before you start bidding, you need to know the answer to this question. In most cases, the winning bidder automatically wins the property, but in some cases, the seller sets a reserve price -- if the winning bid is lower than this price, the seller doesn't have to accept it.
In other cases, if the winner bidder is not guaranteed to be the buyer, a stranger could literally slip in with a higher bid after the hammer falls, and the seller could accept that. For example, if you win an auction with a $250,000 bid and just as you are picking up the pen to sign the contract, someone shouts out, "I have $300,000", the buyer could shift allegiances to that seller.
3. Is the buyer required to disclose lead, mold or other toxins?
Unfortunately, disclosure laws don't typically apply to auctioned properties, and in most cases, auctioned properties are sold "as is". That helps you to get a potentially cheap price, but it can be risky if you buy a property that is full of toxins.
To be on the safe side both financially and from a health perspective, you need to know whether or not the auction contract includes any caveats about the seller's requirements to disclose things.
4. How much time can elapse between the winning bid and the time that the contract must be signed?
Also have your conveyancer look at how much time is allowed to elapse between the time when the winning bid is submitted and the contract is signed. Ideally, you want a relatively short amount of time, as that minimises the potential that another buyer could slip in and offer a higher price before you seal the deal in writing.
5. Can bidders modify the contract?
If you don't like any of the terms in the contract, you may be able to modify them with the help of your conveyancer. A conveyancer can help you add or delete provisions to the contract, and then, you can take the new contract to the auction with you.
When you give the new contract to the auctioneer, you simply inform them that your bids will be subject to the terms of the new contract. Your conveyancer can help you with this part of the transaction.