Things to Consider Before Bidding on a Property at Auction in NSW

Buying a property at auction can move quickly. If you are the successful bidder, you will generally be required to sign the contract immediately and will not have the benefit of a cooling-off period. For that reason, the legal review and practical due diligence that might otherwise occur after an offer is accepted must be completed before you make an offer.

Before auction day, you should obtain legal advice on the contract, negotiate any required amendments and complete the investigations needed to determine whether the property is suitable for you.

1. Complete your due diligence before auction

Due diligence allows you to investigate the physical condition of the property and, where relevant, the financial and administrative position of the strata scheme. These enquiries should be completed early enough for you to review the results and make an informed decision before bidding.

Pest and building reports

It is common for a vendor or selling agent to make pest and building reports available to prospective purchasers before auction.

If you intend to rely on a report arranged by the vendor or agent, confirm before auction that the inspector can issue or assign the report to you. Without a report in your name, you may not have the same ability to rely on its contents.

Check the scope of the inspection. Some reports are limited to a visual inspection and may not identify concealed or inaccessible defects.

If you are obtaining your own reports you need to allow time for the Inspector to attend the property, prepare the report and for you to review the report.

Strata records inspection

If the property is part of a strata title scheme, a pre-purchase inspection of the strata records is an important part of your due diligence. An independent strata specialist can review the records relating to the management and governance of the scheme.

The inspection can help you:

•  understand the rights and obligations associated with ownership in the scheme;

•  identify potential financial, administrative or maintenance risks;

•  determine whether special levies are proposed or may be required in the foreseeable future; and

•  assess whether the property and the scheme meet your needs and expectations.

As with pest and building reports, if you intend to rely on a strata report provided by the vendor or agent, confirm that the report can be issued or assigned to you before auction.

2. Have the contract reviewed and negotiated

Properties sold at auction do not have the benefit of a cooling-off period. Once the contract is signed and exchanged at auction, the parties are immediately bound by its terms.

Your solicitor or conveyancer should review the contract before auction, explain the legal effect of its terms and request any necessary amendments from the vendor’s representative. Any agreed amendments should be recorded before the auction and incorporated into the contract if you are the successful bidder.

3. Confirm the correct purchaser and purchasing structure

Before auction day, discuss the proposed purchase with your accountant and financial adviser and confirm the entity that will purchase the property. The purchaser details on the contract must be correct when you sign.

If the incorrect entity is named, the vendor is not required to agree to a change before settlement. This may leave you committed to completing the purchase through an entity that does not reflect your intended ownership or taxation structure.

If a company will purchase the property as trustee for a trust, both the trustee company and the trust should be established before the contract is entered into. The purchaser should be described using the trustee company’s full name and ACN, together with the capacity in which it acts, for example: “ABC Pty Ltd ACN 000 000 000 as trustee for the XYZ Trust”.

4. Understand your finance position

Many lenders will not provide unconditional finance approval before auction. A successful bid is not usually conditional on finance, so you should understand the risk of bidding without unconditional approval.

Before bidding, consider whether you have access to a back-up source of funding in case unconditional finance approval is delayed, refused or provided on terms that do not meet your expectations.

Key takeaways

The matters outlined above are not an exhaustive list of everything to consider before bidding at auction. They do, however, demonstrate why both legal review and practical due diligence should be completed before auction day.

If you are successful at auction, you will be bound by the contract when it is signed and exchanged. It is therefore important to be satisfied with the contract terms, the condition of the property, the purchaser details and your funding position before you bid.

Considering bidding at auction?

For advice about a contract for sale or the steps to take before bidding at an auction in NSW, contact the property team at Jenkins Legal and Advisory.

This article is not legal advice and the views and comments are of a general nature only. This article is not to be relied upon in substitution for detailed legal advice.

---