Buying Property For Dummies Page 22
Vendor bids
While dummy bidding (refer to the section ‘Assessing the Pros and Cons of Auctions’ earlier in the chapter) has been prohibited in most states and territories, the vendor is still allowed to bid. In most states, the identity of the bidder acting for the vendor must be declared before the auction commences, and each time the vendor bid is made. Only auctioneers or other identified and legally permitted persons are allowed to make vendor bids at auction on behalf of the vendor.
Bidding rules and regulations
The rules on bidding at auction vary between states and territories. Check out your state or territory for the current status:
Australian Capital Territory: You must register as a bidder, giving the real estate agent at the auction your name and address and showing proof of your identity. You will be given a bidder’s number. Dummy bidding is illegal. The agent can make one vendor bid on behalf of the vendor so long as the actual bid is clearly identified as such.
New South Wales: If you’re a buyer at auction, you must register with the agent before you bid, showing proof of identity and address. The agent will record your details in the Bidders Record and will give you a bidder’s number. Dummy bidding is illegal. One vendor bid is allowed and it must be clearly identified by the auctioneer as such.
Northern Territory: Vendor bids are permitted. No restriction on the number of vendor bids applies so long as the auctioneer announces the vendor bid before or while the bid is being made. Bidders aren’t required to register and dummy bids are not specifically prohibited, but an auctioneer must not engage in conduct that is fraudulent or misleading.
Queensland: If you want to bid, you need to register with the auctioneer before the auction starts. The auctioneer will give you a unique identifier, such as a numbered paddle. Vendor bids are allowed to be accepted up to the reserve price, so long as they’re announced by the auctioneer in the conditions of sale at the beginning of the auction. It is illegal for auctioneers to engage in dummy bidding or take false bids after the property is on the market.
South Australia: You must register as a bidder by providing the agent conducting the auction with your details and proof of your identity. If someone else bids on your behalf, you need to provide proof of your identity plus a signed document authorising them to bid on your behalf. The vendor can make three bids up to the reserve price, but the auctioneer must announce each as such. Dummy bidding is illegal.
Tasmania: Vendor bidding is allowed up to the reserve price as long the auctioneer clearly states to the people assembled for the auction that the owner or a person acting for the owner may bid for the property. Each vendor bid must be announced as such. Dummy bidding is illegal. Bidders don’t need to register.
Victoria: Vendors are allowed to make bids up to the reserve price but this must be made clear to other bidders at the start of the auction. Bidders don’t need to register. Dummy bidding is illegal in Victoria.
Western Australia: Vendor bidding is permitted. The auction form must specify whether the seller is to be making bids and how many. Bidders don’t need to register. Dummy bidding isn’t outlawed, but the Real Estate Institute of Western Australia’s code of conduct bans the practice of agents pitting dummy bidders against genuine home buyers.
In many states and territories you have to register with the auctioneer before you are able to bid. But don’t worry if you change your mind during the auction about bidding for the property — just because you register doesn’t mean you have to bid.
On the market
A pause in the bidding can create an opportunity for the auctioneer to consult with the vendor to find out whether his reserve price has been reached. This may be the first time the auctioneer discovers what the vendor is really prepared to sell the property for. If the reserve has been reached, the agent emerges to tell the crowd, with a grandiloquent flourish, that the property is now on the market or will be sold today. This means that the property definitely is to be sold to the highest bidder from here on. This moment is also the signal for some potential buyers to enter the bidding.
Passed in
What happens if the vendor doesn’t get her reserve price? In that case, the property goes back to the crowd for further bidding and if the price still doesn’t reach the vendor’s reserve, the property is announced as being passed in. At this point in the auction process, the last bidder can go in to negotiate directly with the vendor in the hope that a price can be struck that is acceptable to both. If after those negotiations the vendor still isn’t happy, she can either take the property off the market or put it out to sale by negotiation. Such properties are often re-advertised as For Sale.
Tactics to beat the auctioneers at their own game
An auction can be a very foreign environment, especially if you’re wanting to purchase your first home at your first auction. To give you a sense of how a property auction works and to build your confidence, visit a couple of auctions — even if you don’t plan to bid for the property. The more auctions you attend, the more confident you’re going to feel when your turn comes to bid for a property.
Tactically speaking
After having a building inspection done on a property that friends of mine were keen on, the subsequent report showed that the house was lined with asbestos. After the auctioneer had given his spiel, they put up their hands and politely asked if the auctioneer would inform the crowd about the asbestos problem. The new information unnerved both the auctioneer and some potential bidders who hadn’t done their research. Our friends were able to buy the house at a price they felt took account of the extra expense to remove the asbestos safely.
You can improve your chances of success at an auction and enjoy the process. Here’s how:
Research the property and local market prices so you know exactly how much the property is worth.
Read the contract before you attend the auction so you’re fully aware of any issues or problems with the property. (For more information about contracts, read Chapter 13.)
Take someone with you who has no emotional interest in the property and who can remind you of your bidding limit.
Stand at the side of the auction where you can see the other participants.
Remain calm and unemotional during the bidding — especially as you come close to your bidding limit — to avoid sending a signal to other buyers that you’ve nearly run out of money.
Make an early high bid that can knock the confidence of the other bidders who presume that you have money aplenty and that they can’t compete. (Note: Such a bid can push the price higher than necessary.)
Wait until near the end of the bidding to put in a final killer-punch high bid, which can have a similar effect.
Make bids in smaller increments — say, $2,000 rather than the $5,000 the auctioneer wants — which can suggest to the crowd that the bidding is nearing its peak, and can slow down the tempo of the auction as a result.
Stop when you get to your bidding limit and/or the limit of what you believe the property is worth.
Stay away from the auction if you don’t feel confident that you can bid unemotionally. Ask a trusted friend or family member to bid for you. You can also engage a buyers’ agent to bid on your behalf (refer to Chapter 4).
Make sure you have your chequebook with you to cover the 10 per cent deposit if yours is the winning bid.
You make the winning bid — now what?
At the final successful bid the auctioneer announces: ‘Going once, twice, three times . . . SOLD!’
If you’re the final bidder, you need to pick yourself up off the floor and make your way to the vendor, where you sign the contract of sale and hand over your cheque of 10 per cent of the purchase price, or whatever figure you’re able to negotiate. Until you sign your name, you don’t have a legally binding contract between you and the vendor, so the faster you can get on and leave your autograph, the better.
While you’re talking to the vendor, you may also want to try to negotiate
other aspects of the purchase. Would you prefer a longer or shorter settlement period, for instance? In some states, 90 days may be the norm, but the vendor may have already bought another property and appreciate being able to move within a month or so. You may also negotiate whether certain items — say, floor coverings or even furniture — can be included in the price.
Making an Offer after a Property Is Passed In
If a property is passed in, meaning that the final bid was below what the vendor was prepared to sell at, the person who makes the final bid may be invited to go to the vendor to negotiate a price that is closer to the vendor’s reserve price. If that person is you, you have no obligation to agree to any price (even the price of your final bid), in which case the property goes back on the market or is withdrawn from sale.
But if just a couple of thousand dollars brings you to the asking price, and this amount is still within your budget, you may well decide that the amount is worth the negotiation. This moment, too, may be the point to ask if the outdoor entertainment suite you’ve so admired can be included with the price or to lock in a very long settlement period so you have plenty of time to sell your own property.
If you’re not the final bidder, but you want to be part of the negotiations, you can ask the real estate agent to include you in the negotiations. In that case, the sale becomes a private treaty sale (see Chapter 12) and all bidders are asked to put in their best offers to see which offer is closest to the reserve price.
If you buy a property on the day of an auction as a result of negotiation after it has been passed in, you don’t get the benefit of the cooling-off period that applies in all states and territories except Western Australia to purchases made through a private treaty sale. If you want more time to inspect the property, waiting until the next day to put in your offer may be worthwhile. That way you have a few days to make the necessary checks. (Note: In Victoria, you don’t get a cooling-off period if you buy three days before or three days after an auction.)
Making a Pre-Auction Offer
You may wonder if making an offer on a property before it goes to auction gives you an advantage of any kind. If the vendors are nervous about the prospect of the auction or are anxious that the auction may not be successful, you can be in luck. But, ordinarily, vendors who go to the effort and expense of advertising and organising an auction are keen to go through with it.
If you decide to make a pre-auction offer, and you make a good offer, the vendors may presume that the planned auction is going to flush out even higher offers. Or they may accept your offer, simply because it is higher than their original expectations. In either case, you would have been better off attending the auction and getting the property at a lower price.
If you’re keen to purchase a property pre-auction, make the offer in writing, including your offer price, the date, your name and a deadline by which you want a response to your offer. And word the note so that the agent is clear that if you don’t receive a response, you’re not going to attend the auction.
Be aware that if you make an offer by signing a contract of sale and the vendor also signs the contract, you have entered into a legally binding contract to buy the property. (For more information on contracts of sale see Chapter 13.)
In Victoria, contract notes — a short form of the final contract containing basic information needed for the transaction, such as the price and amount of deposit — have traditionally been used to formalise an offer. Although these contract notes were legally binding, many buyers and sellers may have been under the impression that they weren’t. Contract notes have now been phased out, to be replaced by the full contract document; however, some agents may still be using them.
Signing (After Reading) the Contract
Hopefully, you have time to carefully study the contract before you attend the auction so, when you’re successful at the auction, you’re not going to find any nasty surprises in it. The contract includes details of the terms and the conditions of the sale. It includes the amount of deposit required, the settlement date and any chattels that are included with the property, such as carpets, light fittings and dishwasher. The contract is a legally binding document, so you need to fully understand your obligations before signing.
You don’t get the benefit of a cooling-off period when you sign a contract of sale at an auction. This means you can’t change your mind — because you decide the property isn’t quite what you want, because you haven’t got the finance, or because you find something in the contract you’re not happy with. You’re expected to closely read the contract before you attend the auction.
You can find more information about the contract of sale and the settlement process in Chapter 13.
Chapter 12
Making an Offer: Buying Through a Private Treaty Sale
In This Chapter
Understanding how a private treaty sale works
Considering other home-selling options
Most homes in Australia are bought and sold by private treaty sale (around 75 per cent according to the Real Estate Institute of Australia). This type of sale means that the vendor (seller) decides on the price at which the property is marketed for sale. The purchaser (buyer) either agrees to the price or begins negotiations by offering a lower amount.
This chapter looks at some of the differences between private treaty sales and auctions (refer to Chapter 11 for all about buying at auction). I explain the ways in which you can successfully negotiate a private treaty sale. I also look at a couple of the variations on private treaty sales.
Checking Out a Private Treaty Sale
Buying or selling a property by private treaty lends itself to negotiation. The vendor is looking for the highest possible price and, in many cases, a private treaty sale can work a bit like a slow-motion auction to get to that price. That is, offers (bids) come in and move back and forth between the vendor and purchaser. This can take place over a matter of hours, and sometimes days, weeks or even months, rather than in a one half-hour auction session with other bidders in front of the property.
You make an offer via the selling agent handling the sale. When the vendor is happy with an offer price, she asks the agent to notify the buyer of her acceptance. At that point, contracts are signed and exchanged.
In the case of a private sale (where a vendor doesn’t use a selling agent — see the sidebar ‘Understanding the private lingo’ later in this chapter), you negotiate directly with the vendor.
The process of a private treaty sale can seem more straightforward and less stressful than purchasing your home at an auction because
You’re not forced into making a decision in a brief, pressure-cooker situation.
You can make an offer at your leisure.
You decide on a price that you think is reasonable.
Sometimes, though — for example, when buyers are competing for a particular property — a private treaty sale requires more skill and negotiation tactics than an auction.
Negotiating a price
With a private treaty sale, the list price (advertised price) is often the top price that the vendor hopes for (whereas with a sale by auction, the listed price is generally the starting point). You can start negotiations by offering a price lower than the advertised price and, during negotiations, you can move your offer upwards as the vendor moves his price down towards a point you’re both happy with.
A straightforward negotiation can work this way:
1. You offer a lower price than you’re actually prepared to pay for the property.
For instance, the property is advertised at $470,000. You’re actually prepared to pay $450,000 for the property, but you start by offering $430,000.
2. The vendor comes back with a counteroffer.
In this example, perhaps the vender offers to sell for $460,000.
3. You make another offer and the vendor makes another counteroffer.
You offer $440,000, but the vendor suggests $455,000.
4. You make ano
ther offer and the vendor comes down further.