In recent years, auctions have become a popular option to sell property. From the seller’s and real estate agent’s perspective, this makes perfect sense. It increases the feeling of competition among buyers, which in turn often drives the price up. For buyers, however, it can be a fraught process. It’s all too easy to get swept up in the process and end up committing to a price that you aren’t comfortable with. Not only that, but there are some legal complexities that exist when buying at auction.
As a buyer, the best thing you can do is go into an auction with a sound understanding of the process, and what your rights and obligations are as a prospective buyer. This article will walk you through the basics of what you need to know, and why you should get the right legal team behind you to help.
Queensland property auction legal complexities: Auctions vs Private Sales
No cooling-off period
For buyers, one of the key legal differences between a private sale and an auction sale is the cooling-off period or lack thereof. While private sales operate with a standard 5-day cooling-off period in most sales, this is not the case at auction. With few exceptions, there is no cooling-off period at auction Queensland. If your bid wins and the gavel comes down, you are legally obligated to go through with the purchase.
This means that buyers would be very wise to prepare thoroughly before an auction. Getting your finance locked in and ensuring that you can pay the deposit as well as any additional legal costs is important to a successful auction purchase. A great Queensland conveyancer can help ensure that you are aware of the process and prepared for any additional costs.
Having your finance in order before the auction will not only be critical for meeting your obligations if you win, but it will also help keep you in check when the emotions of the auction process are running high. If you know exactly how much money you have to play with then you (hopefully) won’t be tempted to go over that number. It might lead to short-term disappointment if the auction price climbs out of your price range, but it will save you a lot of potential legal problems down the track.
Unconditional contracts
During a private sale, you will often get the opportunity to negotiate a conditional contract. This means that you are entering into the agreement pending certain conditions, such as the outcome of a building and pest inspection. This allows buyers to enter into a contract with the opportunity to back out in certain conditions.
Conversely, an unconditional contract, which is the default contract at auction, means that no matter what circumstances come up, you are agreeing to go through with the purchase. There are no fail-safes built into the contract that allow you to back out.
From a financial perspective, this represents a huge risk if you have not locked in your funding. Lack of ability to complete the purchase may cause you to lose your deposit to the seller. It also means that if you find any issues with the home during the sale period, you have no course of action available to you other than to proceed with the purchase.
Pre-Auction Inspections
As you can see, auctions require bidders to be extremely sure of their desire and intention to move forward with a sale before they bid, because the outcome of an auction is more stringently legally binding than a private sale. It is therefore the buyer’s responsibility to do due diligence before going to auction.
You can choose to conduct a building and pest inspection before the auction since you will not be able to withdraw your offer based on the results of the inspection afterwards. A quality inspector will provide a comprehensive report on everything from the building to the roof space and even the timber fences. These inspections can get costly, so if you are looking at several homes, it will get expensive. You are also not able to use the information you gain from the inspection to negotiate a better price, only to decide if you should bid or not.
The location of the home and competition in the area, as well as existing legal documentation on the property, can help inform your decision on whether to conduct an inspection. The right conveyancing professional can help you ensure you make the right decision for each property.
If your potential home is part of a strata scheme (often apartments or units on a shared block), then you may also choose to conduct a strata inspection. This will give you insight into the financial health of the strata that you are buying into, as well as any pending building works, special levies, works history, and recent expenses. Your conveyancer will be able to facilitate the collection of this report, as well as help you uncover any red flags to consider before going to auction.
Disclosure Obligations
The laws for conducting a Queensland property auction are strict for real estate agents and sellers, and these include disclosure agreements. Things like pool safety certificates, encumbrances, and environmental concerns must be disclosed upfront.
A suite of changes to Queensland Property Laws in 2024 have recently been introduced that ensure more transparency for buyers, so you will have access to large amounts of legal disclosure before the auction. As helpful as this information is, it can also be overwhelming for prospective buyers. A local Queensland conveyancing lawyer is invaluable during this process to help you navigate complex legal information and ensure that you stay informed throughout.
Auction property legal advice: Steps to Protect Yourself
When buying at auction in Queensland, robust preparation is key. You should engage a Queensland conveyancing expert early on in this process to ensure that you are entering into an auction with everything you need to be successful.
Because auction contracts are generally unconditional, you will not have the opportunity to renege your offer after the auction. You will, however, have the opportunity to conduct a pre-auction contract review, which Queensland conveyancing solicitors can assist with. At Bush to Beach Legal, we offer free property contract review with our fixed-fee Queensland conveyancing service, to help ensure you are well-informed throughout the process of buying your home.
You will also need to do due diligence before the auction, like checking the property’s status regarding encumbrances, easements, and zoning issues. Working with the best conveyancer in Queensland can help with these checks to ensure you’re fully prepared before bidding.
If you are bidding without securing financing beforehand, you are opening up the possibility that you have to pay the deposit after the auction without being able to buy the property. Getting your financing in place is critical, as is understanding your deposit requirements. Get clear on what your deposit amount will be, and what the consequences are if you don’t have the deposit in full right away.
Post-Auction Legal Obligations
If you are the winning bidder at the auction, you will need to sign the contract straight away. There are significant financial consequences if you can’t or don’t then complete the settlement. These might include paying the cost of re-auctioning the property or paying the difference between your bid and the next highest at the auction.
You are at that stage under unconditional contract with the buyer, with no ability to back out. This is why conducting due diligence and inspections before the auction is often recommended.
Staying in Control During the Auction
When bidding at an auction, you need a strategy for keeping your emotions in check. The fast-paced and competitive atmosphere is designed to lead to impulsive decisions, but being rash or going beyond your budget during the Queensland auction property process can cost you significantly. Keep the following in mind when you are heading into an auction:
- Set a Strict Budget: Before the auction, having your financing in place will allow you to determine your maximum bid. Having a clear financial limit helps curb emotional bidding.
- Stay Informed: Do your homework on the property and the market. Knowledge reduces uncertainty, making it easier to stay rational during bidding. Accessing conveyancing services Queensland early in the process will ensure that you have access to the information you need the day of.
- Bring a Support Person: Having someone you trust and who knows your budget and conditions with you can provide support and accountability. Make sure they are someone who can remain rational though, not someone who’s likely to egg you on.
- Take Breaks: If you feel overwhelmed or out of control, step out briefly to collect your thoughts. It may not seem like this in the moment, but it’s far better to lose the auction than to dig your own financial grave because you succumbed to the pressure of the auction.
Conclusion: Navigating Auction Purchases with Legal Confidence
Queensland auction property laws and conventions mean that, as a buyer, it is largely up to you to ensure you go into the process with your eyes open. The stakes are high, and making a mistake can be incredibly costly.
Having a legal professional in your corner throughout this process is invaluable to give you clarity on your obligations, and the information that you need to access to make an informed choice. Choosing an expert conveyancer for auction purchases will give you piece of mind, and allow for a smooth and transparent auction process. At Bush to Beach Legal, we are Queensland locals experienced in helping you navigate the legal risks of buying property at auction.
