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Pros and Cons of Buying at Auction

Buying at auction

Buying property at auction can be both exhilarating and nerve-wracking in equal measure, with a variety of risks and benefits associated, there are few among us who enjoy their fast pace and competitiveness.  

However, as an increasingly popular way to sell, many buyers find themselves with no choice but to face their auction fears head-on. 

While opportunities to ‘bag a bargain’ at auction may still exist in some areas, navigating and achieving success in the auction process and avoiding any hidden pitfalls requires a careful approach.

In this guide, we’ll take a deep dive into the pros and cons of buying a property at auction. Touching on key watchpoints and introducing an easier alternative to becoming a homeowner so you make the most informed decision for your situation. 

Let’s get right to it. 

 

The Pros Of Buying A House At Auction

Despite their competitive nature and at times stress-inducing atmosphere, there can be some benefits to buying via auction. 

These include: 

Transparency

Unlike sales made via private treaty, auctions offer far greater transparency regarding offers as buyers witness the entire bidding process firsthand. 

The highest bid is accepted and is final the moment the auctioneer’s gavel falls. This ensures clarity and fairness to buyers as they know exactly who they’re bidding against and the numbers involved. 

This transparency can instil confidence in buyers, letting them make more informed decisions on what a property is worth in terms of buyer interest and keeping them from unwittingly paying more than needed. 

Speed

Traditional sales methods typically involve lengthy negotiation periods that can be full of uncertainty. Auctions, in contrast, offer a swift purchasing process. 

At an auction, the winning bidder is usually required to sign the contract of sale and pay a non-refundable deposit immediately.

As they can facilitate a much faster acquisition of property, they often appeal to buyers seeking a quicker purchasing experience.  

Competitive Pricing

The competitive nature of auctions can deter some buyers from participating. But just as equally, it can stimulate competition among bidders, driving up the property’s price to its true market value. 

While this may seem like a negative rather than a positive, buyers also have the chance to benefit from this dynamic. Potentially securing properties at fair market rates or even below market value if bidding is less intense.

Sale Certainty

Auctions typically mean that a buyer secures the property unconditionally – eliminating the risk of being gazumped. 

This means a seller cannot accept a higher offer from another buyer after already agreeing to a lower one made by you – something that can occur with private treaty sales. 

This certainty provides valuable assurance to buyers that as the winning bidder on the day, barring any unforeseen circumstances, the property is guaranteed to be theirs.

Drives Decisiveness 

Auctions can evoke a sense of excitement and urgency among buyers, often causing them to act more decisively over fears of missing out. 

Competing against other buyers, bidding at an auction may also motivate an interested party to put forth their best offer confidently and with a greater chance of success than seen in private treaties. 

Should you buy a house at auction?

Cons Of Buying A House At Auction

Just as there are some benefits to buying at auction, there are an equal number of cons to consider before registering to bid. These include: 

Limited Due Diligence

Buyers participating in auctions may have limited time to conduct thorough due diligence on the property. 

What this means is that there may be little or no time before the auction occurs to arrange building and pest reports, review zoning, title issues or similar. Being unconditional, this also means you cannot easily back out of the sale should you discover an issue after making the winning bid.  

This can make you quite vulnerable as a buyer when compared to private treaty sales which provide ample time to complete these checks and provisions for resolving any issues that are discovered.  

Competition

Having to compete against other bidders can quickly drive up prices, while this is great for the vendor, this could see you overpaying for a property in the heat of the moment. 

Additionally, as bidding at auctions can escalate very quickly, especially for highly desirable properties, there is limited time to make decisions. This intensity may cause you to panic bid or cloud your judgement, making it much harder to achieve your hoped-for outcome.  

Non-refundable Deposit

A non-refundable deposit is usually required to be paid by the winning bidder immediately after the auction. The amount to be paid ranges from 5% to 10% of the purchase price, making for a considerable sum to hand over. 

Representing a significant financial commitment, this non-refundable deposit effectively binds buyers to the transaction. This has the potential to leave them feeling trapped and unable to back out if they encounter issues during the settlement process. 

In this way, an auction can pose a significant financial risk for buyers. Any unforeseen problems with the property or issues in securing financing could see you lose your deposit and face severe financial consequences.  

Emotional Stress

If you’re someone that is easily anxious or stressed, the adrenaline-fueled atmosphere of auctions can be incredibly overwhelming. This is further heightened when there is serious competition present and there is a real risk of missing out on their desired property. 

The emotional element of bidding at an auction can easily overshadow rational thinking. You’re expected to make split-second decisions, all while under the scrutiny of other bidders and the auctioneer.  

An inability to navigate this well has seen many winning bidders experiencing buyer’s remorse or dissatisfaction with the outcome. 

Vendor Bias

It’s wise to remember that all auctions are orchestrated events geared to benefit sellers and their agents. While not always the case, a vendor and their agent may:

  • Set unrealistic reserve prices 
  • Disclose limited information about the property
  • Use marketing strategies designed to inflate its perceived value
  • Employ tactics to manipulate favourable bidding outcomes

All of this can create a skewed impression about the property and its worth, undermining the fairness of the auction process for potential buyers. 

 

Avoid Auction Pitfalls With Stop Renting Perth 

While it’s certainly true that there are some benefits to buying a house at auction, this can be heavily outweighed by the potential risks involved. 

Even when buying through private treaty, it can be easy to overpay for a property or find yourself settling for something less than hoped for simply to get a foot on the property ladder. 

At Stop Renting Perth, we offer an ideal solution to all these concerns through our competitively priced house and land packages. With us, there is no need to battle it out against other buyers, no immediate non-refundable deposits to pay, no risk of ending up with a property riddled with issues and more. 

Avoid auction stress and build instead

With over 70 home designs to choose from, land available in suburbs all over Perth and a proven roadmap for success, we provide our clients with the means to stop renting and start owning sooner than expected. 

All without the stress and compromise so often associated with buying an established home. 

To learn more, book your obligation-free consultation call today.

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