1 Easy Tactic Buying A Home At Auction In NZ
So now that you’ve got a pre approval in place, now it’s time to go house hunting. You then find that most of the homes around the major cities in NZ are selling by Auction. So, in this blog, I’ll share 1 and many tactics to buying a home at auction in NZ.
I’ll also give you a quick step by step guide with what you should look at when purchasing a property at auction.
Going through the process of getting finance can already be stressful, wait until you are in a superheated market and there is a lot of people going to open homes, then realising that it’s going to auction a couple of weeks. Realising that the property you really like is now between many, many parties that are wanting the same home!
If you’re going to auction for the first time it can be quite an experience, let me explain to you how I felt, first usually you’ll go with your real estate agent, or by yourself. As you walk into the theatre rooms, where everyone is standing and huge chatter you get butterflies as you think you’re going to buy this property.
If you haven’t already you’ll register your details there, you’ll then grab a piece of paper outline all the different properties that are at auction, you see your property is lot 4, meaning it’s 4th on the list.
As you listen in to the loud screams by the auctioneer and bidders frantically raising their hands to compete, then BANG, at the fall of the hammer one grateful homeowner or investor has bought a home or investment property. Other lots, could just get passed in, I’ll cover the terms in the coming sections, others that are really slow.
On average, each lot could last between 10-20 mins others could go for 25-35 mins, it really depends on the demand.
So, let me help you to reduce this stress and be a little prepared for these fun events, the first thing I personally think it is just a fun event and you have the opportunity to purchase a home. It’s just a small mindset to have when walking in and not walking out disappointed.
Buying a home at auction in NZ
The first step is to ensure you’ve got finance in place, so having a pre approval. This is the first step to ensure that you’ve got the funds to actually purchase and also have the confidence to go to auction. So, best to talk to your mortgage broker or adviser and seek the advice you need to make this happen. I’ve written an article on the pre approval process in new zealand here in 6 easy steps.
Buying a home at auction is actually quite a straightforward process, as long as you’ve got a great team behind to guide you then it will seem like it a breeze.
This team usually will involve the real estate agent and also your mortgage broker. They can give you extra tips on the way.
House hunting for a home and purchasing through auction
Once pre approved, then you can go house hunting for your new home or investment property, these can be way of attending open homes, have a buyers agent take you around, or look at purchasing it privately.
Step 1: House Hunting
Go house shopping! How do you find properties that are for sale and find a good deal?
You can find homes for sale with the following websites (in no particular order)
Or you can drive around and see what is around your area.
Or you can find a buyers agent, where they can look for the properties that you want and you give them the criteria. Shouldn’t cost, as they get a cut of a commission, but always ask first if they charge.
Step 2: Advise your mortgage broker + due diligence
You should also let your mortgage broker or adviser know as soon as possible as the banks still need final sign off on the property, the reason being is that the bank wants to know they are lending on acceptable security, not something that is defective such as a leaking building.
Once your mortgage is made aware of the property, you’ll need to met and close out any remaining conditions on your pre approval, because you need to have an unconditional offer before going to auction. What that means is that at the fall of the hammer, you’ve got to make a deposit and it’s binding, so you need to 100% certain that you can settle on the property, hence why it’s imperative that you close out the remaining conditions on your finance, and complete all your due diligence!
Step 3: Register your details with the real estate agent
When you’ve found a property you like after going to many open homes. Let the agent know that you’re interested in attending the auction, then he or she will register your details to bid at auction. They will then send you a WHOLE bunch of information and just flood you with the property details along with side information on the process of buying at auction in New Zealand.
Step 4: Attend the auction
Good luck, you’ll either be given a paddle or you’ll just raise your hand. At the auction, before it begins, the auctioneer will give a spiel about the property that is being auctioned.
Following that, someone may make an opening bid, if not the auctioneer will start off with a number and then it’s underway, this is when you raise your hand to put in a bid, and you continue up to the point that you can purchase up to.
The auctioneer will yell out where the current price is at, and notify if the property is now on the market, usually meaning that it is now reached its reserve.
Step 5a: should you win the auction
Hug your partner or if not just have the biggest GRIN because I am sure the adrenaline is still pumping through the body and congratulations you’ve just won the auction!
The agent will then get you to sign the sales and purchase agreement, following that you’ll need to make the deposit on the same day or within 24 hours, the deposit amount is usually 10% of the purchase price. The price that you won.
Once signed, then send the copy to your mortgage broker, so that he can start the process for negotiating cashback and interest rates.
Step 5b: should you not win at the auction
If you’re unsuccessful in purchasing a property at auction, repeat Step 1. There are other properties out there, just keep searching!
Settlement stage after winning the auction
Once your mortgage broker has come with the pricing information, which is the interest rate and cashback. You’ll then discuss how you want to structure your new mortgage.
Such as would you like to fix it all for 1 year, split the loan, have a revolving credit facility? These are all the questions you should be asking yourself and with your mortgage broker as they can help and identify ways that you can save money and at the same time reduce your mortgage quicker.
When the loan structure is confirmed, then the bank will issue loan documents to your solicitor where you’ll sign, following that the bank will also set up bank accounts ready for the settlement date.
Just before the settlement date, there is usually a pre settlement inspection which is with the real estate agent, to make sure that all things outline in the sales and purchase agreement is met. Such as a working stove or curtains, etc.
When the pre settlement inspection is satisfied, then you wait until settlement where you move into your new property and have a mortgage! Welcome to adult life haha
Auction terminology in New Zealand
What are all these auction terms and what do they mean?
- On the market - meaning the house is now meet reserve and ready to sell
- Reserve price - the lowest price that the vendor has set for it to be sold, if not met then it’s passed in
- Passed in - if not meeting the reserve price, the vendor has removed it off the market and no sale is concluded
- Hammer price - the last bidder price
- On-site auction - the auction is held at the property
- Pre-auction offer - a purchaser has put in a price that the vendor has accepted to move the auction forward.
- Phone bid - someone is bidding over the phone
- Lot - A number given to the property to determine the position on the list where it sells on the day
How to win at auction in New Zealand
There are a lot of strategies out there online, showing you what is the best strategy there is to help you win at an auction.
The first thing is I want to stress, before going into the auction, you should have an idea of what you are willing to pay for this property and then outline the MAXIMUM you are willing to bid up to. The question I always ask myself if when I go to an auction is what if I lost this property for an extra $1,000. Then that figure is your maximum bid price.
This is my easy tactic to buying a home at auction and how do you determine that well you’ll need to do your research first and understand what the market is selling for this type of property around the area.
Ok, now that you’ve got that out of the way, there is going to be many mind games out there and it’s just psychological warfare, where people are guessing where your limits are, especially the auctioneer, because it is their job to extract as much money and information out from you.
Go hard early or take it easy?
To be honest, I think it’s more of the style and also how the other bidders are feeling, you can gauge the room to decide with which strategy to go for. Going in hard will let the other bidders know that you are here to win this property at no matter the cost, this is the impression they’ll get. Or you can just let the other bidders battle it and you come in for the last bid as it may be at the top end of their bidding. This is sometimes known as the sniper.
Just have fun at the auction
The more you see this as a game and you’ll enjoy the process of bidding, you’ll feel more relax and people will see that you are confident too. It’s like a poker game really, showing too much emotion will show all your cards!
What is a Pre auction Offer in New Zealand
We are seeing a lot of these lately especially in the Auckland market as of FEB 2021. These types of properties are usually developable land, where developers are trying to get ahead of others before they see the property.
Doing this means that you are most likely to pay a premium upfront so that you don’t have to go into a bidding match with other bidders. I’d recommend this only if you’ve done superior research to justify the cost and you know what you’re doing. Because at times you could significantly pay too much for a property!
What happens if the property is passed in but I still want to purchase the property in NZ?
If the property you were interested in gets passed in, meaning that it did not meet the vendor’s reserve dollar amount! Then you’ll have to be the leading bid to have the right to negotiate with the vendor.
Summary - buying a home at auction in NZ
There you have it, hopefully, you got some good value out of this blog and I really enjoyed it as it reminded me of going to many auctions. It’s quite an experience, so good luck with it.
Remember is that you’ve done your research and you know your limits when bidding
If you want to get more information or want to get independent financial mortgage advice, then you can either book a time with me below or send me an email will@simplyfinance.co.nz
Good luck at the auction!