6 Things You Need to Know About Settlement Terms at Auction When Buying Property
Have you wondered about settlement terms at auction within the context of buying or selling real estate? You might be wondering because you’re about to attend an auction with the intention of bidding on a new home.
Whatever your circumstances, wondering about settlement terms at auction is probably up there in your thoughts. After all, settlement is when you or the bank pays for a property, and a transfer of ownership occurs.
Settlement terms at auction are tricky, and specific laws, rules and regulations govern settlements. However, lucky for you, we will unpack this topic in detail in this helpful article.
We’ll share six things you need to know about settlement terms at auction.
To begin, we’ll explain an auction and how it works. Then, we’ll get into how settlement terms work during an auction. By the end of this article, you’ll be an expert. So, let’s get into it.
Settlement Terms at Auction – How do Auctions Work?
An auction is the term us when someone places an asset for sale to the highest bidder. It is a competitive process whereby bidders keep bidding until everyone, bar one bidder, has tapped out of the process. That lucky person wins the auction and has to purchase the asset.
It also means in most cases, they are about to get into a large amount of debt from a lender, as most home buyers finance the purchase of a home.
Who Conducts an Auction?
An auctioneer facilitates the auction. This is usually a real estate agent working for the agency with which the seller lists their home. A potential buyer will need to register with the auctioneer before the auction.
They will give the buyer a bidder’s number, and then they will auction the property by taking bids from amongst the bidders.
The seller will set a reserve price, which is the absolute minimum they will accept for the property. If the reserve price is reached, the property is declared “on the market” and sold to the highest bidder.
If the reserve price is not reached, the home is “passed in”. In this case, the highest bidder and the seller can enter into a private negotiation for the home.
Settlement Terms at Auction
Now let’s explain how settlement terms at auction work. We’ll begin by explaining what settlement is.
What is Settlement?
Settlement is the term used to describe when the balance of the purchase price is paid to the vendor and when the title is transferred to the buyer (if they’ve purchased the house outright) or is held by the lender (if purchased with a mortgage).
It usually occurs over some time, between 30-90 days in most cases.
Settlement Terms at Auction – Paying a Deposit
After the bidding is complete and a winner is declared, the successful bidder must put down an immediate deposit – usually around 10% of the purchase price, sometimes less, sometimes more. The buyer usually pays this by cheque or electronic funds transfer.
Once that occurs, there is usually a settlement period, after which the buyer or their bank pas the balance – after which the buyer has a mortgage to pay off slowly over time.
Occasionally, a buyer may request a partial deposit of less than 10%. It is up to the vendor to agree to this, which will require an amendment to the contract. The vendor does not have to agree to this.
Contract of Sale
Once the buyer makes their winning bid and is parallel to paying the deposit, a conveyancer or lawyer will facilitate a binding contract between the parties.
Both the buyer and the seller must sign this. It is a binding document that protects both parties during the transaction and settlement process.
If you buy a home at auction, there is no legally required cooling-off period. For this reason, a potential buyer should arrange all pest and building inspections before bidding.
You can’t make the sale contract subject to other conditions, such as being subject to finance or an inspection. As we mentioned above, doing your due diligence before bidding is essential.
Nothing legally binding them to the sale until both parties have signed the contract.
Once this has happened, if either party backs out, the other can take significant legal action against the other to enforce the sale or demand extensive damages.
Finalising the Sale – Settlement Terms at Auction
The settlement date is when both parties finalise the sale. This occurs once the title to the home and transfer documents have been exchanged, usually on behalf of the vendor and buyers by their lawyer or conveyance.
The lender will then transfer the funds to the seller. If the buyer can afford the property outright, they will initiate the funds transfer via their bank.
Once the settlement occurs, the buyer can then legally take possession of the home.
They will pick up the keys from the selling agent and can begin to move in. Or, if it is an investment property, they can then begin the process of listing it on the rental market.
On the other side of the fence, the seller has received a lot of money, which they usually use to pay off their own mortgage, move to another home or downsize – sometimes all three.
This helpful article has explained how auctions work and precisely how settlement terms at auction work when buying a townhouse. We’ve covered the auction process, bidding, and what occurs after the winning bid.
You’ve learnt about paying a deposit, the contract of sale, and how settlement occurs after these events. By now, you’re an expert at all things auction settlement and should be ready to buy or sell at an auction