When purchasing a property, buyers usually have two options: participating in a public auction or negotiating a private sale.
Both options have their pros and cons. We explain the differences between auction and a private sale in conveyancing for buyers in Victoria and New South Wales specifically.
Auction sales are a popular method of selling a property in Australia, particularly in Victoria and New South Wales. Auctions are typically held on a set date and time, and potential buyers must register to bid. On the day of the auction, the property is presented, and bidding begins. The highest bidder is the successful purchaser, and a contract of sale is signed at the auction.
One significant advantage of going to auction is that the sale is final, and the contract of sale is unconditional. This means that you are legally bound to purchase the property. Purchasers should note that if you are the successful bidder at an auction, you cannot negotiate any conditions or changes to the contract of sale and the deposit monies are to be paid immediately as well.
Therefore, it is vital to thoroughly inspect the property before the auction and have a conveyancing lawyer review the contract before bidding and have your finance pre-approved.
It is important to understand certain terms like:
Vendor Bids, Property is on the market, Auctioneer, Reserve Price, Passed in….read more here….
Another advantage of auctions is that it is a transparent process. All bidders can see the other bids, which makes it an open process. The flip side is that the auction setting creates a competitive environment and create a sense of urgency, which can push the price higher. Auctions can also create a stressful environment for the buyer and if you are unsuccessful, it can be very disappointing.
The downside of selling via auction is the possibility that people may not bid on your property, which can be disappointing. However, the good news is that most properties that do not sell at auction often find buyers soon after.
One potential disadvantage of buying at auction is that there is no cooling-off period. A cooling-off period is a period of time during which a buyer can change their mind and have the right to withdraw from the sale. This right is waived and does not apply to auction sales.
Once you sign the contract of sale, you are legally bound to purchase the property at the sale price. Purchasers are well advised to have a current finance approval in place and ensure are happy with the condition of the property and contract terms.
A private sale is when a property is sold directly by the seller without going to auction or after auction. This is a more traditional method of selling a property in Australia. In a private sale, buyers can negotiate the purchase price, settlement period, and any other conditions of the sale.
The process is less formal and intense than an auction. Property purchasers can make an offer subject to finance, building and pest inspections, and other conditions such as due diligence periods.
One significant advantage of a private sale is that buyers have more time to inspect the property thoroughly and seek legal advice before signing a contract of sale. Additionally, buyers have more time to negotiate the purchase when buying via a private sale. There is less transparency as the real estate agent, who acts for the vendor, is liaising between the purchaser and the vendor. The purchaser has less visibility and understanding of who else is interested and what their offer is.
During the negotiation stage it is important to engage the services of a conveyancer or lawyer to review the contract of sale before signing. They can recommend special conditions to include in the contract and advise purchasers of any issues with the property.
In a private sale there is a cooling-off period for most properties, conditions do apply though so be sure to know the terms. In Victoria, the cooling-off period is three business days, while in New South Wales, it is five business days. During this period, the buyer can change their mind and terminate the contract of sale. However, it is important to note if a buyer “cools off”, they will forfeit a percentage of the deposit paid.
One potential disadvantage of a private sale is that it is a more subjective process. The seller may have a specific price in mind, and negotiations are longer than in an auction.
Regardless of whether you are buying at auction or a private sale, there are issues that purchasers should be aware of. These include:
Property Planning information: If you are buying a property you should be familiar with the plan and planning information regarding the property. This is particularly important if you wish to renovate or build a new home on the property.
Building and pest inspections: It is important to conduct a building and pest inspection to ensure that the property is structurally sound and free from pests such as termites.
Contract of sale: It is essential to engage the services of a conveyancer or lawyer to review the contract of sale before signing. They can identify any potential issues or clauses that may be detrimental to the buyer.
Title searches: Before purchasing a property, it is crucial to conduct a title search to ensure that the seller has the legal right to sell the property. A title search will also reveal any encumbrances or restrictions on the property.
Finance: Buyers must have their finances in order before entering into a contract of sale. If a buyer is unable to obtain finance, they may be in breach of the contract of sale, and the seller may be entitled to terminate the contract and retain the deposit.
Stamp duty: Buyers must pay stamp duty on the purchase of a property. The amount of stamp duty payable varies depending on the value of the property and the state in which it is located. You will need to pay other taxes potentially as well such as registration fees or land tax in some instances.
Buying a property is a significant investment, and it is essential to consider your options before making a decision.
Going to auction v a private sale both have their advantages and disadvantages, and it is crucial to understand these differences when buying a property. Some clients cannot buy at auction as they need a finance approval before they know the bank will lend them the money. It is important to be patient, understand the process and have expert guidance to help you.
Regardless of the method of sale, it is important to engage the services of a conveyancer or property lawyer to ensure that the legal issues are dealt with properly. By taking the time to conduct thorough inspections and getting expert legal advice on your conveyance, buyers can ensure that they are making an informed decision and will avoid many of the common pitfalls.
Disclaimer: This article has been prepared for general information purposes and may not apply to your situation. This information should not be relied upon for legal, tax or accounting advice. Your individual circumstances will alter any legal advice given. The views expressed may not reflect the opinions, views or values of Conveyancing Depot and belong solely to the author of the content. © Conveyancing Depot Pty Ltd.
If you require legal advice specific to your situation please speak to one of our team members today.
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