Key risks for buyers when purchasing a property in an Auction
26 May 2023
Auctions are a great approach for sellers to get the maximum sale price for their property. The competitive nature of an auction can cause people to bid higher than they originally wanted to, often leading to a much higher sale price. Whilst it’s great for the sellers, buyers need to be careful as there are some inherent risks for buyers while buying a property in an auction :
- No cooling-off period: Unlike private sales, auctions do not have a cooling-off period, which means once the hammer falls, the sale is final and the buyer is legally bound to purchase the property.
- Hidden defects: The property may have hidden defects or issues that are not immediately apparent, such as structural problems, pest infestations, or major repairs needed. This can be a significant financial burden for the buyer if the issues are not discovered until after the auction.
- Overpaying: Auctions can be fast-paced and competitive, and buyers may get caught up in the excitement and overpay for a property. It’s important to have a clear idea of the property’s value and stick to your budget to avoid overpaying.
- Limited inspection time: Buyers may have limited time to inspect the property before the auction, and may not have the opportunity to fully assess the condition of the property.
- Lost deposit: If a buyer fails to meet the conditions of the sale, they may lose their deposit. This includes not having the required finances or failing to complete the sale in the agreed upon timeframe.
- Financing contingency: If the buyer is unable to secure financing or the lender’s appraisal comes in lower than the purchase price, the buyer may lose the deposit and the opportunity to purchase the property.
It’s important to be aware of these risks and to take steps to mitigate them, such as thoroughly researching the property and getting pre-approval for financing, so that buyers can make a more informed decision and potentially avoid some of these risks.