Key risks for buyers when purchasing a property in an Auction
26 May 2023
Auctions are a great approach for sellers to fully maximize their selling price for their property. The competitive nature of an auction can lead to people to bid higher then they initially wanted to, which results in a higher selling price. This is seen to be great for sellers, the buyers need to be careful as there are risks involved when purchasing property through an auction.
- The missing cooling-off period: Unlike private sales, auctions do not contain a cooling-off period, which means that once the winning bid is announced, the sale is final and the buyer is legally bound to purchase the property.
- Hidden defects: The property can be seen to have structural problems, pest infestations, or major repairs required. This can result in a significant burden for the buyer if the issues are not discovered before the auction takes place.
- Overpaying: Auctions are a fast paced and highly competitive environment, and buyers can be seen to get caught up in the overall excitement and end up overpaying for the property. It is important to have a clear idea pf the property value set and stick to the budget to avoid any overpaying.
- Limited inspection time: Buyers may have limited time to inspect the property prior to the auction, and may not be given a clear chance to fully assess the condition of the property.
- Lost deposit: If a buyer is unable to meet the set conditions of the sale, they can also possibly lose their deposit. This can include not having the full required finances or failing to complete the sale in the timeframe that was agreed upon.
- Financing Contingency: If the buyer is not able to secure the financing required or the lender appraisal comes in lower than the purchase price, the buyer may lose the deposit and overall opportunity to purchase the property.
It is important to be informed of the risks present and to take the necessary precautions to help mitigate them, such as thorough research of the property and getting pre-approval for the financing, so that buyers can make a more informed decision and potentially avoid some of these risks.
