Selling properties at public auction has become incredibly fashionable of late and can benefit purchasers and vendors.
The statutory cooling-off provisions typically available to purchasers do not apply to contracts executed by a purchaser within 3 clear business days before or after a publicly advertised auction.
However, the very nature of an auction can create inherent risks for a purchaser and it is important for purchasers to consider the following:
Auction contracts are, invariably, unconditional as to finance. That is, if you buy at auction, you will be expected to have your finance in order and it will not be open to you to terminate the contract on the basis of not having finance available by settlement time. A purchaser who is unable to settle will be exposed to the risk of forfeiting their deposit, incurring penalty interest and being sued for damages.
A purchaser is, typically, unable to negotiate the terms of the contract. The auction documents are usually displayed prior to the auction and a bid is deemed to be made on the expectation that the purchaser will then execute a contract in the form previously made available. Lawyers for vendors can sometimes include harsh or ‘pro-vendor’ clauses which, in the normal course of events, would not be considered acceptable.
Auctions can work in favour of vendors as they can create urgency. Urgency, however, can prevent an unsuspecting purchaser from undertaking thorough due diligence which would usually be considered reasonable prior to entering any transaction for a large sum of money. Skimming over a vendor statement 30 minutes prior to an auction does not, in our view, constitute a thorough due diligence process.
Purchasers can usually obtain an electronic copy of the contracts prior to the auction. Our office is then able to review and advise purchasers on the contents of the contract.
If you are considering bidding at an auction and require advice, contact our office on 03 9450 9400 to speak with an experienced professional.