Auctions & Finance

Discussion in 'Property Finance' started by gw83, 3rd Jan, 2014.

  1. gw83

    gw83 Member

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    Just wondered what the process is in regards to finance with auctions?

    If you win an auction, what is a typical deposit required, and is this needed immediately?

    With the loan would it be the same as a non-auction sale - i.e. have finance pre-approved?

    Also what are typical settlement times in Sydney for auctions?

    Thanks.
     
  2. Shahin_Afarin

    Shahin_Afarin Finance Broker

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    Deposit is typically 10% unless you negotiate a lower amount prior to auction say 5%.

    The biggest issue with auctions at the moment is the some valuations are not coming back the same as the purchase price in which case you may need to use a lender that has a no valuation policy (if it fits the no valuation box).

    What do you mean by settlement times for auctions? Do you mean the purchase settlement or finance turnaround times?
     
  3. Rolf Latham

    Rolf Latham Member

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    Auction deposit is payable when you sign the contract.

    A deposit bond may be used instead of cash if the seller allows same, AND if it suits your circumstances.

    ta

    rolf
     
  4. The Y-man

    The Y-man Member

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    It needs to be potentially stronger than a pre-approval. It's the same as signing an unconditional contract (no finance get out clause), and we have heard of many cases where the pre-approval didn't count.

    The Y-man
     
  5. The Y-man

    The Y-man Member

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    I would imagine they would be same as non-auciton sales i.e. 30/60/90 days etc

    The Y-man
     
  6. Terry_w

    Terry_w Member

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    And, in case you don't realise this:

    With an auction you should request a copy of the contract well in advance. Go through it and then get your solicitor to go through it and try to negotiate any terms that favour the vendor and maybe add in a few in your favour.
     
  7. Aaron_C

    Aaron_C Finance Broker

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    Auction is unconditional no questions asked.
     
  8. allsuccess

    allsuccess Member

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    Y-man, could you please explain this further? How can someone get potentially stronger pre-approval?
     
  9. Peter_Tersteeg

    Peter_Tersteeg Finance broker/strategist

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    You can't. When you bid at an auction you are taking a certain amount of risk that you won't be able to get the finance.

    In most cases the risk is very small, I've only ever had one problem with a purchase at auction and we managed to solve it in the end. There is still a risk however. Make sure you speak with a broker or lender prior to the auction to assess the risk.
     
  10. Aaron_C

    Aaron_C Finance Broker

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    Only way to have stronger than a pre-approval is 100% cash.
     
  11. Brady

    Brady Big 4 Banker

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    Pre-Approval that has been assessed by a credit officer not just the computer.

    Also if reliant on other securities for the auction please make sure this is in place prior to auction. (No X-COLL)

    An example is if you have
    - Existing mortgage $300k value $500k
    - New property to be purchase $300k planning to borrow 80% so $240k
    - therefor you need extra ~$75k seperate loan using the existing property for security.

    Dont just expect that you will be able to get the extra $75k later once you have already won at auction and have a signed contract. Set this in place prior, so go to existing bank and request $75k, that way if a valaution is required on the $500k property you're prepared prior to auction. At the same time get a solid pre-approval in place for the $240k to purchase new property.

    Issue could be property valued at $450k so then LVR >80% could be issues or unexpected costs involved. You could look to get val at other bank etc...


    IT'S ALWAYS EASY TO GET MONEY WHEN YOU DON'T NEED IT :D
     
  12. perthguy

    perthguy Member

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    Except for a conditional auction. A group in Perth is doing auctions where the contract can be subject to finance. However, at one they specified that if finance fell through then the vendor would keep the deposit.
     
  13. allsuccess

    allsuccess Member

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    Thanks all for valuable replies.

    I'm re-financing first and have everything in LOC for the new purchase.

    Pre-approval will be done based on max purchasing power for the new purchase.

    But, as others have said, there is a risk that bank (new purchase) might reject the deal (say, based on valuation). Probably see if the bank can do a desk valuation of the potential property and never go over it. I'll chat to the broker as well.
     
  14. Marty McDonald

    Marty McDonald Mortgage Broker Syd

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    Typical timeframe is 42 days ie 6 weeks. 10% personal cheque on the day usually.

    There is always a valuation risk. If planning to borrow 80% LVR the risk may only be that you might have to pay LMI but at 90% or more my advice to clients is it isn't safe to bid at all. The other thing is how many lenders do you qualify with? If you are like many clients of mine who only qualify with 1 or 2 lenders then your risk increases also.

    It does Sh8T me that people have to take these risks, the game is weighted too far in favour of the agents and vendors I feel. It also irritates the hell out of me when I go to a local auction and the auctioneers says "and you must have unconditional finance" if you want to bid today. Not possible buddy!
     
  15. perthguy

    perthguy Member

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    I have bought at auction. Because of the type of auction, the contract was unconditional but I could specify the number of days for finance and the number of days for settlement. i.e. 30/60

    I obtained pre-approval up to a limit and negotiated with the agent to transfer the funds for the deposit via electronic transfer at $5,000 per day until the deposit was paid. I think this took 4 days but it was ok because I arranged it beforehand.

    I was the successful bidder, informed the bank of the sale price and full loan approval was pretty quick after that. I had lodged all my paper work with the bank beforehand so they just finalised the loan approval based on the property and purchase price.