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Here are the terms you must know to understand what’s going on during the auction.

Reserve price - the vendor has set a minimal price that he would be willing to sell for. The auctioneer doesn’t reveal this price so nobody knows what it is.

House on the market - when the bidding starts, the first bids can be below the reserve price and as they go higher, when a bid exceeds the reserve, auctioneer announces that the house is “on the market”. It means that from that moment and on the highest bidder gets the house. If the bids don’t reach the reserve - the house won’t sell, it will pass in.

Property passed in - if no one placed any bids or all of bids were below the reserve - the property will pass in. The auction has failed, the house wasn’t sold. This is the moment when the bargaining power is in hands of buyers - they can make offers and the highest offer will get the house. Usually the highest bidder has the right to negotiate first with the vendor. At this time the original contract of sale looses all its power and you can negotiate your own terms.

Vendor bid - if there is not enough interest (meaning dead silence, no one’s bidding), the auctioneer will place a bid or two on behalf of the seller - to help bids reach the reserve price. Typically vendor bids will be just below or exactly at the reserve price.

Auction begins
Most of the auctions have the same scenario, meaning auctioneers do the same things in the same order. First, they welcome the audience; introduce themselves and the house that is being sold. Then they explain what’s in the contract of sale, conditions and Section 32. Then they describe the house and the neighborhood. After that they take questions from the audience, and finally - open the bidding.

Auctioneer is not your friend
It is important to keep in mind that the auctioneer is employed by the vendor to sell his house for the highest possible price. They will use any trick to push the bids higher. What they do best is make you believe that this next increase of $500, $1000 is going to get you the house, pushing you beyond your limit. Don’t give in, set your price before the auction starts and stick to it.

The bidding
To bid you simply raise your hand up when the auctioneer shouts a price you’re willing to pay. Make sure he acknowledges your bid by repeating it and pointing at you or describing you (something like “I am getting 350K from a gentlemen by the fence” will do).

Don’t bid before the bids reach the reserve. Remember, if there are no bids and the property passes in - you can negotiate with the vendor and in that case, the lower the last bid was - the better for you.

Another tactic you could try is wait until bidding is really slowing down (you can see it when auctioneer starts to make smaller increments of $1000 or even $500), then blow everyone away with a $10,000 bid (if the price is still within your range, of course).

Bid whatever you like - you don’t have to stick to the bids the auctioneer is shouting, any bid you feel like making, go ahead. The only condition is that it has to be approved by the auctioneer.

If you can’t make it yourself to the auction, a friend can bid on your behalf. Before the auction starts that person will need to present a letter to the auctioneer stating that he is authorized by you to make bids and sign a contract. In that case the contract should have a nominee clause, allowing the contract be transferred in your name (not you representative) before the settlement.

One more thing you should now - there are no “late bids”, meaning the property is sold at the fall of the hammer and no bids made after that will be accepted.

After the auction

The auction is over and there are only two possible outcomes - the house is sold to the highest bidder or passed in.

If the house is sold and you are the highest bidder – you will go into the house with the auctioneer, exchange the contracts with the vendor and pay a deposit. The deposit is going to be held in the estate agent’s trust until settlement and then released to the vendor.

If the house passed in, then you can approach the auctioneer/the estate agent and start negotiating with the vendor. Your bargaining position in this case is better, because the house will have to be put back on the market - and that means more fees for vendor to pay, so he will be more flexible. Usually the highest bidder has the right to negotiate first with the vendor. At this time the original contract of sale looses its power and you can negotiate your own terms.

Note: by law you won’t have a cooling off period if the contract was signed within 3 days of the auction.

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Let’s begin. All the things you need to do when buying at auction can be split into 3 groups: before, during and after the auction.

Before the auction

Task #1 – Go to other auctions
If you have never bought at an auction, you have to see at least 5 other auctions before you are ready to participate in one. You have to learn the process and understand what’s going on to feel confident when you are bidding on a house. If you feel like doing a little homework before you go - watch this short video of a real auction here.

Task #2 - Inspect
Any house being sold at an auction is advertised as such at least 2 weeks before the auction date (normally 4 -6 weeks prior to the date). In that time all the prospective buyers should inspect the house personally and arrange for building/pest inspections, because once a house is sold at the auction – it’s final and never subject to conditions.

Task #3 – Read contract of sale, ask questions
Another very important thing is to pay a visit to the selling estate agent and get the contract of sale for the house. This contract defines exactly what you are buying and how you are required to pay for it – so read it carefully, ask all the questions and find out everything you need to know before the auction starts. I have an article dedicated to the questions you need to ask when buying a house, read part 1 here and part 2 here.

Not many people know that contract of sale can be changed before the auction, so if you’d like to change the settlement date or the deposit amount – all you need to do is ask (well, it helps if it’s your solicitor or conveyancer asking on your behalf).

Task #4 – Get the money
You should also go to a bank, apply for a loan (if you are borrowing money to pay for the house) and get it approved. Another important matter is that you have the deposit money ready, because if your bid wins at the auction, you will be required to pay deposit right after the auction closes, so you need to money to be available. Deposit can be paid by a bank or a personal cheque (you can read about various kinds of cheques in this article) .

More is coming, stay tuned - or, even better, subscribe.

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A bit of background: the interest rate earlier this year was cut 2 times and this is the third time. Its peak was at 7.25% in September. The first cut was of 0.25 %, then 1% and now the last cut was 0.75 %. It looks like such a small figure - I mean what’s a 0.75 percent, right? WRONG!

If we compare how much a household with a 300,000 mortgage will pay now to what they were paying 2 months ago, we’ll see that they save $390 monthly, which means $4680 annually.

These figures will give you a good idea of how much you save on a mortgage:

• On a mortgage of 200K the monthly repayment before the cut was $1660, after the cut you save $260 a month, $3120 a year.
• On a mortgage of 300K the monthly repayment before the cut was $2490, after the cut you save $390 a month, $4680 a year.
• On a mortgage of 400K the monthly repayment before the cut was $3320, after the cut you save $520 a month, $6240 a year.
• On a mortgage of 500K the monthly repayment before the cut was $4150, after the cut you save $650 a month, $7800 a year.

This piece of news affects us all - people who own a house, people who think of buying a house and even people who are starting to build their own house, because all the loans are affected by interest rate change - now we can borrow money for less. Add to that the new FHOG and we are in a much better position than we were 2 months ago.

And now to the bigger picture - the reasons for this third interest rates cut was to avoid recession. I am sure you have heard about the global economy slowdown, some countries are doing better, some are worse and our government is trying to make sure Australia doesn’t go into recession, which would mean job losses for a lot of people, financial stress, etc. If our country was a train, speeding towards recession, then interest rate would be a break they use - so that we would only go into a slowdown, which is unavoidable anyway, but not into recession.

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All the building permits for the house issued 7 years back from the date of contract should be listed here. Also if the house was built by owner builder in the same period of time - a relevant permit should be attached.

Why is that of interest to you? Because, for example, if you see a new pergola or a carport (I mean, if it clearly looks fresh), look for a permit, if there isn’t any - it might become your problem when you purchase the house and city council inspectors appear on your doorstep asking who approved the pergola or the carport.

Another issue to pay attention to - if the vendor had only owned the house for 3 years, they can’t be saying that in the past 7 years there weren’t any building works done.

Insurances

Pretty self-explanatory - details of the policy of insurance of vendor’s in regard to damage/destruction of the house.

Term Sales

Here go all the details of how you pay the vendor before you get the right to transfer the title in your name. Meaning: how many payments, total price, deposit, interest of you submit the payment late, etc.

Mortgages

Any mortgages on the house/ the land, the amounts, interest and principal payable, etc.

If Section 32 still looks scary to you, read this:

It will take all your patience to read through your first Section 32, because interesting reading is one thing it is not. The second Section 32 will take you half the time, and then it will become easier and easier because if you are familiar with the format and know what you’re looking for - it’s just a matter of scanning for the information you need.

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Make sure this section says that there is a road access to your property.

Outgoings, including Rates and Statutory Charges

All the taxes, rates, body corporate fees and charges of that sort that normally are payable on that property should be listed here. Unfortunately the law allows the vendor to just say “not exceeding …” and give you the highest amount (say, $1800) - without giving you the exact number. Personally, I find that annoying. This section should also list all the sums the vendor still owes and the interest payable on them.

Notices, Orders, Declarations, Reports, Recommendations

If any public authority or government department has approved any proposal or there is any report, notice etc. affecting your property and the vendors knows about it - they should be listed here. For example if the government is intending to compensate you and buy your property for their own purposes, it should be mentioned in this part. Also if there are repairs managed by body corporate to be done, they should be listed here.

Title

Title is a very important document attached to Section 32 - it says who owns the house. You might want to check and see that your vendor’s name is on it either as a registered proprietor of the property or as a person with the right to sell the property. Otherwise he is selling something he doesn’t own - and that obviously is a problem.

Services

All the utilities such as phone, gas, electricity, water and sewage should be listed as connected and with what provider. Why is this important? If the services are not connected there will be a connection fee, and if the provider is not the one you would like to use, connecting with someone else would also involve a fee, so you need to know about it.

Hang on, the rest of Section 32 is coming soon. Subscribe and you will get seconds after it’s published.

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Here’s everything you need to know about Section 32 explained in plane English for simple folks:

In Section 32 the vendor describes a set of issues that the buyer must know about when purchasing a house. Those issues are:

Easements, Covenants and Restrictions

First let me explain what those are. Easement is a right to use a part of your land owned by someone else (a person or an organization). You need to know about easements because you are not allowed to prevents access to them, so if you plan, for example to build a shed on that piece of land - that would be illegal and in case of need that shed might be demolished at your expense.

Covenant is a fancy word for a promise to do or not to do something. A good example of covenant would be “A dwelling must be built substantially from brick or stone”. Such covenant means that you can not build a weatherboard house on a block of land with this covenant in title. You obviously need to know about any covenants because not complying with them means breaking the law.

This part should also list any existing failures to comply with the list of easements/covenants/ restrictions because once you’ve bought the house - they become your responsibility, never mind it wasn’t your fault. So unfair!

Town planning

Here you will see what authority is in charge of the town planning in general and your area in particular, what zone your house belongs to. If you’re buying a block of land this is important because if building a house in such zone is prohibited, this section will let you know. There are many zones (residential, commercial, rural, etc) and different rules apply to each zone so if you need to clarify anything regarding that issue, town planning department of your city council would be the right place to ask.

Stay tuned, the rest of Section 32 explanation is coming. Subscribe and you won’t miss it.

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As you can see, getting the extra $7000 in the wrong way can get you in a lot of trouble – so think twice before you do anything foolish.

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Ask: What is the size of the block?
Why: If the house is built on a bigger block of land, expect to pay more - even if you don’t need as much land. When I say “bigger”, I mean in that specific area you’re looking because obviously in different areas the average size varies. That would be a good moment to ask yourself - how much land do I need and willing to pay for.

Check: What is the shape of the land?
Why: The rectangular shape is the most convenient and allows maximal usage of the land, whereas all the other shapes may create a situation where you pay for land that you can not use.

Ask: Is the house built on a slope?
Why: If you are going to extend the house or even build a carport it is more difficult and expensive on a slope. The same applies to the garden, it would need retaining walls, etc.

Ask: What are the facing directions?
Why: North facing garden is considered to be the best

Ask: What is the size of the bedrooms and of all living areas?
Why: Some people don’t mind small bedrooms, others do. The size of living areas will let you compare 2 houses, which is bigger and which is smaller.

Ask: Were there any pre-purchase inspections (building or pest) done, if so - what were the results?
Why: If they have found a major problem, the agent must tell you and it would save you the money for having the house inspected yourself. Then you can either negotiate the price further down or just walk away from this house.

Questions about the vendor’s situation

Ask: What is the reason for sale?
Why: If the answer is honest you will understand more about the vendor’s situation. That will give you an idea how willing they will be to negotiate. For example if they must sell quickly - they might be willing to drop the price, etc.

Ask: What settlement (how much time they’ve got to move out) would the vendors prefer - 30, 60 or 90 days, how flexible are they?
Why: If you know what they want, it allows you to offer them more convenient terms and then if they like your offer better - you’ve got the house. The money is not the only thing that counts, the length of the settlement is also important.

Ask: How long was the property on the market?
Why: If the property was just listed, the vendors will be less flexible with the price. The longer the property is on the market, the more willing they are to compromise on the price.

Ask: Were there other offers that the vendor has rejected? How much?
Why: If the property is on the market for over a month and no offers were made, the vendor should be willing to negotiate and accept a lower offer than his asking price. If he rejected an offer of X it would mean than your offer should be definitely higher than that.

If, having asked these questions and digested the information, you still want to go and inspect that house - you surely won’t be wasting your time.

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Questions about the house:

Ask: How old is the house?
Why: To know what style and standards to expect. Here is the list of housing types with descriptions and pictures.

Ask: What is the property type (Double brick, Brick-veneer, Weatherboard)?
Why: Other than the looks, one of the characteristics of weather-board and brick-veneer houses is that they are not sound proof - some people find that annoying.

Ask: What is the ceiling height (2.4 meters, 2.7 meters or 3 meters)?
Why: Some people prefer higher ceilings, others don’t care. There was a research that proved that ceiling height can affect how a person thinks, feels and acts.

Ask: Was the house updated/renovated lately?
Why: If it’s an old house (15-20-25 years old) and it wasn’t renovated lately, you’ll probably have to do it yourself, which will cost you extra and take some time. On the other hand, if it was renovated lately then you can just move in and enjoy but the price will be higher for such house.

Ask: How many owners were there?
Why: If there were many owners and they changed frequently (every 2-3 years), then chances are the house wasn’t maintained properly. If people had no intention of living in the house for a longer period, they wouldn’t care about keeping it in a good condition.

Ask: Was it rented out? If yes, (A) for how long and (B) how much was the rent?
Why:
(A) If it was rented out for a long time the chances are you’re in for some renovations and maintenance because normally the tenants don’t do anything about the maintenance of the house and the landlords don’t fix anything that isn’t broken :).

(B)Weekly rent can give you an idea what is the value of that property - annual rent should be 4 to 5 percent of it. So to work out a fair price of that house let’s take the weekly rent (say, $300), multiply it by 52 (weeks in one year) and by 20 (100/5 percent). In this example you will get $312,000 - that would be a good price for such house.

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People who purchase their first home and it’s a newly constructed one will get an additional $14000 (on top of $7000 they used to get) so in total that makes $21000. This is the famous tripled grant you keep hearing about. And if you’re buying in the regional Victoria, then instead of $26000 you will be getting $29000, subject to certain requirements.

Speaking of conditions and requirements, the best thing is to check the SRO website to make sure what kind of grant applies to your specific situation. And here is the link to “tripled grant” press release.

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