The noise and drama of a property auction is a common occurrence in Sydney – particularly when the market is running hot. But while auctions might grab all the attention, private treaty is also a popular way to buy a home.

So what are the key differences between buying at an auction and via private treaty? Let’s find out.  

Buying at an auction

At an auction, interested buyers compete with each other to bid on a home. The property then gets sold to the highest bidder – as long as the bid matches or exceeds the property’s reserve price (the minimum price the seller is willing to accept).

Once the hammer falls, the sale is final – so there is no cooling-off period. Instead, you must be able to pay a deposit and exchange contracts with the vendor immediately. If for whatever reason, you don’t, you might face financial and legal consequences.

This can hold true even if you make a successful pre-auction offer on the home. That’s because, in this instance, you might be asked to give up your cooling-off rights by signing a form known as a ‘section 66W’.

Getting your ducks in a row before buying at auction  

As you have no cooling-off rights when you buy at auction, it’s critical to get pre-approval on your home loan. In a pre-approval, a lender assesses your financial position and agrees, in principle, to lend you money towards the purchase of your home.

You can’t get unconditional approval before an auction as the lender can only do a valuation once you’ve bought the property. So, ideally, you want a conditional pre-approval with the only condition pending to be the valuation.

However, this doesn’t completely eliminate your risk. That’s because the lender’s valuation might come back below the purchase price, thereby reducing how much money they’re willing to lend you.

So always do your due diligence and get your ducks in a row before bidding at an auction such as researching comparable sales in the area. 

Ask your mortgage broker if the property you’re planning to bid on is actually suitable. Some lenders have restrictions on postcodes or limit their lending when the property is:

• Heritage-listed

• Owned via company title

• Located close to high-tension power lines

It can also be a good idea to get advice from your conveyancer or solicitor before committing to a purchase.

Buying a home through private treaty 

One of the main advantages of buying through a private treaty sale is you get the benefit of a cooling-off period. In NSW, this is a minimum of five business days – though you can request longer if both parties agree. Other states have different laws.

That said, it’s still important to get your pre-approval in place before you go house hunting. Why? Well, it gives you a budget to work with. Also, pre-approval can signal to the seller you are a serious buyer and make negotiations easier.

Again, ideally, you want a conditional pre-approval with the valuation the only condition remaining. The lender can then value the property during the cooling-off period. If the valuation comes back at the right figure and all the remaining conditions of the pre-approval are satisfied, the lender will then issue an unconditional approval.

You can then exchange unconditionally knowing your finance is fully approved. 

What happens if the lender doesn’t approve the loan or the valuation comes back on the lower side? In NSW, you can pull out the deal during the cooling-off period for whatever reason. But you will have to pay the vendor 0.25% of the purchase price.

As always, it’s best to get advice from your conveyancer or solicitor before committing to a property purchase.

Thinking of buying a property? Eventus Financial is a multi-award winning mortgage broker with over 300 five-star Google reviews. So if you want to work with the best mortgage broker in Sydney, schedule a no-obligation consultation with Alex today.