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    Buying a house at auction in New Zealand can be exhilarating and nerve-wracking, especially for first-time home buyers. If approached with the right strategy, auctions can offer a fair and transparent way to secure a property. And that strategy involves careful preparation, a solid understanding of how auctions work, a clear understanding of the ins and outs of bank lending, clarity on all the relevant facts and figures and a fixed plan on how you’re going to tackle the auction on the auction day.

    You shouldn’t avoid auctions because you’re worried about how to formulate an auction plan. Hesitation could mean missing out on your ideal home. The team at Global Finance can share their experience which might help you.

    Auctions are unconditional

    Firstly, if you win an auction, you are committed to purchasing the property and you will need to pay the deposit on the auction day. If you then fail to get a loan on the property, you won’t get your deposit back – you will forfeit it to the vendor. Additionally, if they have to sell the property to someone else for a lower price, they can then sue you for their loss, plus costs.

    Homework is the key

    Before even thinking about setting foot in an auction room, it’s vital you have a solid understanding of the property you’re interested in. Aseem Agarwal, Head of Mortgages at Global Finance explains: “Legally, the property must be clear, no unauthorised construction/ modification where CCC is not obtained, and this includes obtaining clearance from the lender to ensure the property is acceptable as a security.”

    All necessary documents, such as auction agreements, title of the property, and building consents will need to have been legally cleared by your lawyer. Additionally, because auctions are unconditional, you need to confirm your finances for that specific property before you attend the auction. You need to seek confirmation from your lender that the particular property you wish to bid on is acceptable to them.

    Understanding bank lending

    While you may have generic preapproval from your lender for a certain amount, this amount may vary depending on the property you want to buy. Aseem advises that potential buyers should not presume the lender will extend the approved amount for any property within the agreed price range. Sometimes. Lenders refuse to accept for a particular property as a security because defects in the property such as leaky home or unconsented modification etc are known to the lender.

    Specific property approval

    You need to get approval for each specific property before making a bid. Aseem recommends setting up an appointment with the bank 2-3 days or even a week in advance to ensure they are willing to lend for the chosen property.

    Pre-purchase documentation

    If there are any preconditions to the purchase, such as valuations or building inspections, ensure they are organised in advance; you will need to pay for this. You will then need to submit these documents to the lender for them to read and give clearance for the property before going to the auction.

    Thorough insurance checks

    One often overlooked aspect when buying a house at auction is the insurance check. Aseem highlights the importance of checking for illegal or unconsented work on the property. He warns that even if the lender is willing to go ahead and loan on a property with illegal or unconsented work, the insurance company may deem the property unacceptable, and therefore refuse to insure it.

    Aseem explains, “Without home insurance, you can’t settle any home loan in New Zealand for any property purchase.”

    A lot of people don’t check insurance eligibility. They just think because nothing is outwardly wrong with the property, they would be given home insurance. However, insurance approval can depend on whether a past claim has been made on the property or not. This has become particularly relevant in the aftermath of events like the Auckland floods, and Cyclone Gabrielle where previous claims on a property might impact its insurability.

    He goes on to explain further: “For instance, imagine there was a prior claim on the property – perhaps resulting from the Auckland floods – and that claim has since been settled, with the owner renovating the property before putting it up for sale so they can move on with their life. Imagine proceeding with the purchase without any knowledge of this incident, but insurance providers are aware of the past claim. They may refuse coverage due to a susceptibility to floods.” Without insurance, property settlement can’t go ahead.

    It’s essential to recognise that insurance eligibility hinges not only on the property’s current condition but also on historical incidents, such as previous claims.

    On another note, Aseem also points out that real estate agents play a pivotal role in disclosing property issues. However, potential buyers should always proactively seek information and not rely solely on the agent’s disclosure, especially regarding past claims or unconsented work.

    Sorting your auction strategy

    With the groundwork laid, the next step is to lay out a winning auction strategy. Aseem suggests seeking guidance on your bidding plan from people who have attended auctions before, such as friends or family, real estate agents, and, notably, mortgage brokers like those at Global Finance who have experience with the intricacies of property auctions.

    Setting a ceiling bid

    Having a clear ceiling price is crucial. Aseem advises buyers to be prepared to walk away if the auction surpasses their predetermined limit. “Emotional attachment to a property should not override financial prudence.”

    Taking repayment affordability into account

    In the current economic climate, reevaluating loan repayments is essential. Aseem stresses the importance of looking at the affordability of repayments based on the current interest rates and how the long-term financial commitment aligns with your budget before you buy. Don’t rely on a budget you drew up six months or a year ago.

    Auctions can mean transparency and certainty

    Buying a house at auction can be a straightforward and open way to secure a property. With set terms and a known settlement date, you’ll have a clear understanding of the conditions. Because it’s an open platform where you can gauge your competition, you can make informed decisions based on what other buyers are willing to offer.

    But we do like to reinforce that it takes preparation, strategic planning, and sensible guidance. Our mortgage brokers at Global Finance can provide ongoing support and advice throughout the whole process so you can approach the auction with confidence.

    As Aseem says, “We can help you turn what may be a daunting process into a rewarding investment in your dream home.”

    Ready to place a winning bid at auction? If you have any specific questions or if there’s anything else you’d like to know about auctions, feel free to ask. Get in touch with our brokers either on info@globalfinance.co.nz or contact 09 255 5500

    The information and articles published are true to the best of the Global Finance Services Ltd knowledge. Since the information provided in this blog is of general nature and is not intended to be personalized financial advice. We encourage you to seek Financial advice which is personalized depending on your needs, goals, and circumstances before making any financial decision. No person or persons who rely directly or indirectly upon information contained in this article may hold Global Financial Services Ltd or its employees liable.