Is it a good idea to take an investment property to auction? Like most scenarios there are positive and negative aspects of doing so.
Getting finance before auction
There is no doubt that finance is more difficult to get now than it was 2 years ago and therefore buyers find it difficult to buy. There have also been circumstances where, even though a buyer has been given pre-approved finance, at the end of the day the finance has not been available. The reasoning given for that is that it is not the lending institution that has changed its mind but the mortgage insurer who has decided not to back the loan.
Therefore it is most likely that by taking a property to auction you could be limiting the buying market.
Positives of an auction at an investment property
- an auction creates immediate interest in a property
- an owner may decide to auction in between tenancies so the property could be sold ready to move in – this would allow for ease of inspection and also attract home owners
- it could bring to a head a quicker sale on the day of auction
- even if not sold under the hammer many auctioned properties if priced at the market, do go to contract within 10 days of the auction date because of the creation of interest with a strong marketing campaign
- open times could be negotiated with a tenant with an endeavor for the whole process to go as easily as possible for the benefit of both the landlord and the tenant
- it gives the seller an indication of what buyers are prepared to pay
Negatives of an auction
- there is a substantial cost to running an auction
- if the property is not sold during the auction period and in the few weeks after, it may need another marketing campaign to kick-start interest again
- buyers need cash or equivalent to buy at auction
- some buyers don’t like to buy at auction
- there may be no bidding at the auction and the seller feels they have spent a lot of money for nothing (but this could happen whether the property is taken to auction or not)
- unless you are really committed to the whole auction process it is not a good idea to go there because negative vibes will come through to the agent and buyers if you greet them – don’t get talked into something you don’t want to do
- if you choose to go to auction make sure the agent is really motivate to do the work and is not just doing it because his boss says he must!
- check out the marketing campaign before you go signing any papers and make sure it is done to your satisfaction
- accept the fact that sales under the hammer can be quite low at times, but concentrate on a sale within that two week period after the auction if it does not sell on the day – be positive about that as it will keep the agent motivated
- it is a good idea to get a building and pest inspection done on the property before the auction so that potential buyers can see it prior to auction