Auctions and deadline sales are popular methods for selling properties in South Canterbury and throughout New Zealand. This guide aims to help buyers understand these approaches and navigate the purchasing process.
Auctions
An auction is a public sale where the highest bid on a property above the reserve price ‘wins’, and the sale is binding immediately on the seller and the buyer once the auction concludes. The auction process can often be fast-paced, however it does provide transparency as to the property’s perceived market value. Sellers are allowed to place vendor bids up to the reserve price to help reach that amount, although these bids must be clearly announced.
Pros of Auctions:
- Transparency: Buyers can see what others are bidding, offering a clear picture of market value.
- Speed: The property is sold on the day if the reserve price is met, with no lengthy negotiation process.
- Commitment: Once the hammer falls, the sale is legally binding, giving both buyer and seller a clear, committed path forward.
Cons of Auctions:
- Deposit Requirements: Buyers must usually pay a deposit (typically 10% of the purchase price) on the auction day, which can be challenging for those using KiwiSaver funds, as funds may not be immediately accessible or may be available only under specific conditions set by the KiwiSaver provider.
- Upfront Costs: Due diligence (e.g., building inspections, LIM reports, finance, insurance, legal review) is done before bidding at the buyer’s cost, which is non-refundable if they don’t win. This can add up quickly if you are unsuccessful at several auctions.
- Finance requirements: If a buyer is using a lender, they must have confirmation from the lender, usually a bank, that they are in a position to make a binding unconditional offer prior to making a bid. In some situations, a lender may require a valuation. This is a significant cost and limits a buyer’s bidding ability.
- Vendor Bids Allowed: Vendor bids are permitted up to the reserve price, which may influence the bidding process.
- No Cooling-off Period: Buyers must be fully prepared to proceed if they win, as there is no option to withdraw.
- High-pressure Environment: Auctions can be stressful, especially for first-home buyers who may be unfamiliar with the process or market values.
Deadline Sales
A deadline sale uses a process with a set date by which all offers for a property are to be submitted, often in sealed format. This process is more private, as offers aren’t disclosed to other buyers. Sellers can consider early offers and accept one before the deadline, so it’s essential for interested buyers to stay in close contact with the agent. This way, if another buyer submits an early offer, you’ll generally have the chance to submit your own competing offer.
Pros of Deadline Sales:
- More Time to Consider: Buyers don’t need to act instantly, allowing for thoughtful consideration and due diligence.
- Less Pressure: Offers are made privately without the competition of a public bidding environment.
- Flexible Terms: Offers can include conditions (e.g., finance approval, building inspections, LIM report, toxicology report), allowing for more negotiation room and the chance for the buyer to defer due diligence costs until they know their offer has been accepted.
Cons of Deadline Sales:
- Less Transparency: Buyers don’t know other offers, which can make it hard to assess the market value or competitiveness of their offer.
- Early Offers: If a buyer submits an early offer, the vendor can review it and decide to sell before the deadline, potentially cutting other buyers out if they haven’t signalled their interest.
- Due Diligence Costs: Buyers may often choose to do their due diligence investigations upfront to put forward an offer with as few conditions as possible. However, these costs are non-refundable if the seller does not choose their offer.
If you are considering purchasing a property that is being sold via auction or deadline sale, get in touch with our experienced conveyancing team who can help you navigate these buying methods confidently.
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