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If you’re planning to buy a property at auction, there are a few key legal risks to be aware of – especially if you don’t have your financing sorted. Auctions can be fast-paced and exciting, but in Victoria, once the hammer falls, the sale is final, and there’s no cooling-off period. If you win the auction without secured financing, you could face serious financial and legal consequences. Here’s an overview of what happens when you win at an auction in Victoria, and what can happen if you don’t have financing.
Key Points Covered
Here is what happens once the hammer falls at an auction:
So what are the risks if you win without having secured financing?
One of the biggest risks when buying at auction in Victoria is that there’s no cooling-off period. Unlike private sales, where you get a few days to reconsider, an auction sale is final. The moment the hammer comes down and you’re the highest bidder, you’re legally committed to the purchase.
Winning an auction means the contract becomes legally binding straight away. You’ll need to sign the contract and pay the deposit (usually 10% of the purchase price) on the spot. If you haven’t secured your financing, this can be a major risk – you’re still obligated to go through with the purchase, regardless of your loan situation.
Unlike private sales, auction contracts in Victoria don’t include a “subject to finance” clause. This means you can’t make your purchase conditional on securing a loan. Even if you’ve been pre-approved for a loan, it’s not a guarantee. Changes in your financial situation or a lower-than-expected property valuation could still lead to your loan being rejected.
Banks sometimes value a property for less than what you’ve paid at auction. If this happens, you could face a shortfall in your loan, meaning you’ll need to come up with the extra money yourself. If you can’t, you risk defaulting on the purchase.
If you win the auction but can’t complete the purchase because you can’t secure financing, you are considered to be in default, and the consequences can be serious.
You will most likely lose your deposit, which is often a significant amount. More seriously, the seller could also take legal action, which might include suing for damages, especially if they have to sell the property for a lower price at a later date.
To reduce these risks, proper preparation is essential. It’s advisable you:
One of the best things you can do is seek legal advice from a conveyancer who can go over the contract beforehand to flag any potential concerns. While a conveyancer can’t secure the financing for you, they can make sure you’re legally protected and aware of the risks, so you can go into the auction fully prepared.
Buying a property can be exciting, but the legal risks can be serious if you’re not properly prepared. At Settled, our expert conveyancers are here to make the property-buying journey as stress-free as possible. From reviewing contracts to guiding you through settlement, we make sure each detail is handled, so you can focus on securing your new home. If you’re ready to buy with confidence, contact the expert conveyancers at Settled today.
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