Of all the methods of buying property, auctions are probably the most exciting. Certainly reality TV has turned them into something of a ‘glamour event’ and stories abound of people going to auction and  buying very well.

If you’re thinking about buying at auction and you have a 5% deposit  there’s two things to consider before you register as a bidder. The bank will require a registered valuation on the property and although they said they would lend 95% they really mean 95% of the valuation or purchase price, whichever is the lower. This has some implications worth thinking about.

Firstly, what happens if you’re the winning bidder but the purchase price is higher than the valuation? Obviously there’s a shortfall you need to come up with very quickly. And because the bank will only go to 95% of the valuation, they aren’t in a position to help you.

Easily solved you say – just get the valuation done before the auction because that way you won’t be tempted to go over that limit. The trouble with that is, if you don’t end up winning the auction you’ve just blown $500 on a valuation. Better than being short by $10,000 I suppose and not something people are keen to repeat.

In our experience, low deposit mortgage clients are better to stick to buying ‘by negotiation’. At least that way you can make a conditional offer, take your time to work through those conditions and avoid the pressure cooker environment of real estate’s glamour event.

About Campbell Hastie

Cam is one half of Auckland based mortgage brokers, The Go 2 Guys.

He makes a living by sharing what he knows about mortgages with people, arranging mortgages for people and then insuring people.

He doesn't claim to know everything about mortgages himself which is why he teamed up with David Mercer — hence the ‘2’ in Go 2 Guys.

He writes posts regularly on his blog and has been told he has an ability to share his knowledge in a simple and sometimes memorable way.

Feel free to comment and ask any questions. Contact Campbell Hastie m: 027 697 7789.

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