Last month saw Channel Nine’s biggest Australian Reality hit show, The Block, reward their contestants with record-breaking sales. Winners Jimmy and Tan were set to take home more than $1 million. However, one month after the final call was celebrated, the buyers have not settled and devastation surrounds the winners. The property may be back on the market. Attwood Marshall Lawyers Property Law Department Manager and Senior Paralegal Jess Kimpton discusses what people need to understand when bidding at an auction.
What went wrong?
The woman who placed the winning bid on the home of Jimmy and Tan failed to come through with the money, with settlement scheduled to take place last week.
Emese Fajk, the eccentric 28-year old who got the nation’s attention when she placed her winning bid on auction day, seems to have left a trail of destruction by presenting receipts of bank transfers that in reality do not exist.
“Settlement was yesterday and there’s been no positive outcome from it… it’s something no one ever saw coming,” Jimmy told A Current Affair.
“We’ve pretty much been conned.”
As per the rules of The Block, despite the disappointment of the bidder not coming through with the cash, Jimmy and Tan will remain the winners of The Block 2020.
What people need to understand when bidding at an auction
Auctions are a very popular way to buy and sell property in Australia. The auction process is governed by general rules that apply Australia-wide, and additional regulations vary by State and Territory.
Auction sales are ‘unconditional’ and there is no cooling off period, nor is the contract subject to finance or a satisfactory building and pest inspection. For anyone bidding at an auction, they need to be ready to pay the 10% deposit and sign the contract of sale immediately upon the fall of the auctioneer’s hammer should they be the highest bidder on the day. The sale contract is usually a 30-day settlement and you take the property ‘as is’.
Victoria is one of the few states where there’s no requirement for homebuyers to register to bid on a property with the real estate agent selling it.
In New South Wales, Queensland, South Australia, Tasmania and the ACT, anyone who wishes to bid at an auction will need to register before the auction begins and provide suitable ID.
By registering as a bidder, you are bound to the laws which govern auctions – which obligates you to exchange contracts and complete the sale if you place the winning bid.
Auction conditions and the draft sale contract are set by law and are on display before an auction takes place so everyone can read them.
What happens if the winning bidder doesn’t pay?
Real Estate Institute of Victoria president Leah Calnan said if a buyer didn’t proceed with a purchase after paying a deposit in full, the vendor was entitled to the full deposit.
In the event the property has to be resold, if there is any shortfall from what the original contract was to what the second contract is, the vendor can sue the purchaser for the difference.
In this case, the deposit wasn’t even paid, which is an automatic breach that would entitle the sellers to terminate the contract.
The seller can also seek orders of the Court that they complete the contract (known as orders for specific performance), although if the buyer has no money, this relief can be of little use.
A dummy bid is either a false bid made up by the auctioneer or a bid accepted by the auctioneer from a non-genuine bidder in the crowd, usually to influence the sale price.
‘Dummy bids’ are illegal. Therefore, if you place a bid knowing full well you cannot complete the sale, this is an offence.
In New South Wales, if someone makes a dummy bid for the seller, they could be prosecuted and fined up to $55,000. The property seller who may have asked that person to bid can also be fined up to $55,000, as can the agent and the auctioneer if they were involved in any way.
Property price indication
In Queensland, it is illegal for the vendor of a property, or their agent, to provide buyers with a price guide prior to bidding.
It is always recommended that if bidding on a property, you have sound knowledge of the market and have conducted your own valuation of the property prior to auction.
New South Wales and Victoria have established clear underquoting laws. NSW’s laws were introduced in 2016 and Victoria’s in 2017. Underquoting laws differ in other states, but all states sit under the Australian Consumer Law, where a breach of the law can attract the greater of:
- $10 million, OR
- three times the value of the benefit received, OR
- where the benefit cannot be calculated, 10 per cent of annual turnover in the preceding 12 months.
Getting your ducks in a row before auction day
Before you bid at an auction for your dream home, there are four key tasks you should ensure you do.
- Obtain unconditional approval for finance and confirm with your lender the maximum amount you can borrow. In fact, if you are relying on finance, it is not a good idea to buy at auction. The contract is strict and if you can’t get your bank loan organised in time for settlement, you risk losing your deposit and getting sued for any price shortfall in the resale. Sometimes, you can negotiate a longer settlement time (60 days) and a 5% deposit, but this must be agreed to in writing BEFORE the auction.
- Ensure you have enough money available to give a cheque or payment by EFT for the deposit on the day of the auction. This is usually 10% of the purchase price.
- Thoroughly inspect the property and know the property’s condition prior to auction day. This includes obtaining a professional pest and building inspection and reviewing any strata reports if relevant.
- Review the contract of sale with an experienced property lawyer or licensed conveyancer to ensure you are comfortable and aware of all the terms.
How can Attwood Marshall Lawyers help?
For those in a position to buy, there are opportunities to purchase property at reasonable prices and take advantage of some of the latest promotions being offered by lenders.
Should buyers require any assistance with loan documents and sales contracts, the experienced Property Lawyers at Attwood Marshall Lawyers can provide expert legal advice to ensure a smooth transaction for all parties. It’s better to be safe than sorry. Don’t sign ANYTHING until you get proper legal advice!