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Auction buyers risk loan shortfall

By Stefanie Garber 30 September 2014 | 1 minute read

As market conditions heat up in capital cities, investors have been warned to avoid overpaying at auction or face a funding crisis. 

Investment adviser Philippe Brach from Multifocus Properties encouraged buyers to seek pre-approval from the bank before bidding at auction.

“A prudent buyer will obtain a pre-approval from the bank so they know what they can afford, and then they go to auction with that in their hands,” he said.

However, he warned banks often retain the option to value the property before issuing the loan.

Buyers who over-pay may end up in financial trouble, Mr Brach suggested.

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“If the lender decides it's not worth what the buyer has paid for it, then the buyer has to find the difference from their own cash,” he said.

Bidders at auction should take care to “get it right”, according to Mr Brach.

“If you get excited and let the bidding get to stupid prices, you might get a nasty shock from the bank,” he said.

In addition, he suggested buyers keep extra funds on hand to cover any gaps in funding.

In every state except Queensland, cooling off periods are not applicable to auction sales.

RELATED TERMS

Mortgage

Mortgages are loans that are used to buy homes and other real estate where the property itself serves as collateral for the loan.

Mortgage

Mortgages are loans that are used to buy homes and other real estates where the property itself serves as collateral for the loan.



Auction buyers risk loan shortfall
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