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Subject to finance approval

What's the difference between buying a property at auction, or buying via private sale?

There are significant legal and practical differences between buying a property at an auction, or via private sale / Expressions of Interest.

When a property is sold at an auction, or within three business days (before and after) of a publicly advertised auction date, the sale is "unconditional" = no 'subject to finance approval', no 'subject to a building and pest inspection', and no cooling off period. These legal conditions are known as the Auction Rules. If a property passes in at auction, the Auction Rules apply for three business days after the auction date.

That means the buyer must ensure their finance approval is already sorted out in advance of the auction date/Auction Rules period, that any building and pest inspection has already been completed, and the contract has already been reviewed by the purchaser's lawyer.

Buying a property via private sale / Expressions of Interest is far more favourable to the purchaser, because the contract can include special conditions such as 'subject to finance approval' and 'subject to a building and pest inspection', along with anything else that the vendor agrees to (like 'subject to legal review', 'no land tax apportionment' and 'subject to rubbish removal/repairs').

And a cooling off period applies to private sales / Expressions of Interest. That means the purchaser can terminate the contract, for no reason, within three business days of them signing the contract. However, the vendor is then entitled to require payment of 0.2% of the purchase price as the cooling off fee, regardless of whether any deposit funds have been paid yet. Cooling off can therefore be very expensive for a purchaser, so it's far better to never sign a contract unless you are 100% sure you're going ahead (subject to the fulfillment of any special conditions, like 'subject to finance approval').

Want to make an offer prior to a publicly advertised auction date? You'll still get a cooling off period if you sign the contract more than three business days before the auction date, but it's extremely unlikely that the vendor will accept any other new special conditions at all (like 'subject to finance approval'), because they can simply wait until the Auction Rules period commences, and then sell the property unconditionally.

Note: the above is general information and should not be considered as legal advice.

Photo by Mikhail Nilov

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