Buying at Auction

I have zero experience in buying at Auction, just wondering why a mortgage broker would need to know the highest price that a purchaser is willing to pay before auction and complete the contract with purchases name and price (go with a highest price) and let the bank assess on the application?

I am not quite comfortable to disclose the highest price before auction. Wondering if there's mortgage brokers here or anyone who has experienced this before. Is this necessary to disclose the highest price? What is the main purpose here?

What happens or what are the consequences if the final auction price is (1) higher or (2) lower than the price I put forward to my mortgage broker on the application?

I would really appreciated if anyone could shed some light here. Thank you heaps !

 

Completely makes sense for your banker/broker to know your maximum purchase price, you want to know that you can afford that amount I would assume?

But doesn't make sense to have a contract prior, if you have a signed contract by both parties... no need for an auction?

 

Uh, does this broker actually work for you? Or is it someone the selling agent recommended to you or something?

 

'IF' it's lower then it may well be passed in--and the agent's will work the bidders list till the ink is dry on the contract..
IF it's higher and several people want the property on the day ,then you either keep your hand in the air,or walk out the door quickly as in those few minutes at a auction when it's on the market is the danger zone where people get carried away then work out what just happened ..imho..

 

The objective with a pre approval is to get an approval for the max amount (and max LVR if applicable) and this will be your limit. So if you go over this figure then you would potentially need to cover the difference via cash (assuming that the pre approval lender will lend you the most from all the lenders available).

If you go under this figure then you just reduce the loan amount accordingly as per the LVR thresholds.

 

The broker should be able to tell YOU what the highest purchase price is that you can afford, not the other way around.
You don't need to sign contract prior to the auction, you may want to get a pre-approval prior to the auction so you know for sure what your maximum purchase price is - for bidding purposes. Because purchases are unconditional at the time of auction you don't want to be in a position where you over bid what you can actually afford and then can't get the finance, hence loan pre-approval is a good idea in this instance.

 

I dont think the copy of the contract that my mortgage broker requested, will need to be signed by the vendor or the purchaser(s) but just putting down the purchaser(s) name(s) only.

 

obtained this mortgage broker's contact through other sources, not the selling agent

 

This!

 

Sorry perhaps I did not make it clear. I was referring to the highest purchase price that my mortgage broker requested me to put it down on the copy of the contract and she will forward it to the bank to assess the loan application. Thanks for your info, yours will be the case if my highest bid is lower than the vendor's reserved price at the auction

 

I hope it goes to plan,lets us know how it ends..good luck..

 

Before I go into the potential why - have you asked the broker why she is requesting this? The broker is working with you so its a relationship. You need to be able to talk to each other.

Now onto the why - there is potentially 2 reasons why she is doing this. One reason may be the security and she needs to get a full valuation done. The lender would need to order this due to the purchase price or because they don't allow for upfront valuations or another reason.

Second reason may be that the lender has system approved credit approval and she is trying to get the file escalated so its a credit assessed pre approval. Depending on the lender though she can do this via a manual escalation rather than going to a formal approval.

 

Thanks @Shahin_Afarin . Yes, I have already obtained a pre-approval with this mortgage broker. hence, what I dont understand is, why the mortgage broker would like to know the highest price ( the highest purchase price I am willing to pay) to submit another loan application before Auction. She said it is to obtain approval and to let the bank assess on the application. The bank might also require a full valuation. She said she will contact the agent and request access to the property.

I am guessing, one is pre-approval, so it's a bit uncertain? Whereas the actual loan approval on a particular property is actual and certain?

Thus, back to my original question about disclosing this highest price on this actual loan application before auction, I still dont understand what's the main purpose of disclosing it as I already obtained my pre-approval. This property will go for Auction, so I am not quite comfortable to disclose it before the Auction day.

What happens or what are the consequences if the final auction price is (1) higher or (2) lower than the price I put forward to my mortgage broker on the actual loan application?

 

Ok its most likely one of the 2 reasons I stated above in that she is pushing for a formal approval because for the conditional approval isn't satisfactory (maybe a system approval rather a credit assessed approval) or there is something not kosher with the security and she wants confirmation from the bank that they will be ok with the security.

The consequences are as per my post above - if it goes higher then you need to come up with the difference cash (assuming of course the lender you have gone with a lender with the max borrowing capacity). If its lower than thats fine as you just have to lower the loan amount which is a straight forward process.

There are a lot of what ifs - we have given some of the more probable scenarios but really you need to talk to the broker. Also why are you not comfortable disclosing your max to the broker? Does the broker have a relationship with the agent or another third party? Budget and price are pretty important when it comes to lending so you both need to be talking about this in a great detail.

 

How can you get formal approval without a signed purchase contract? Gotta win the auction first!
Somethin fishy goin on
Can get a Approval in Principal or credit assessed pre-approval
Also what agent or vendor would let a valuer in prior to an auction, is this a standard thing I've just never heard of before?

 

We don't know the reason - it could be a variety of different reasons. The OP really needs to ask the broker to get a definitive answer particularly since he/she is going to auction.

Back the comments above - she could be pushing for a credit assessed approval because the lender may have done a system approval rather than a credit assessed approval so she trying to manually get the lender to review the file and some lenders require a contract of sale (even unsigned) in order to review the application and provide a credit assessed AIP.

An agent can let a valuer through prior to auction again for a number of different reasons, customer paid valuation, vendor is open to negotiate prior to auction, etc. Not normal but possible (in NSW anyway).

 

Thanks @Shahin_Afarin , appreciated for your replies, it's more helpful I have talked to my mortgage broker before coming to this forum. Obviously her answers does not satisfy me.

I see - how can I check whether my pre-approval is a system approval or a credit assessed approval? I am very green here, thought receiving a pre-approval means satisfactory.

As explained, because this property will go at Auction, I am not comfortable to disclose my highest price to anyone before Auction day. I just wanna keep my cards close to my chest

Another reason, was that, back before, few years ago. I went through the same procedure with this mortgage broker but different property, auction again. Obtained pre-approval then she wanna get a formal loan approval before Auction then requested me to put down a highest purchase price that I am willing to pay for this property on the copy of the contract (forgot whether it is signed by me or not, or just put down the purchaser's name). At the end of the day, I did not go for the Auction (due to other reasons), so did not pursue that property but I found out the property was sold at Auction for the exact price that I put down on my loan application.

Husband thinks that was just a coincident but I am not quite convince with that as the number was quite unique and higher than someone would offer

 

I see, thank you for your replies @Shahin_Afarin . Yes I am trying to get a definitive answer from her..........

 

What did the broker advise when you asked her the "why"?

Here is a list of questions I would ask the broker:

1. Is the approval an automated system approval or did a credit manager review my file and issue the approval?
2. Do you see any potential issues with the security/property im purchasing
3. What is my max purchase price?
4. How long does my approval last for?
5. What is plan B if we dont get an approval from this lender?

Who is the lender that you got the approval from?