Deposit

Hi,

Auctions I've attended require 10% deposit if you are the successful bidder. I intend to borrow only 80% of the purchase price from the bank. At what point do I need to have 20% ready? On auction day? Or do I just need to have 10% ready on auction day and the remaining 10% ready on settlement day? Also, how does one normally coordinate the availability of funds on auction day? Just having the amount sitting in an on call account and assuming my bid is accepted, just heading into a branch and getting a cheque?

Thanks.

 

Remaining 10% paid to vendor via bank cheque at settlement

 

Balance of funds comes on Settlement day. There'll be a statement showing funds already contributed, funds still to be contributed by you, by the bank, then debits for govt taxes, fees etc. Everyone does their cheque shuffling and then the property is yours.

Auctions will normally be on a Saturday, so no heading into a branch. What some people do is either
a) On Friday get a bank cheque for 10% of your max bid. If you don't win you take it back, if you do win you hand it over, or
b) Talk to the agents during week before to get approval for a specific $ amount of deposit payable and get a bank cheque for that amount to take with you.

 

Also keep in mind you need more than 20% of the purchase price saved. You are you to have to pay stamp duty ect. Before you start bidding make sure you are across all those extra fees

 

I've paid by personal cheque in both instances where I've purchased at auction. Is that not the norm?

 

Its fine, just majority of people don't have cheques

 

Makes sense. It's about the only thing I can recall writing a cheque for in recent times

 

Keep in mind the tax aspects as well.

You might want to borrow the 10%, so becareful how you fund it. Watch out for contaminating loans and/or reimbursing yourself (pay cash and replacing this with borrowed money = no) etc.

And keep in mind you would have to pay the stamp duty about 2 weeks before settlement in some instances.

 

I've never done this, which instances does this occur?

 

Theoretically stamp duty has to be paid, in NSW anyway, up to 3 months after exchange of contracts so it could be paid after settlement. But where there will be a mortgage on the property the mortgagee won't settle without a stamped contract and transfer. So the lawyer needs to get the signed contract and transfer stamped and may have to send these off to the OSR for stamping early enough so they arrive back in time for settlement.

This will be different with electronic settlements though. But I have never done one of these so not sure how stamping works with that.

 

Electronic stamping through OSR in NSW has been done for years, generally done day before or on morning of settlement. Have never had to pay stamps in advance, I just ensure the funds are in soli's trust account 3 days prior to settlement.

There is always the risk that OSR's electronic stamping could be down on settlement day so good to get it done day before to give a bit of leeway as a contingency

 

There is nothing stopping you negotiating what deposit you hand over on winning bid (i.e it is not law to be 10% or even .25%)

Generally if you have not organise other prior, it is 10% on winning bid, balance at settlement.

You need to have the 10% ready, cheque, cash, bank transfer all should be ok.

 

With many lenders you'll need the 10% + costs available the day you apply for a loan.

Its called 'proof of funds'.

Banks just want to see that you've got the remaining balance available come settlement day.

So if your in a situation where you only have 10% and the other 10-15% will come the week before settlement - either extend settlement out or go to a limited options of lenders who don't need to see it (e.g. AMP).

 

Thanks everyone.