NSW - Auction property, no actual auction

Long time lurker, first time poster. After reading some rather interesting topics over the past few months on here, I have stumbled on a situation of my own recently. This post might get a bit length, I'll try and highlight the key events that I've dealt with over the past month leading up to the auction.

4 weeks ago, I found a smallish place approx 48sqm, 1 bed/bath in North Sydney. It was an auction listing. Attended the first open home, being a Wednesday and supposedly on the second open home, for a mid-week it seemed overly busy. Managed to chat with the agent and showed a key interest. The place was a deceased estate, in dire need for some repairs - a complete overhaul.

After looking at some comparable sales in the building, decided to submit an offer of 530k (guide was 550k). Agent replied stating that because it's in the first week of the campaign, they would not be accepting any offers. I thanked the agent for acknowledging the offer and would be interested to see if there's any further updates during the campaign. The agent did hint there was another interested party, the usual RE lingo.

A week prior to the auction, get a call from the agent stating that they've received an offer of 565k from another buyer, which the vendor has accepted and that he was just calling out of courtesy to inform all interested parties. No one is interested in an offline auction as I told him, I did offer 5k more to which the vendor would consider and I'd get a call back.

Get a call the following day, to congratulate me of the offer acceptance. Agent informs me that since it's being sold under auction conditions, a 10% deposit with no cooling off would apply. I was ok with that, just needed my broker to confirm that my finances were in order. To which all was OK subject to a valuation.

This is where it gets slightly disappointing...

Our solicitor reviews the contract, strata minutes and there were some significant building defects. Not the new kind of defects affecting some new developments. This is a circa 1970's building. Defects were numerous fire safety non-compliance, window repairs to adhere to fire safety regulations costing approx 1 million, potential concrete cancer surfacing in structure, asbestos fragments. At this stage I thought my solicitor was being overly critical.

What added to the concerns was that with the already high strata levies, there could be more struck. Potentially $3k per qtr to rectify these defects, which was very concerning.

In light of all this, my partner was memorized by those harbour views and the aspect of the property. Our broker called us a couple of days before the auction, very tense moment informing us that the valuation needs to be ordered. There was also concerns around the size of the apartment with stricter lending. We were looking at an LVR of 85%.

Valuer visits the property, informs us they can't value the property as contracts have not been exchanged.

At this stage, we were overly stressed. Entering into an unconditional contract with all these building defects at hand, combined with the condition of the apartment? I wasn't feeling too inclined the lender would value it highly, with particular consideration to the current climate.

We spoke to the agent, day before the auction. Our solicitor also contacted the vendors, without any luck they would not budge on a cooling off period or subject to valuation clause.

The agent at this stage was getting a bit irate (which is understandable). Mentioned that it was too risky entering into an unconditional contract with a 10% non-refundable deposit due to circumstances. Who knows what the shortfall could be and what we would be liable for. After declining the signing of the contract and issuing a 66W, at this point, he abruptly and rudely said that were would be no auction tomorrow.

The property sold to another buyer later that evening, supposedly unconditionally.

Bit emotional on this one, we feel factors outside of our control ultimately determined the decision being made.

I guess, we just want in future with the above in mind, how best we can be prepared in these sort of situations. We didn't mean to stall the agent or inconvenience anyone. Based on perception, It may be the agent felt not too confident in going to auction due to an unsuccessful campaign, hence pulling out or it could be taking advantage of susceptible buyers?

We're also wondering if it's common for valuers to NOT carry out valuations due to a non-signed contract? It seems absurd that considering a signed contract requires a 10% (60k) deposit, that they wouldn't value the property irregardless of contracts being exchanged to allow the lender/buyer to assess the LVR to see if it services before accepting a huge loss.

 

Who was paying the valuer?

 

was it a bank valuer?

The last valuation I had done was prior to contracts being exchanged as I needed unconditional finance approval to exchange contracts...

 

The valuer was ValEx ordered through my broker (liaised with lender).
I must admit, they charged $275.00 the full amount, despite no valuation being carried out.

 

I wouldn’t pay in that case. Unless there is something we don’t know.

 

Feels like there's a missing piece somewhere, doesn't it?

 

It cuts out the tyre kickers - If you paid for the valuation, you'd expect a different response and approval / rejection.

 

I've had a previous valuation carried out where there was no cost.
Since this is second valuation with the same lender, it is at cost.
The valuation was pre-paid. Valuer visited property didn't cite a signed contract and wasn't allowed to proceed with the valuation.

 

Yes, this was his expectation. He assumed there would be a contract signed before heading out to the property.
Upon speaking with the valuer later in the day, he seemed really hesitant to provide any further info. Statements like "I would be out of my job if I gave you a figure" I'm just trying to understand what the issue is? Is there some regulation or law preventing valuations to be carried out without signed contracts? I thought an up-front valuation was exactly that?

 

Here is the valuers comment:

"Can you please provide the vendor signed and dated contract of sale in order for us to proceed with our valuation.


As our valuer has already inspected this property, your urgent assistance is greatly appreciated."

The valuer was only in there for a 1 minute, took photos and left according to the agent when he allowed access. How the hell can a thorougher inspection be performed in such a timeframe??

This seemed incredibly risky. A signed contract requires a $60,000 deposit that is not refundable (no cooling off period).

As mentioned before, deal is done and dusted. I'm trying to learn from it and possibly provide hints to other buyers in a similar situation, as it appears to be a bit unique this situation?

 

No, it is NOT understandable. The agent is being paid to sell the property, and answering any questions a buyer may have, or dealing with their concerns, is just part of the job - unless the buyer is being totally unreasonable, which you weren’t.

 

I agree with you on that one. I only could empathise that he seemed accommodating and was patient for the entire 2 weeks and I felt assured no other offers would be accepted, despite not signing contracts. Most agents, given the chance if a offer comes along, that is higher and the buyer can proceed with unconditionally, the agent would run after them. This one seemed different. Maybe there weren't any other buyers? I thought he was bluffing when we refused to sign the contract (24 hours prior to auction), he mentioned he will sell to another buyer on that day. When he mentioned there was NO auction, all credibility was lost.

It just stumped me a little, in a matter of 3 hours he was able to secure another deal and exchange contracts with that buyer unconditionally. Really quick turn around in events.

In any case, we had to do our due diligence.

Similar place in the building sold for $590k in April this year (much more tidy and renovated). Adding the reno costs + stamp duty + possible strata levy spike + COVID-19 devaluation, I would be overpaying... I guess.

The turn around in events, decisions beyond our control I believe were an act of fate. I'm trying to understand the logical reasoning behind each decision, to be better prepared in future.