A lot of Christchurch property sells under the hammer, and auctions catch first home buyers out in a way that private treaty sales do not. The difference is simple and it is worth being blunt about: when the hammer falls at an auction, you have signed an unconditional contract. There is no finance clause, no builder's report clause, and no cooling off period. The deposit is payable, usually on the day.
Which means all the conditions you would normally attach to an offer have to be dealt with before you raise your hand.
What a pre-approval actually is
A pre-approval is a lender telling you, in writing, how much they will advance you, subject to their remaining conditions. It is not a blank cheque, and the wording matters. Most pre-approvals still have conditions attached, and the two that most often bite at auction are these.
The registered valuation
If you are borrowing more than 80% of the purchase price, your lender will usually want a registered valuation. The risk at auction is straightforward: you can pay more than the property values at. If that happens the bank lends against the valuation, not your winning bid, and you have to cover the gap in cash. On a hot auction that gap can appear very quickly.
The property itself
Pre-approval says the lender is happy with you. It does not say they are happy with the specific house. In Canterbury that distinction does real work. Unrepaired earthquake damage, an "as is where is" listing, monolithic cladding on something built between the mid eighties and the early two thousands, or a property that turns out to be difficult to insure — any of those can turn an approved buyer into a declined loan on that particular address.
What to do before auction day
- Get pre-approved properly, and read what the outstanding conditions actually say.
- Order the building report and check the LIM on the specific property, before the day. Yes, on a property you might not win.
- Have your solicitor review the auction pack and the title.
- Confirm insurance is available on that address. On some Canterbury properties this is the thing that stops a deal.
- Know your ceiling — not the number you hope to pay, the number above which the finance stops working.
The uncomfortable part
Doing all of that costs money on a property you may well not win. A building report and a valuation on three different auctions is real spend with nothing to show for two of them. It is genuinely frustrating, and it is still cheaper than winning an auction you cannot settle on.
The short version
- The hammer falling is an unconditional contract — there is no finance clause
- Pre-approval covers you, not the specific house
- Do your due diligence before the day, not after
- Know the number where your finance stops working, and stop bidding there
If there is an auction coming up, start the conversation now rather than the week of. More on getting pre-approved, or the full first home buyers guide.