The main difference between an auction and a private sale, as far as your loan is concerned, is related to the lender’s valuation of the property.
While a lender will always check to ensure they’re happy with the amount you paid, approval is almost always given quickly following an auction. This is because an auction is seen as a transparent process (the bids are all public), so the final sale price is, by definition, the market value of the property.
This is worth keeping in mind if you are the highest bidder, but the property is ‘passed in’ rather than sold during the auction. You will be invited to negotiate a price with the vendor, and it is important not to offer a lot more than the passed-in price, as you risk paying more than the lender’s valuation.
A private sale is different. Your negotiations with the vendor (usually via a real estate agent) are private, and rival bids are not disclosed. It is possible that the final price you agree on is much more than the next-highest offer; there is a risk that you might be paying far more than the market value of the property. Lenders will always scrutinise private purchases more than those determined at auction.
At Mortgage Broker Group, we often recommend that you make any offer for a private sale ‘subject to finance’. This means that if your offer is accepted, you are only bound to the contract if your lender approves the sale price. Other conditions, such as pest or building inspections, can also be placed into the contract. These conditions are not able to be imposed at an auction, where a sale is final.
*Note: You should seek independent legal advice based on your personal circumstances.