01 May Failing to get finance before auction – Dene Tucker and Matthew Andrews
18 per cent of property buyers in Australia fail to get pre-approved finance before trying to buy at auction. While Dene Tucker from RE/MAX says the majority of buyers have their pre-approval in order, any percentage of non-pre-approved buyers is a concern. We talk to Dene and Pivotal Financial’s Matthew Andrews about this concerning growing trend.
Kevin: There’s been an alarming suggestion in a recent YouGov Galaxy poll that 18% of people in Australia failed to get pre-approval finance before trying to buy at auction. You’ve got to be crazy!
Joining me to talk about this, Dene Tucker who is the broker/owner RE/MAX Auction Services for Australia and also Matthew Andrews who is the general manager for Pivotal Financial.
Firstly, Dene, thank you for your time.
Dene: Not a problem at all. Good morning, Kevin.
Kevin: Matthew, welcome to the show.
Dene, I might start with you. Obviously, doing auctions all around Australia, do you find this happens more in any one state than the other?
Dene: Having had the opportunity to consider this since this story came out, I guess I’ve determined that I’m obviously quite privileged, because I’m clearly working with a lot of experienced agents, and frankly, over 5000 career auctions now, I’ve never actually come across this.
Kevin: Is it something that you would come across, do you think? As far as you’re concerned, when it’s knocked down, it’s knocked down.
Dene: Look, my engagement with my agent clients, the salespeople I’m working with week in, week out, I’m pretty confident I’d hear if there was a situation where someone’s bid under a hammer and then not been in a position to go through the deal because they didn’t have the financing.
Kevin: I would imagine it’s just best practice for an agent, though, to make sure if you have someone all the way to come to an auction to bid that at least they’re going to get their finance set. It’d be one of the questions they’d ask them, I would have thought.
Dene: Most definitely. Certainly, in all the training work that we do and have done over years and years, a big part of it is about making sure that people are prepared for auction day when we’re talking about buyers. Certainly, that remains a focus for us as part of the process.
Kevin: Matthew, to you for a moment, I imagine there would be occasions where someone – and I’ve actually heard of this – where someone is going there to buy a loaf of bread or something, they turn up at an auction and think “Wow, I love this place. I think I’ll buy it.” A pretty risky thing to do, but it could happen quite easily, couldn’t it?
Matthew: Yes. And good morning, Kevin. It’s a really interesting question. I think it comes down to the education of the client in the process of applying and being successful for finance and purchasing a home.
Unfortunately, at the moment, a client can turn up as long as they’re a registered bidder at an auction and proceed with a purchase without any finance in place. What Pivotal Financial and ReMax are working together to do is work with the client at the earliest opportunity to prepare them for auction or any of their finance needs.
Normally, this starts off with a pre-approval and the lender’s acceptance of the property they’re liking to look at, so we assess their affordability and the attraction to the area of the properties that they’re looking at.
Kevin: Matthew, when someone does come to you and wants to bid at an auction and you have to set their finance up, one of the things you don’t know about auction is the eventual sale price.
Do you let them work within a barrier of a price range and then you’re comfortable for them to bid within that range?
Matthew: Correct. The main driver is a lot of regulation and compliance within the finance industry at the moment. First of all, we look at the serviceability of the applicant, so what’s the level of debt that they can take on dependent on the end LVR of the property purchase? That’s a big one or a key one in identifying how much they can actually borrow. Then that sets them on the path of the properties that they can look at.
Kevin: In the event that someone did turn up to an auction and bid, then they’re the successful bidder, it gets knocked down to them and they turn up to sign the contract and say “I need to make this subject to finance,” the first thing you have to turn around and say is, “Look, I’m sorry you can’t do that.” What penalties could apply to them in theory if they couldn’t complete?
Matthew: This is probably a question that Dene could help with as well, but potentially, they may be up for a deposit or be liable for the full purchase property or a dollar value of that loan depending on the circumstance of the vendor that’s selling the property.
Kevin: Dene, did you want to add to that?
Dene: Yes, Matthew is absolutely right. The deposit immediately – of course, once that’s been paid and cleared – is to the benefit of the seller. The process from there then becomes a matter of resource, whether or not the seller has appeared to have put the resources into pursuing their contract to settlement or whether it’s economically more viable just to re-enter the property into the marketplace. But either way, if the deposit is paid, then that’s forfeited by the purchaser.
Kevin: Yes, because it’s quite clear, isn’t it – Dene, once again, asking you this question – when you read out the terms and conditions or make them available for people to look at, part of it is that you’re buying this on a cash unconditional basis. It’s quite specific, isn’t it?
Dene: Very specific. From a best-practice perspective, there are probably a couple of things in that chain of process that need to occur. Firstly, when the agent or whoever is assisting them registers the purchaser, that purchaser needs to clearly be told that they’re bidding on an unconditional basis, that’s part of the process.
The next part from a best-practice perspective is to have the purchaser not only sign the registration form and provide the ID as required in statute, but also sign off on the particulars and conditions of sale by auction, which clearly state that there are no conditions attached. So, clauses 3 and 4 of the agreement, which are the more common ones, your finance clauses and your inspection clauses, are removed.
The next part of the process is that it’s re-emphasized by the auctioneer. I do that at every auction, quite clearly emphasizing those clauses are out and that they’re bidding on the basis of it being an unconditional contract.
There’s always going to be an onus on our industry as much as there is on the finance side of this for our people to be able to communicate these things succinctly and clearly and not allow these situations to occur in the process as part of the process.
Kevin: Gents, we’ll leave it there. Thank you very much. Dene Tucker from RE/MAX Auction Services and also Matthew Andrews from Pivotal Financial. Gentlemen, thank you very much for your time, and I appreciate you giving us your wisdom today.
Dene: Thank you, Kevin.
Matthew: Thank you, Kevin.