Pre-approval explained
Why an automated pre-approval is not enough at auction.
Buying at Auction: What You Cannot Undo
No cooling-off, no subject-to-finance, and the deposit due on the day. What to have in place before you raise your hand.
When the hammer falls at auction you are contractually committed on the spot. There is no cooling-off period, no subject-to-finance clause and no way to renegotiate. You sign and pay the deposit that day. That makes auction the one purchase route where your finance genuinely has to be settled before you attend, not after.
Auctions are common in Sydney and they are not inherently risky — but they remove every safety net that a private treaty purchase gives you. Understanding exactly what you are giving up is the difference between bidding confidently and gambling.
What you give up
| Private treaty | Auction | |
|---|---|---|
| Cooling-off period | Yes, with a fee | None |
| Subject to finance | Usually possible | Not possible |
| Time to inspect and review | Before committing | Must be done beforehand |
| Deposit | On exchange, negotiable timing | On the day |
Everything you would normally do after agreeing a price — building inspection, contract review, finance confirmation — has to happen before the auction, on a property you might not win. That is the real cost of auctions: you pay for due diligence on properties you do not buy.
The valuation trap
This is the risk people underestimate, and pre-approval does not protect you from it.
Pre-approval says a lender will lend you an amount, subject to conditions. One condition is the property valuing up. If you win at auction for more than the lender’s valuer assesses, the lender lends against their figure, and you cover the gap in cash.
At auction, competitive bidding can push a price above what a conservative valuer will support. You are contractually bound at the price you bid, not at the price the bank agrees with. The shortfall is yours to fund, immediately.
This is why bidding to your absolute maximum borrowing capacity is dangerous. Leave room between your ceiling and your capacity, so a modest valuation shortfall does not become a crisis.
What to have in place before the day
- Fully assessed pre-approval, not an automated one. A credit assessor should have seen your documents. See pre-approval explained.
- The contract reviewed by your conveyancer or solicitor, before auction day.
- Building and pest inspection completed, and a strata report if it is an apartment.
- The deposit available on the day — commonly 10%, as cleared funds or a bank cheque. Money in a term deposit is not available.
- A firm ceiling, decided while calm, below your maximum capacity.
- Registration to bid, with identification, completed in advance.
If you cannot settle
Worth knowing plainly, because it is the reason all of the above matters.
If you win and then cannot complete, you are in breach of contract. You can lose your deposit. The vendor may resell and pursue you for the shortfall and costs. “My finance fell through” is not a defence, because the contract was never conditional on finance.
This is not a scare story — it is simply what an unconditional contract means, and it is why finance-first is not optional advice at auction.
Practical tactics that actually help
- Attend other auctions first. The pace is disorienting the first time, and the first one you attend should not be the one you are bidding at.
- Write your ceiling down and take it with you. Auctions are designed to create urgency.
- Understand the reserve. The property is not on the market until the reserve is met; bidding before that is negotiation, not competition.
- Ask about pre-auction offers. Some vendors accept them, which converts the purchase to a normal contract and restores your conditions.
- Bring someone. Or use a buyer’s agent to bid. Emotional discipline is easier delegated.
Common questions
No. Auction contracts in NSW are unconditional. If you need a finance condition, you need to buy by private treaty or negotiate a pre-auction sale.
No. Cooling-off applies to private treaty sales in NSW, not to property sold under the hammer. Once you sign, you are committed.
Commonly 10% of the purchase price, payable immediately as cleared funds or a bank cheque. A smaller deposit can sometimes be negotiated with the vendor in advance, but not on the day.
You cover the difference in cash. The lender lends against their valuation, not your bid. This is the strongest reason to keep your bidding ceiling below your maximum borrowing capacity.
Sometimes. Many vendors will consider pre-auction offers, and a sale agreed that way is a normal contract, which can include a finance condition and a cooling-off period. It is always worth asking.
Bidding soon? Get your finance genuinely settled first
We will get you properly assessed rather than automatically pre-approved, and tell you the ceiling you should actually bid to.
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