Buying commercial property at auction: a finance checklist

The auction rule that changes everything

At a private treaty sale, a buyer can often make an offer subject to finance. At auction, the moment the hammer falls the buyer is committed: the contract is unconditional, the deposit is due on the day and settlement must happen on the date in the contract. If the bank later values the property lower, reduces its loan or declines, the buyer still has to settle.

For commercial property, where bank processes are longer and valuations more variable, this makes preparation essential.

Before you bid: read the contract

Obtain the contract well before auction day and have your solicitor review it. Note:

• the deposit amount and when it is payable
• the settlement period
• whether the price is GST-inclusive, GST-exclusive or plus GST
• whether the sale is intended to be a going concern
• any leases, special conditions or vendor warranties
• the vendor’s disclosure documents

Calculate the total cash needed

Add up everything required to settle: the price (and GST if payable), transfer duty, legal and lender costs, adjustments and any immediate works. Duty is set by each state’s revenue office and can be significant on commercial property. See our guide to planning for transfer duty.

Understand the GST position

Commercial property sales may be taxable, GST-free as a going concern if the ATO’s conditions are met, or subject to other treatments. If GST is payable, a registered buyer can usually claim a credit later, but must pay it at settlement first. That can add a large temporary cash need. See GST on commercial property.

Know your bank’s position

Ask your bank what it will lend, on what conditions, and what could change its answer. Will it order a valuation after the auction? How long will that take compared with the settlement period? Does it have any concerns about the property type, lease or location? A pre-approval is useful, but it is not the same as a formal approval on a specific property.

Set your limit with funding in mind

Your maximum bid should reflect the total cash you can be sure of, plus what a backup can provide. Bidding beyond that turns an exciting purchase into a risky one. Decide your limit before the auction and stick to it.

Line up a backup

A secured backup arranged before auction day protects you if the bank’s process does not go to plan. A specialist can assess the property and any other security you own in advance. If the bank comes through, the backup is not needed. If it does not, the backup can cover a shortfall or replace the bank’s funds, with a later refinance as the exit. See auction purchases.

Line up auction backup funding before you register to bid.

Paying the deposit on the day

The deposit is due when the contract is signed. If your cash is tied up, a secured loan over another property can provide it, arranged before the auction. Some vendors accept deposit bonds, but check the contract.

After the hammer falls

Within days of winning, confirm the settlement figure with your conveyancer, update your bank and start any valuation it requires. If your bank’s answer changes, activate the backup immediately rather than waiting.

Illustrative example

Illustrative only. A logistics company bids for a warehouse at auction. Before the auction it confirms that GST will be payable on top of the price, calculates duty and costs, and arranges a backup secured loan over the directors’ homes in case the bank’s valuation is low. It wins the auction. Three weeks later the bank’s valuation comes in below the price and the bank reduces its loan. The backup covers the difference and the GST, settlement proceeds on time, and the company repays the backup after the GST credit is refunded and a bank top-up is approved.

Leases and tenanted property at auction

If the property is tenanted, review the lease carefully: rent, term, options, outgoings and the tenant’s business. The lease affects value, your bank’s appetite and, potentially, the GST treatment. If you plan to occupy the property yourself, check when vacant possession will be available.

Due diligence you cannot skip

Auction timelines do not remove the need for due diligence. Check zoning and permitted use, building condition, compliance issues such as fire safety and any environmental concerns, especially for industrial property. Our guide on commercial property as security covers what lenders look at, which overlaps with what buyers should check.

Common mistakes

• bidding without reading the contract
• forgetting GST and duty in the budget
• relying on a pre-approval as if it were a formal approval
• bidding above a limit that funding can support
• having no backup if the bank’s answer changes

Bid with certainty

Auctions reward prepared buyers. Tell us about the property, the contract terms, your budget and any property you can offer as backup security, and a specialist will tell you what backup funding is realistic. There is no credit check when you first enquire, your details stay with our team, and an early conversation means the backup is ready before you raise your paddle. Prepare your auction funding.