An auction is when a property is purchased by the interested parties publically negotiating a price.
Houses for sale by auction don’t usually have a price advertised. This is so that the price can be determined by the market (i.e. people who want to buy it.) Usually if a house is going to auction, the real estate agent or client has decided there is enough interest to make an auction a good option. The vendor will normally set a reserve price prior to the property going to auction which is the minimum price they will accept.
Sometimes a property is put up for sale by auction as a way of getting a quick sale, so don’t assume an auction is going to be crowded with motivated buyers.
How it works
The Auctioneer will start by asking for an opening bid.
The Auctioneerwill decide the amount the bidding will be raised by – for example if the opening bid is $350,000 they may call for bids to increase by $10,000 increments – so in this case the next bid will be $360,000 .
To bid, you attract the attention of the Auctioneer – for example, by raising your hand or calling out your bid.
Bids have to reach the reserve price which the vendor has decided before hand. Once it does, the house is on the market and will be sold to the highest bidder once bidding has stopped.
If your bid is successful you need to pay a deposit on the day – normally 10% of the purchase price so make sure you have that money available.
Offers at an auction (or prior to) must be unconditional – i.e. you can’t make it conditional on you selling an existing property or other conditions. Check the terms of sale for that particular auction so you know what you are agreeing to.
An unconditional offer is effectively a cash offer and is legally binding.
If the property is passed in, it means the bidding didn’t reach the reserve price. If you were the highest bidder, you will be given the first opportunity to negotiate with the vendor futher.
Before you go to an auction
- Do your research on the property – get a title search and a LIM before the auction. Check the sales information for similar properties in the same area so you have an idea what the sale price might be. Go to the auction with a preferred price, and the top price you are willing to pay.
- Attend some auctions just to watch so you become familiar with the process
- Talk to your lawyer and get them to check the Contract of Sale before the auction
- Get a building inspection done
- Sort out your finances. You need to know what your limit is going to be on the day, and have the required deposit available.
- Register to bid: if you register before the auction day, you will be kept informed of progress during the marketing phase leading up to the auction – including if a pre-auction offer is made.
You can also make an offer prior to auction day. If you do, all other registered parties will be informed. The auction may be bought forward.
If you find the whole process unnerving, you can get someone to bid on your behalf. Remember that it is the Auctioneer’s job to get the best offer on the day so stick to the limit you decided prior to the auction.