Auctions may be a way to stimulate competition for a property by having potential buyers bid against one another (and drive the price up in the process). Here you’ll find information about how auctions work, preparing for the auction, deposit and settlement, and some tips and tricks.
The key thing to remember about auctions is that once the hammer falls, the home is sold unconditionally. That’s why it’s absolutely essential that you do your homework first.
How does it work?
When a home is being sold by auction, any interested bidders simply turn up on the day and place their bids. The seller sets a minimum or ‘reserve’ price before the auction, but this is not divulged to bidders. Once the bidding reaches this reserve price the property is ‘on the market’, which means it must then be sold to the highest bidder. The auctioneer will usually signal when the property is ‘on the market’.
The auctioneer will work in price increments, which they will state. At the beginning, these may be quite high (e.g. $10,000). As the bidding slows, they will typically reduce the increments, taking $1,000 or $500 increments. As a bidder, you may also set a new increment. To bid, simply raise your hand. Professional auctioneers are experienced and should not misinterpret a twitch or a scratch of the head as a bid.
When a property is sold to the highest bidder at auction, the sale is unconditional and legally binding. That means that if you’re thinking about buying a home at auction, you must do your homework first – including arranging your finance, inspections, valuations or reports, and having your lawyer check the terms and conditions of sale. Remember, once the hammer falls, the property is sold.
If the bidding does not reach the reserve price, the property is ‘passed in’. When that happens, the highest bidder is given the first chance to negotiate for a sale. The negotiations may include any conditions as well as price.
Can you buy before the auction?
If you are interested in a property, you may be able to put in an offer before the auction. Ask the agent if the seller will consider a pre-auction offer. If the seller is open to considering an early offer, they are under no obligation to accept it.
However, be wary of agents who actively try to get you to make a generous pre-auction offer. It may indicate that there is not very much other interest in the home, and if you are the only bidder, you may be able to get it for a favourable price. If you do make a pre-auction offer, you should still make sure you have done your homework first and don’t be pressured into exceeding your top price.
Next page | Auction strategy >>