Buying at Auction
Buying property at an auction
An auction is a gathering of potential buyers who publicly bid for a property. It is usually conducted by an estate agent, acting as an auctioneer and governed by strict rules. Buying property at auction is very different to other property purchases. The bidding process is public and if the hammer falls and you are the highest bidder, you have to sign the contract right there and then. This means you must be sure you are bidding on a property that you can buy.
Become informed on key things to know before you start bidding.
Understand the following auctions terminology:
Reserve price – before the auction, the vendor (seller) will set a price with the auctioneer that is the minimum price they will accept. If the reserve price isn’t reached during bidding, the auctioneer will privately ask the vendor if they will sell at a lower price.
Passed in – if bids do not meet the vendor's reserve price, the auctioneer will seek more bids. If bids still do not meet the reserve, the property may be 'passed in' or 'withdrawn from auction'. The highest bidder then gets first right to negotiate with the seller.
Fall of the hammer – towards the end of the auction, the auctioneer will call for any final bids. Once there are no more bids, the auctioneer will count down the 'fall of the hammer', which will signal the end of the auction. No bids can be made after the fall of the hammer and the highest bidder is legally obliged to sign and exchange contracts.
How does an auction work?
To participate or bid at an auction, potential buyers must register with the vendor's agent and be given a bidder's number. The auctioneer oversees the bidding process. They take bids from potential buyers and keep track of the current bid price. Before auctioning a property, the seller will nominate a reserve price, which is usually not advertised. If the bidding continues beyond the reserve price, the property is sold at the fall of the hammer. If you are the successful bidder, you must sign the contract of sale and pay the deposit on the spot (usually around 10 per cent of the purchase price).
Difference between an auction and private sale?
Auctions differ from private sales as there is no cooling-off period:
- after the seller and buyer exchange contracts;
- if contracts are exchanged on the same day as the auction after the property has been passed in;
- if you are bidding at an auction, you must be ready to exchange contracts and complete the sale, otherwise you will lose your deposit and may be liable for any damages suffered by the vendor.
What happens on the day of auction?
On the day of the auction, the property may be open for inspection, usually half an hour before the auction starts. Use this opportunity to take a final look at the property, the contract and auction rules. Agents must give all potential bidders a copy of the Bidder's guide before the auction. The Bidder's guide contains important information you need to know, such as how you register to bid and what kind of identification you must provide to register. It is important to know how to register as you cannot bid if you are not registered. Agents are also required by law to have a list of the following auction conditions clearly visible for all potential bidders:
- the highest bidder is the buyer, subject to any reserve price;
- the auctioneer is entitled to make one bid only on behalf of the seller;
- before the auction, the auctioneer must announce that the auctioneer is permitted to make one bid on behalf of the seller;
- the auctioneer must announce immediately before, or in the process of making the bid, that he/she is making a vendor bid;
- the auctioneer can refuse a bid that is not in the interest of the seller.
If the reserve price has not been achieved then the property will be 'passed in' which means that it has not sold at auction but negotiations may occur after the auction. If the hammer has fallen then the successful bidder must be ready to hand over the deposit and exchange contracts.