Buying at Auction
Buying at Auction.
The auction process can be a daunting and emotional experience but being prepared and having a solid strategy will help.
- You get a definite result. Contracts signed at auction are unconditional and, once signed, are binding on both parties.
- It's fast - settlement can occur within a month
- You don’t spend as much time dealing with agents.
- You could end up with a bargain.
- If the property is passed in, you are in a stronger negotiating position.
- It can be exciting.
Make sure you have authority to bid.
In Queensland, bidders must register prior to auction. This is to help counter ‘dummy’ bidding, a practice used to artificially raise bids. For more information on the auction process and relevant regulations, contact the Department of Fair Trading or visit http://www.fairtrading.qld.gov.au/printable/buy-house-at-auction.htm
Handy tips for bidders.
- Do your homework.
Have a good idea about the property’s market value. Properties sold at auction are usually subject to a reserve price - the minimum price the vendor will accept. The agent must not disclose the reserve price. For a fee, your lending institution or a registered valuer can give an opinion. Or simply monitor the prices of properties sold recently in the area.
- Go to auctions.
Attend auctions beforehand to familiarise yourself with the way they work. Note any strategies implemented by the winning bidder. This will also give you a realistic insight into the advertised price of properties and the prices they actually sell for.
- Inspect the property.
Visit the property several times to ensure it’s what you really want. Talk to the agent as they will be familiar with the local area. If you are serious about a property, consider having it thoroughly inspected by a licensed building inspector, an architect and a pest inspector before the auction.
- Get legal advice.
If you are seriously interested in a property, you should have your solicitor or conveyancer inspect the ‘Agreement for Sale’, which will be held by the auctioneer. They might suggest making additions or variations to the agreement. These can be negotiated between the solicitors of both parties and, if agreed, the contracts can be amended accordingly. Check that your copy is an exact copy of the auction contract. Ensure there have been no late changes. Make sure that you have a clear understanding of exactly what is to be included in the sale - all fittings, furniture and any other relevant items should be clearly listed.
- Be financially prepared.
The winning bid at an auction is binding so your finances must be in order before auction day. Contact your lending institution for finance approval so you know how much you can spend. You will need a written loan approval before auction, as well as the deposit, which is usually 10 per cent of the purchase price.
- Register your intentions.
You might be required to register before the auction. You might need to show identification on the day. A driver’s license is usually sufficient. Being registered doesn’t mean you are obliged to bid.
- Stay calm.
Arrive early and find a spot that allows you to read the room and watch other bidders. Having spare time will allow you to do a mental checklist so that you feel fully prepared. Keep your emotions in check. You are making a significant financial investment so don’t get carried away. If you don’t feel comfortable bidding you can use a professional purchasing agent, friend or family member to bid on your behalf. When using a proxy bidder, make sure you talk to the agent or auctioneer to understand their requirements. Remember, a proxy will bind you to the purchase if their bid is accepted on the day.
- Be bold.
Bid with confidence so that the auctioneer knows you exist. Make sure your bid is realistic so that your interest is taken seriously. Keep in mind that a strong bidder might create a psychological advantage over the competition.
- Know when to stop.
Once bidding has reached your limit and doesn’t look like slowing down, STOP. If you can’t resist, simply walk out of the room. If you weren’t the successful bidder, accept that over-extending yourself is not in your best interests. There will always be other properties
- Be prepared.
When you win at auction, you are required to sign the contract and pay a deposit once the property has been ‘knocked down’ to you. The deposit, usually 10 per cent of the purchase price, will be held in trust until settlement occurs. The next step is organizing insurance to protect your interest in the property. If you require early access to your new property, this can sometimes be arranged via the agent but is not a given right before settlement.
Common bidder questions
What is an auction?
The auction process evolved to ensure property was exchanged at a fair (market at the time) price. The Romans started using auctions in AD 193. The auctioneer first explains the terms and conditions of sale, gives a narrative of the features of the property and then opens the bidding.
What's meant by ‘market at the time’?
The market is defined as the price obtained when two willing and able parties agree to exchange property at a price accepted by both parties at the time. The buyer makes use of comparable sales to help his/her judgement.
What is a reserve price?
The reserve is a price set by the owner after finding out what the market is paying for their style/age of property. The reserve can be higher than the market at the time but rarely far lower. The auctioneer helps the owner determine the reserve price by providing sales data. The vendor's reserve must not be disclosed to buyers.
Am I able to buy the property privately prior to auction?
Yes. You can buy before, at or after auction, providing the owner accepts your offer terms. Many properties are sold this way.
If I want to bid at an auction, can I do so with an extended settlement date or a deposit lower than 10%?
Yes, providing an arrangement is reached with the auctioneer and owner and you are granted special dispensation.
How do I bid?
Some people find bidding a little nerve racking but it can also be fun and exciting. Relax and take your time. Know what you are prepared to pay. Bid by attracting the auctioneer’s attention. Raise your hand, call out, nod your head etc. Record your bids so you know if the price being called by the auctioneer is your bid. Don't be afraid to ask the auctioneer if you are uncertain.
Will I get one last chance to look at the property?
One of the most important auction day functions is to provide the information needed for confident and enthusiastic bidding. If the auction is on site, Raine & Horne gives buyers one last opportunity to have a look around. They also answer any questions bidders might have.
If the property does not sell at auction and is passed in, what happens next?
If you are the losing bidder (the last bidder) the auctioneer may give you first right to negotiate at the seller’s reserve price. This means you can pay the reserve price and secure the property, proceed to contract and pay your deposit. If you are not willing to pay the reserve, you can still go to contract with your offer and deposit. But remember, the property is now on the open market so negotiation is also open to other buyers.