Sale & Settlement
Contracts, Cooling Off Periods & More
Buying at auction
Before you bid at auction you must understand the process and satisfy yourself about all the details relating to the property. If you are the highest bidder and your bid is accepted, you are obliged to purchase the property.
If buying at auction you should have:
•Decided on a definite upper limit you are prepared to pay
•Had legal documents checked by your solicitor/conveyancer
•Organised a bank cheque for the deposit
•Had finance pre-approved
Conditions of sale by auction might differ between state and territories. Your agent can explain the conditions applicable in your area.
Bidding at auction
In some states, prospective purchasers wanting to bid at an auction for residential and rural property must register by giving their particulars to the selling agent before they are permitted to bid. Bidders are issued with a bidder’s number which is displayed when making a bid.
The vendor or the auctioneer on the vendor’s behalf may make one bid which must be accounted for during the auction. This is called a vendor bid.
If the property fails to reach the reserve price it is passed in. As a courtesy, the highest bidder is usually given the first opportunity after the auction to negotiate further with the vendor through the selling agent. If the highest bidder does not purchase at the reserve price the property will be put back on the market for sale by private treaty.
Bidding on behalf of a purchaser
If you want someone else to bid on your behalf, they must give the auctioneer written authority from you before the auction starts. The letter must include your name, address and details of proof of identity, such as your driver’s licence or passport.
The practice of bidding by telephone is allowed subject to compliance with certain procedures. A written authority must be given to the auctioneer prior to auction, containing an acknowledgement that the person on whose behalf bids are made has been given a copy of the conditions that are applicable in respect to the sale, and the bidder is satisfied the person has been given a copy of those conditions. A copy of the contract must be provided to all successful telephone bidders after the auctioneer has signed it on their behalf.
It is illegal to make ‘dummy’ bids at an auction. If you make ‘dummy’ bids for the seller, you may be prosecuted and incur a substantial fine.
•Attend similar auctions in the week leading up to your auction to better understand the system.
•Get a feel for the bidding process before you start.
•Establish a limit of how much you’re willing to spend for the property.
•Know what’s happening around you. Don’t hide or the auctioneer might miss your bid.
•Bid with confidence. This shows people that you’re serious about buying.
•The auctioneer will set the bidding increments, depending on the price bracket of the property. Bid in these increments if you can and don’t raise the price unnecessarily.
•When the bidding slows or stops at a figure acceptable to the vendor, the auctioneer may announce that the property is to be sold. The auctioneer will repeat the price several times before the hammer comes down and the property is sold.
Before the auction the seller will nominate a reserve which is the lowest they are willing to accept. The reserve price is not revealed to buyers.
If a property fails to reach the reserve price the property can be ‘passed in’ or withdrawn from auction. The agent will then negotiate with the highest bidder on behalf of the vendor. This may result in a sale.
Purchase at auction
If you are the successful bidder, you must sign the sale contract and pay the deposit immediately (usually 10%). A cooling-off period does not apply if you buy at auction so it is imperative you arrange finance prior to auction. Conditions of sale by auction may differ from state to state. Your agent can explain the sale by auction conditions in your area.
Other Essential Information
Contract of Sale
A residential property cannot be sold until a contract has been drawn up. A contract of sale sets out the terms and conditions of the sale. A buyer can examine the contract at any time during the buying process, even before an offer is made.
Making an Offer
Deciding how much to offer can be difficult. You might wish to make your best offer up front or start with a lower offer and be prepared to negotiate up. However, other purchasers who make higher offers might secure the property without giving you the opportunity to increase yours.
•Offers should be made around the current market price. Offers well below market value will not be taken seriously and the vendor might even refuse to deal with you further.
•Ensure your finance has been approved. A vendor is only interested in serious offers that can be fulfilled.
•Put your offer in writing and give it to the real estate agent. The agent is obliged to forward formal offers to the vendor.
Once your offer has been accepted or you have purchased your new home at auction, contracts must be signed between you and the vendor. There will be two contracts – one for you and one for the vendor – that both parties must sign.
Exchange of contracts can be done in person or by post and is usually arranged by your solicitor, conveyancer or the agent. Your agent will explain how the process works in your state or territory.
When contracts are signed by both parties you will have to pay a deposit, usually 10% of the purchase price. This is paid to the seller’s real estate agent or solicitor who will put the money into a trust account until settlement when the balance is paid.
Cooling Off Period
In some states in Australia there is a cooling off period of 2-5 working days after the exchange of contracts during which you can withdraw from the sale. During the cooling off period it is common and permitted for buyers to organise inspections, eg pest or building inspections.
There may be a cost incurred for buyers who withdraw from the sale within the cooling off period. It is possible to waive, reduce or extend the cooling off period with the consent of the seller.
There is no cooling off period for sellers or buyers who have purchased at auction.
Your agent will explain the process and legal requirements applicable in your state or territory.
In some states the property is at the risk of the purchaser from the date of signing the contract. If this is the case in your state you should immediately arrange insurance. Your agent can explain this requirement to you.
The sale is finalised when the balance of the purchase price and other adjustments have been paid and the title and transfer documents have been exchanged. Settlement usually occurs two to six weeks after contracts have been signed by both parties. At settlement you become the legal owner.
State Tax/Stamp Duty
Stamp Duty is a government tax that must be paid on settlement. It is calculated as a percentage of the sale price or the market value. Stamp duty exemptions may apply for first home owners or concession card holders. This may vary between state and territories. Your agent can explain the Stamp Duty payable in your state or territory