Buying at auction
Auction is a way of selling property through intensive advertising media designed to capture the maximum attention of customers within a set time frame. The process is a means of purchasing/selling real estate through public negotiations to determine the true market value of the property at that time.
What does the reserve price mean?
The client usually sets the reserve price before the auction. The reserve is established as a result of feedback from interest parties during the marketing period. The reserve is the minimum figure that the auctioneer is instructed to sell the property for on auction day.
Will the auctioneer be bidding on behalf of the Client?
An auctioneer can make what we call a vendor bid. Often the first bid is a vendor bid if purchasers are reluctant to start an auction. If, during the auction, an auctioneer does make a vendor bid they must declare it to all attendees so that everyone is absolutely clear that they have done so.
How do I bid at the property auction?
The auctioneer will ask for an opening bid and will then nominate the increments by which the bidding can be raised. To make a bid, simply attract the attention of the auctioneer by:
- Raising your hand; or
- Calling out your bid; or
- Nodding your head when you catch the auctioneer's eye.
If you are the successful bidder, you will be asked to pay the 10% deposit and sign the auction contract.
Can I buy before auction day?
Yes, in most cases you can, under the following conditions:
The offer must be unconditional and will be written up on a Particulars and Conditions of Sale of Real Estate by Auction form and be signed by the purchaser. It must be accompanied by a 10% deposit. The deposit will be held in safe keeping until the property changes hands or refunded in full if the offer is unsuccessful.
The following clause will be added as a Special Condition of Sale and be initialled by the purchaser:
This offer shall remain open for acceptance by the vendor and may not be withdrawn or revoked by the purchaser until 4:00pm on the fourth working day after the offer has been first presented to the vendor.
The offer is then relayed to the Auctioneer, Branch Manager or Regional Manager, who will then give the details of the offer to the vendor to decide if the offer is at an acceptable level for them.
If the offer is not at an acceptable level to the vendor, no counter offer will be made. It will be communicated to the purchaser that the offer was not at a level to stop the auction and the deposit will be returned.
If the offer is at an acceptable level to the vendor, unless the vendor instructs otherwise, all other registered purchasers will be contacted and advised that an unconditional offer to purchase the property, at a level that is acceptable to the vendor (“instigating offer”), has been received and that they too are invited to make an offer or attend an auction date brought forward.
If other registered buyer/s wish to make an offer, one of the following two actions will occur:
a. The auction will be brought forward, the opening bid announced will be the purchase price specified in the instigating offer already made, the vendors having signed a reserve for the same amount. If no other buyers attend the auction, or bid, then the property will be sold to the initial offeror at the initiating offer price. If other buyers attend the auction and then make an acceptable bid above the initiating offer, the party who made the initiating offer can increase the bidding during the auction should they decide to. The auction will take place within four working days, after the details of the offer has been presented to the vendor.
b. The vendor can choose to accept an offer without going to auction. All interested parties will be contacted and invited to make an unconditional offer. All offers will be presented as multi offers in accordance with Property Brokers multi-offer procedures (with the initiating purchaser having the opportunity to increase their offer). All purchasers shall be asked to sign a ‘Multiple Offer Acknowledgement’ form, which will accompany the offer.
Can I bid when I have to get finance?
Because you must be in a position to bid on a cash unconditional basis at the property auction, you should organise through your bank or mortgage broker pre-approval to bid up to a price you are prepared to pay.
Can I bid when I have a property to sell?
There are two options. If you are in a sound financial position you may arrange bridging finance to cover any delay in settling your property. Or you may ask the client for a longer settlement date, giving you time to sell and settle your property.
What price do I have to pay to buy the property?
This is the price you are prepared to pay, and the client will accept, bearing in mind that other customers may have different ideas regarding the value of the property. It is sometimes prudent to fix a figure you would pay to secure the property, but also a higher amount just in case. Remember, if it sells to another customer at auction, you won't have another opportunity to purchase the property.
What if the property doesn't sell?
If the reserve price is not reached, the property is passed in to the highest bidder. The highest bidder is then offered the first right to purchase the property immediately after the auction at the client's reserve price. If a sale is not completed immediately following the auction, the property will be offered for sale to all other interested parties.
If I am the successful bidder at the auction, what contract do I sign and what are the conditions?
The contract is the auction contract. This contract and other helpful information, is available from the salesperson during the marketing of the property and on auction day. It is important that you read and understand this contract prior to the auction. If you are the successful customer you are required to sign this contract and pay 10% of the purchase price as deposit; either by bank cheque or personal cheque. Settlement date is often flexible. You should discuss this with the salesperson prior to the auction commencing.
Before signing any agreements, both the customer and client should seek legal advice.