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Buying At Auction

A property auction is a fast-paced, public sale.

The property is sold to the buyer with the highest bid after the seller’s reserve price is reached.

Auctions bids are open so you know what everyone else is bidding.

If you win an auction, you are committed to purchase the property and you must pay the deposit on the auction day.

Deposit and finance (if required)

You need to be well prepared to buy at auction which, among other things, means that you should have the finance arranged (including the deposit).

  • When you buy at auction the contract is binding.
  • You will need to have the money to pay a deposit on the day.  The deposit is normally 10% of the purchase price, but this figure can be negotiated.  Deposit finance can be arranged to pay the deposit on auction day.
  • If mortgage finance is needed, it pays to have this arranged before the auction even though it won't be required until settlement. 

Before the auction

Do your research on the property.  Auctions are unconditional, so you need to learn as much as you can about the property. Ask your lawyer to review and help you understand any information you get before the auction.

  • Register your interest in the auction with the listing real estate agent and ask for details of the auction and the contract.
  • Arrange your finance.
  • Talk things over with your lawyer - ask him or her to do all the necessary checks on the property and its title.
  • If necessary, arrange a valuation and any other reports so these are ready well before the auction.
  • Decide on your top price!

Bidding at the auction

If you haven’t been to an auction before, it’s a good idea to attend one as a spectator so you can see how they work.

At the auction, buyers put forward the price they’re willing to pay for the property as bids. Each bid must be higher than the previous bid. The auctioneer decides the minimum amount you can increase your bid by.

The auctioneer works for the seller to get the highest bid possible. Bidding often starts below the reserve price, and anyone can make the first bid.

You can start bidding at any time right up until the auctioneer says the property is sold.  You can stop bidding at any time too.

The reserve price

The reserve price is set by the vendor prior to the auction.

Only the auctioneer knows the reserve price. 

When bids reach or go above the reserve price

Once the reserve price has been met, the highest bidder wins the auction.

The winning bidder signs a sale and purchase agreement and pays the purchase deposit.When bidding doesn’t reach the reserve price

If bids don’t reach the reserve price, there are usually three options:

  1. The seller may decide to lower their reserve, and the auctioneer will sell the property to whoever makes the highest bid.
  2. The auctioneer may take the highest bidder to another room to privately negotiate a higher bid. If the seller accepts this new higher bid, everyone comes back out into the auction and the auction continues. The higher bid becomes the new reserve so the property can sell at any time.
  3. The property may be passed in. This means the property has not sold at auction, so the seller may decide to try a different way of selling their property.

Sometimes the house sells by negotiation after the auction. If you were the highest bidder, you may be able to negotiate and you could add conditions to the contract at this stage.

After the auction

If you are the successful bidder, you will be given a contract to sign that confirms you have purchased the house.

The contract will show the purchase price and the deposit you have paid.

What happens on settlement day?

If it's time to do a few numbers

This simple calculator might be helpful.

My rent as a mortgage

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Understanding how auctions work - by settled.govt.nz