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How does an auction work?

An auction is a method of selling a property through the process of public negotiations.

Buying at Auction

The concept of auctions is well known but there are some things to be aware of if you are buying at auction.

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

 

Deposit and finance (if required)

  • 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

  • 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!

Note: You may be able to make an offer to the vendor before the auction - check this with the real estate agent.

 

Bidding at the auction

The auctioneer will open the bidding by asking for an opening bid.  For example, an opening bid is placed of $300,000.

The auctioneer then nominates for the bid to go up in increments of say $10,000, meaning that the next person that bids will be offering $310,000.

To place a bid, you simply attract the attention of the auctioneer by raising your hand, calling out your bid or nodding your head when you catch the auctioneer’s eye.

Towards the end of the bidding the auctioneer may accept bid increments of $1,000 or less.  You can also tell the auctioneer what bid increment you are making. 

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.

Usually the vendor sets a reserve price.  Only the auctioneer knows the reserve price.  If the highest bid is above the reserve price the house is sold to the highest bidder when bidding stops. 

Once bidding reaches the reserve price, the property is “on the market” and will sell to the highest bidder when the bidding stops.  The reserve price is set by the vendor prior to the auction.

If the reserve isn’t reached the home is passed-in.  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.

Settlement is usually between 20 and 30 days after the auction.