What is an auction?
An auction is an open process at which buyers bid against each other to purchase a property. Once the reserve price is reached, the highest bidder becomes the successful buyer.
Here is a copy of Ps and Cs by Auction
Questions you may have buying at auction
What do I need to do before an auction?
If you are going to bid for a property at auction, you need to be prepared in advance. Remember, if you are the successful bidder at an auction, you are immediately committed to buy the property. You will not have the opportunity to take any legal advice, check aspects of the property, arrange a mortgage, or negotiate terms and conditions once the auction is finished.
Prior to the auction, you can inspect the property either by appointment or by attending an open home. The agent should provide you with a copy of the terms and Contract of Sale, which will set out what chattels are included with the property, and details such as the amount of deposit to be paid by the successful bidder and when the balance of the payment is to be made.
You may want to arrange a valuation of the property, a building inspection or obtain a Land Information Memorandum (LIM) report. You will also want to get your lawyer to check the title of the property and the Contract of Sale. You need to arrange any finance required in advance. If you are the successful bidder on the day, you will have to pay a deposit immediately and sign the Contract of Sale.
At the auction
The auctioneer will read aloud the terms and conditions of sale and state whether the seller has set a reserve price. The auctioneer will not reveal the actual reserve price. The auctioneer is working on behalf of the vendor and is looking to achieve the highest price for the property.
The auctioneer must also state whether the seller has reserved the right to bid during the auction. This is called “vendor bidding” and is allowed but only under limited circumstances. Vendor bidding is only allowed when:
- the property being auctioned has a reserve price
- the reserve price has not been met
- the auctioneer has made it clear that the bid being made is a vendor bid
Vendor bids must be clearly identified by the auctioneer and they will say something like “This is a vendor bid”. They will not be able to use auctioneering jargon such as ‘The bid is with me’. Vendor bidding is sometimes used by the auctioneer as a way of starting off the bidding or trying to move bidding towards the reserve price. A vendor bid can be made by the auctioneer or some other person working on behalf of the seller, such as the real estate agent.
Bidding for the property will continue until the reserve price is reached or beaten, at which point the highest bidder will be the successful buyer.
If the reserve price is not reached, the seller can instruct the auctioneer to stop the auction without selling the property.
What happens if the auction is concluded without a sale?
If you are the highest bidder you may be able to negotiate with the seller through the seller’s agent after the auction. At this point the terms and conditions of the auction no longer apply and you have the opportunity of introducing different terms and conditions if you wish.