Auction Tips

The Steps to Buying at Auction

The auction system is an increasingly popular method of selling property. Buyers bid against each other, and the one who offers the highest price becomes the owner, assuming the reserve price has been reached.

The advantages of buying at auction are that you obtain a definite result. Contracts are exchanged at the auction and they are binding and unconditional.

It is important to note that there is no cooling-off period if you buy at auction. If the property is passed in at auction but you end up exchanging contracts on that day anyway, the cooling-off period doesn’t apply.

Buying at auction can be a nerve-racking experience so it’s a good idea to familiarise yourself with the process by attending an auction or two as a spectator.

Your first step in purchasing your property is to contact your lending institution for finance approval. You should have written loan approval before the day of the auction.

Inspections of the property are usually conducted in the company of the agent who should know the features of the property and should be able to answer questions about the facilities in the local area. Viewing times are normally specified, giving everyone equal opportunity to inspect the property before the auction. However, getting an appointment for inspections at other times can generally be arranged.

You should know exactly what you are buying, so it is advisable to have the property inspected by a licensed building inspector or architect and a pest inspector before the auction.

Properties are normally subject to a reserve price (unless otherwise advertised). A reserve price is the minimum price that the person selling the property will accept.

The auctioneer will not sell under the reserve price, and if at auction the reserve price is equalled or exceeded, the property is sold to the highest bidder on the fall of the hammer. The highest bidder then pays the deposit on the spot, usually 10% of the purchase price.

Even though the agent will not disclose the reserve price, you can get an idea of what it will be by;

• Asking the agent what similar types of properties are selling for in the area;
• Researching the prices at which similar properties in the area sold for (i.e. on the internet, in newspapers, in magazines and in other price guides).
• Receiving a valuation from the lending institution, or
• Engaging a registered valuer to complete a formal valuation.

The Agreement for Sale is prepared by the seller’s solicitors. If you are seriously interested, you should have your solicitor inspect the Agreement for Sale which will be held by the auctioneer. Your solicitor may suggest additions or variations to the agreement. These can be negotiated between the solicitors and if agreed, the contracts will be amended accordingly.

At the auction, before the bidding starts, go up to the agent and check that your copy is an exact copy of the auction contract by checking for any late changes.

Ensure you have a clear understanding of exactly what is to be included in the sale. All fittings, furniture and other items to be included should be clearly listed in the Contract.

Buyers are covered by the relevant federal and state trade practices acts. This means that if the seller advertises the property as having features it turns out not to have, you may be able to claim some damages. If the misrepresentation is very serious (i.e. survey shows that house is built over the boundary), you may be able to cancel the contract. Watch out! – It is still a “buyer beware” scenario, make sure you do your homework.

Before starting the auction, the auctioneer will read from something similar to the following terms and conditions (below is for NSW).

•  The highest bidder is the purchaser, subject to any reserve price

•  In the event of a disputed bid, the auctioneer is the sole arbitrator and the auctioneer’s decision is final

•  The auctioneer may refuse to accept any bid which, in the auctioneer’s opinion, is not in the best interests of the vendor

• If the vendor reserves the right to bid at the auction in respect of a lot and instructs the auctioneer to make more than one bid on the vendor’s behalf, the auctioneer must, before submitting the lot for sale by auction, announce in a clear and precise manner the number of bids reserved by the vendor in respect of that lot

• A bidder is taken to be a principal unless, before bidding, the bidder has given to the auctioneer a copy of a written authority to bid for or on behalf of another person.

• As soon as practicable after the fall of the hammer the purchaser is to sign the agreement for sale

• Ask whether the seller is registered for GST, and if so, whether the bids are inclusive or exclusive of GST.

•  Check the scheduled time and place for the auction – ensure you arrive with plenty of time.

•  Do not hesitate to seek advice from the auctioneer or other staff.

•  When bidding, attract the auctioneer’s attention by using a gesture such as raising your hand, calling out or nodding your head when you catch the auctioneer’s eye. It is your responsibility to communicate the bid to the auctioneer. If the auctioneer is not aware of you, you may lose an opportunity.

• Indicate your interest when the auction starts and the auctioneer calls for bids. Your bid does not have to be the amount nominated by the auctioneer, although it is the auctioneer’s discretion to accept a bid or not.

•  Do not risk missing the property. Bid early and remember, when the hammer falls the highest bidder is the buyer.

• Be careful not to bid over your financial limits. Remain calm, and try to avoid entering into a personal bidding contest against another bidder.

• Should the reserve price not be reached (or the property is ‘passed in’) then the person making the highest bid generally has the first opportunity to purchase at the reserve price. If the highest bidder does not purchase at the reserve price, then the property will be placed back on the market for sale by private treaty, at which time you should negotiate directly with the agent.

• Most people attending an auction are unsuccessful. You should be prepared to incur some costs such as solicitor’s fees, inspection and valuation fees, and possibly fees from your lending body if you do not win the auction.

• When a property is ‘on the market’ it means bidding has either reached the reserve, or the reserve has been lowered or waived. Often bidding interest can increase after this call.

If you win the auction, you will be required to immediately exchange contracts (i.e. sign the Agreement for Sale) and provide a deposit, usually 10% of the purchase. The deposit will usually be held in a trust account until settlement, when it is paid to the seller. You are now bound to proceed with your purchase. You will generally be expected to have the funds available immediately (many people bring their cheque books).

Upon exchange of contracts, your solicitor will conduct a number of searches and enquiries to verify that all is in order with the legal title of the property. At the same time, you should finalise your finance with your bank or building society. This process normally takes four to six weeks.

When all arrangements have been attended to, the solicitors for both parties will arrange settlement.

At settlement, you pay the balance of the purchase price, certain adjustments will be made, any outstanding mortgage will be attended to and you will then become the legal owner of the property. Congratulations!