Buying A House At Auction

Auctions help vendors sell for the best possible price, but buying at auction can be daunting for some people.

So let’s make it a little easier by demystifying some of the more common auction terms.

Most people don’t buy or sell property very often, so they feel nervous about bidding at auction. How much and how often should you bid? What if you go over your limit? What do you need to know about auctions before you bid? They are all common questions, so let us share a few tips from our expert auctioneer and sales agent, Mark Fricker.

Auction is a sales method that requires potential buyers to place bids for the property being sold. After a bidding contest managed by the auctioneer, if the property reaches the reserve price it's ready to be sold to the highest bidder.

• Before you place a bid at an auction you must have the required deposit available to pay on the day, and your finance must be pre-approved by your lending institution.
• You should have viewed the Form 1 and familiarised yourself with the conditions of sale before auction day.
• On the day of auction you need to register your intention to bid with the sales agent.
• Have your building and pest inspection conducted and reported on well before the auction, as there are no ‘outs’ under normal auction conditions.

The reserve price is the minimum amount the vendor will accept for the property. If the bids don’t reach the reserve, the vendor is under no obligation to sell the property.

The reserve price isn’t disclosed to the buyers. Bidding will likely start below the reserve price, but when bids reach the reserve price the auctioneer will declare the property as "on the market", meaning the property is now able to be sold to the highest bidder.

Knowing what the auctioneer is talking about helps you to feel prepared and confident when buying at auction. Common terms include:

• Vendor: the owner(s) of the property being sold.
• Reserve price: the minimum price the vendor will accept for the sale of the property.
• Conditions of sale: the legal terms imposed on the auction covering things like the acceptable methods of payment, the terms under which the home will be sold, and what is included in the sale.
• Vendor bids: legally one vendor bid may be made on behalf of the person selling the home. They can only be placed before the reserve has been reached and if the auctioneer announces that it is a vendor bid.
• Settlement: the date upon which final payment is made and conveyancing occurs. The property then legally changes hands from vendor to buyer.
• Fall of the hammer: when the auctioneer mentions the fall of the hammer, he means the last bid placed at the fall of the hammer is the winning bid.
• Passed in: the term used when the vendor's reserve price hasn't been reached so the property doesn't sell under auction conditions. A sale may still be negotiated after auction, however.

When there are more buyers in the market than properties for sale, it becomes a seller’s market. When determined buyers are competing for the same property, the bids can escalate and help the vendor to receive the best possible sale price.

When you buy at auction the sale is unconditional, which means the vendor doesn’t need to worry about conditions that may fall through, such as the offer being subject to finance or subject to the sale of another property.

There is no cooling off under auction conditions, providing vendors with another guarantee of sale.

Successful buyers at auction have a few tricks up their sleeve.

1. They familiarise themselves with auction processes beforehand, seeing the pace at which auctions are conducted and how they work.
2. Successful bidders have their ducks lined up: their finance is pre approved, their deposit is accessible, and they have their building inspector’s report.
3. They stand in a position which puts them in clear sight of the auctioneer and they ensure their bids are loud, clear and confident.
4. They set a limit of what they will pay for the home and walk away if bids go past that limit.
5. Because you cannot retract a bid or ‘cool off’ when you buy at auction, do not bid if you are not able to pay the required deposit on the day or you don’t have pre-approval from your lender for the amount you bid.
6. Some buyers engage a buyer’s agent to bid on their behalf at auction. This ensures they won’t become emotionally engaged and bid over their limit.

Feel like brushing up a little more on your auction-buying or auction-selling knowledge? Our in-house auctioneer Mark Fricker conducts many exciting auctions every weekend. Check out Mark conducting an auction at a property near you via Upcoming Auctions, or click below to view a video!