An auction is one of three ways to sell, and buy, property. It is Australia's favorite way, with Melbourne and Sydney dubbed the auction capitals of the world. Private sale or expression of interest are the other ways to sell, usually for unique or special properties or if you know exactly the asking price.
Auctions can be quite overwhelming - a crowd, an auctioneer waving and pointing a gavel or rolled up magazine, fast talking and lots of money at stake.
If you're new to auctions, attend a few to get a feel for how they work. Or take an experienced friend with you if thinking of buying property at an auction.
If you're selling your place yourself and considering an auction, below is an outline of the process and some tips to consider. Anyone can conduct an auction, there is nothing legally stopping you from grabbing a magazine and calling in bids yourself.
But it is rare for people to conduct auctions themselves. Mainly because it can be daunting, stressful or they simply lack knowledge of the dos and don'ts. Most of our customers do everything themselves when selling it themselves but find it easier emotionally to call in an expert auctioneer.
Our Vendor Advocacy Package is an extra service that takes the stress out of the auction process. We organise the right auctioneer for your type of property from our pool of expert licensed auctioneers.
How an auction is conducted
1. Open for inspection - The house is open to the public generally 30 minutes before the auction to give prospective bidders one last look. This is also a good chance to look at the auction rules and information statement, and any additional conditions that may impact the auction.
2. Before the bidding starts the auctioneer must:
- State the auction will be conducted under the auction rules
- State any additional conditions that apply to the auction
- State that law prohibits an intending bidder from making a false bid, hindering another bidder, or disrupting an auction
- State that substantial penalties apply to those who engage in prohibited conduct during the sale of real estate.
3. Bidding commences - The aim of the auctioneer is to encourage as many bidders as possible to compete in order to achieve the highest price. Prospective buyers bid in amounts as set by the auctioneer during the auction. These are called 'bidding advances' or 'rises'.
4. On the market - At one point, the auctioneer may go inside to 'seek instructions' from the vendor. This is when the vendor decides if the price is high enough to declare the property for sale to be sold to the highest bidder, or 'on the market', at the seller's discretion.
5. Result - Sold or passed in? If the auctioneer returns and continues to take bids, it's likely that the reserve price hasn't been met, and the property will be passed in. This means the highest bidder will be given the first opportunity to purchase the property at the asking price. Alternatively, if the reserve price is met and is declared 'on the market' the property will be sold to the highest bidder. However both the buyer and seller must sign the contract of sale for the sale to be legally binding.
What are the auction rules?
Auction rules relate specifically to whether there will be vendor bids and co-owner bids.
What this means is that if the auction rules state explicitly that there will be vendor bids, the auctioneer can act on behalf of the vendor and place a bid if the seller is not satisfied with the amount of the last bid on the property for sale. The auctioneer will announce this at the time of the bid as a 'vendor bid'.
Alternatively, if the property is co-owned, one of the owners who wants to purchase the property outright can bid from the crowd. The auctioneer cannot make these bids.
Any other bidding that is not stipulated in the auction rules made on behalf of the seller, is illegal and is called dummy bidding.
The golden rules for bidding at an auction
1. Arrive early to walk through the property, read the relevant paperwork and see how many bidders there are or the interest in the property. This will give you an idea of the competition you face.
2. Stick to your limit. It's easy to get carried away during an auction. But make sure you keep to your financial limits, otherwise dreams can quickly become a nightmare reality of trying to pay off a mortgage with funds you don't have! If you think this will be a problem, get someone you trust to bid for you.
3. Only bid when the property for sale is declared 'on the market'. Until the property is 'on the market' the reserve price of the vendor hasn't been met, and the property isn't really for sale.
4. Be the last highest bidder. If the agent says he is going to 'pass in' the property (which means the reserve price hasn't been reached, and the property withdrawn from sale), it pays to be the highest bidder, as you have the first right of negotiations with the vendor to purchase the property after auction.
5. Get a good position. If there is a big crowd, find a good vantage point of the other bidders and the auctioneer. This allows you to gauge what others are thinking, and also to let them know that you mean business!
