How to Buy at Auction
When the hammer falls, the decision is FINAL
Put simply, there are two ways to buy a property – either a private sale, known as a ‘private treaty’, which can be a slow and drawn out process, or by auction, which can be a very intense and public activity.
Private treaties allow offers and counter-offers to be made in private, passed from the buyer to the seller either directly or through a real estate agent until an agreed price has been locked in and conditions are agreed upon. Auctions on the other hand can be wild affairs!
You’ll see all sorts of people at an auction. When you arrive, you’ll see the exchange of glares as the people registered to bid scope each other out – the young families looking through concerned eyes at the ‘cashed up baby boomers’ who might just swoop in and snatch their dream house; the baby boomers giving the ‘up and down’ to the ‘double income no kids’ couple; and the quiet, well-dressed gentleman speaking on his cell phone who looks a little too confident. Hearts are racing… and as the agent hits the podium you could cut the tension with a knife.
In order to play it cool and act accordingly under pressure, you need to apply a combination of our tried and true tips and tricks for buying at auction. If ‘luck’ is the intersection between preparation, opportunity and timing, then using these tips may just help you create your own luck and allow you to finally own your dream property:
How to Buy at Auction: Before Auction Day
If you’re the highest bidder on the day, you must be prepared to buy the property. When the hammer falls, you are legally bound by your actions. Here is a check list of things you should do before the auction.
- Arrange a home loan pre-approval with NSW Mortgage Corp. This will allow you to put a cap on the amount that you can bid based on your borrowing power, and will provide you the confidence necessary to go head-to-head with other bidders. Keep in mind, if you bid beyond your borrowing capacity, you can end up in serious trouble.
- If you’re serious about buying, make sure you’ve organised any pest and building inspections prior to the auction. Your inspector could discover some big problems that could be very expensive to repair. You don’t want to end up with buyer’s remorse because of an unknown structural or pest issue. Do your research in advance.
- Have your solicitor review the Contract of Sale – Do this well ahead of the auction so you can thoroughly understand the terms and conditions.
- Have your deposit ready to go. The winning bidder is required by law to pay a deposit for the property on the day of auction. This is usually 10% of the sale price, unless otherwise stipulated in the Contract of Sale. If you need to use a deposit bond instead of a cash deposit, you must make sure you have asked the real estate agent if this will be acceptable before the auction day.
- Know the area. This cannot be stressed enough. Make sure you know what properties in that suburb/area are worth, and make sure you are clued up about any recent sales figures for similar dwellings. The last thing you want to do is pay more than what the property is worth.
How to Buy at Auction: On The Day – Giddy Up!
In New South Wales, Victoria and Queensland, you must be registered to bid with the selling agent prior to the auction. For these states, you’ll need some identification like a driver’s license or a passport to obtain a bidding number.
Before bidding starts, the auctioneer will brief the crowd about the property and provide information on the increments in which bids will be made. Their objective is to get the property up to, and to exceed the seller’s reserve price (minimum amount). At that stage, the auctioneer may announce that the property is on the market, confirming a definite sale on the day. Bidding increments usually start in lots of $50,000, $20,000, $10,000 or $5,000. You can of course state the amount you wish to bid, but be careful, as raising your bidding number is not the only way to bid, some auctioneers will accept a nod!
What happens if the property does not reach its reserve price?
Every weekend, the property market looks at ‘auction clearance rates’, that is, the percentage of properties that reached their reserve price and sold. It’s not uncommon to see a large percentage of properties fail to sell at auction. When this happens, the property is said to be ‘passed in’, which means the auction is over without a sale. This doesn’t mean the property is off the market – you may be able to approach the seller and make an offer via private treaty.
When you are the highest bidder
Making a winning bid can be one of the most exciting experiences when buying property (provided you’ve followed our guide above). At this stage you will need to pay the deposit and both sign, and exchange contracts. Once this is done, your solicitor will start the settlement process and advise you of any important tasks and dates.