With restrictions easing across the real estate sector, the demand for live auctions is predicted to surge as we make our way through spring and into summer in Melbourne and regional Victoria.
Buying a property at auction can be both an exciting and a daunting experience. If you have never bid at an auction before, don’t worry – we’ve got some useful information on how to participate and a guide on deciphering ‘auction-speak’.
A real-estate auction is the public sale of a property which is advertised for a specific place (usually at the property for sale), time and date.
Prospective buyers bid throughout the auction, which is conducted by a licensed auctioneer, and the property is offered to the highest bidder, providing the price offered is acceptable to the seller of the property.
What is the advantage of an auction over a private sale?
At an auction you will have a clear idea about the true market value of the property, based on what people are prepared to bid.
Another advantage of an auction is its transparency – negotiations are visible to everyone and all buyers have the same opportunity to buy.
In addition, you can be confident that the sellers want to sell on that day, and when the auction has concluded, if you are the successful bidder, the property is yours with no further waiting and nothing more to do than sign the contract – and pop the champagne!
How do I bid at an auction?
Most states in Australia require you to pre-register if you intend to bid on the day. If not, you will still need to show ID to the selling agent on the day. You are then handed a paddle that you show to the auctioneer every time you make a bid.
By bidding, you accept the terms of the contract which are made available before the auction day, and these terms are non-negotiable unless the vendor agrees.
Agents recommend that you keep a cool head during the bidding process, without letting emotions control your bidding. This can be a quick way to go way over the maximum you are prepared to pay (or can afford to pay) for a property, and will leave you in very tricky situation if your over-extended bid is accepted, as you are then legally bound to purchase the property.
Reserve price – this is the lowest price at which the seller will sell.
During an auction, the auctioneer may stop the bidding and say they are going inside to ‘seek advice’ or ‘seek instruction’ from the vendor. This is to discuss the progress of the bidding and to ask the seller if they will lower their reserve price.
If the bidding has reached or is close to the reserve price, the auctioneer will ask the seller if they are prepared to sell to the highest bid. If so, they will declare that the property is ‘on the market’. This means bidding will continue and the property will be offered to the highest bidder.
If an auctioneer says they are ‘referring the bid’ to the vendor, it means that the reserve is a long way off, and at this stage the vendor may consider lowering the reserve in order to secure a sale.
A ‘vendor bid’ is a legal bid place by the auctioneer on behalf of the vendor. It indicates that the bidding is moving too slowly and is used to keep the bid momentum going.
‘Dummy’ bids, on the other hand are highly illegal. A dummy bid is either a false bid made up by the auctioneer or a bid accepted by the auctioneer from a non-genuine bidder in the crowd, usually to influence the sale price.
Dummy bids attract hefty penalties for the bidder and agent who engage in this behaviour.
If the property is ‘passed in’, then the top bid has not met the vendor’s expectations. If you are the highest bidder, you have the first right of negotiation with the vendor – this doesn’t necessarily mean your offer will be accepted, but price negotiations can begin, and you have a strong position if your offer is near the reserve price.
‘Gazumping’ is a term more associated with private sales – it’s when the vendor accepts a higher offer from another party, after the original offer has been verbally accepted. Gazumping is legal in most states of Australia – as a potential buyer it’s best to put your best offer forward first, and to secure the property by exchanging contracts with as little delay as possible.
What happens if I change my mind?
Buyer’s remorse after the purchase of a property at auction can be a very expensive process. The exact penalties will be set out in the contract of sale (which you should obtain and read thoroughly before auction day). It’s possible you may forfeit your deposit and may have to pay the seller’s legal and advertising costs.
What should I do before I attend an auction?
- Go to other auctions as an interested bystander to get a feel for how an auction proceeds , so you know what to expect.
- Do some research about similar properties in the area and what they have sold for, to give you an idea of what a reasonable price to pay is for the property you have your eye on.
- Get your finances in order -this is important. Know the limit of what you can afford to bid and make sure you are prepared to pay a deposit on the day if you are the successful bidder.
- Arrange a building and pest inspection from a reputable company such as The Home Inspection Hub. An inspection can uncover defects which may lower the bid you are prepared to make, or conversely, give you the confidence to bid, knowing that you are bidding on a good-quality property.
Found the perfect property? Book a pre purchase house inspection or combined building and pest inspection with The Home Inspection Hub before you attend an auction. We are proud to partner with Crunch Pest Control for our pest inspections.
We also conduct new home construction inspections, owner builder defect reports, special purpose inspections and specialised services such as contract review, tax depreciation schedules and VCAT expert witness across Melbourne, Geelong and Central Victoria.
Call us today on 1300 071 283 or email firstname.lastname@example.org
We also offer a free quote service
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