Most of us have seen an auction where a frenetic auctioneer waves their hands up and down and yells out numbers until you hear “SOLD”. But what actually occurs on the day of an auction and is there any structure to it?
Auctions can be a stressful event however confidence can be gained through the knowledge that an auction is the public sale of a house and it’s an indication of what people are willing to pay at a given point in time. Knowing what the competing offer at all times is a benefit when purchasing at auction as oppose to private sale or negotiations where you can’t read your opposition.
Preparation is key and being aware of your upper limit, the reserve price and method in your bids are all important factors to ensure a successful outcome. Researching the market, speaking to several estate agents and acquiring independent information are all fundamental processes to prepare for the auction.
Opening bids will commence by which the auctioneer will then typically set incremental values such as $5000, $10,000 or even $1000 for bidders to follow. It is up to the auctioneer’s discretion to accept or not accept bids. Making false or misleading bids is referred to as ‘dummy bidding’ and is classified as an illegal action that can incur significant penalties.
This is when the property is on the market and typically the lowest price that the vendors are willing to sell at. Once bidding starts and the reserve price has been met then it is the highest bid that wins the auction. Should the reserve price not be met then the house is not on the market and it is up to the bidding parties to negotiate a price that the vendor is happy with.
What happens if the property is passed in?
This occurs when the bidding doesn’t meet the reserve price and the auctioneer states that the property has been ‘passed in’ or ‘withdrawn from the auction’. A process of negotiating a price between the highest bidder with the seller will occur to find an agreeable sale price. Should the seller not agree to a price then the auctioneer may involve the second highest bidder to negotiate or turn down all offers and not agree to sell on the day.
Signing the contract of sale
If you have been successful at auction then you will be offered a ‘contract of sale’ which is a legally binding contract outlining what you have purchased. If you sign this contract then both you and the seller are agreeing to the formal offer made. Once this has been completed then a deposit is required and all relevant cheques and transfers.
If you’re the winning bidder then an immediate deposit, typically 10% of the purchase price, is to be paid after the auction. This can typically occur through online transfer however a discussion with the real estate agent will be able to provide you with the necessary requirements and actions to be taken.
Auctions may be daunting however in-depth planning and preparation can ensure that you are fully aware of your purchasing position and expectations. If you don’t win at an auction then move on, go back to the drawing board and start planning for your next opportunity. Sometimes walking away from an auction is a better decision than continuing beyond your capacity.