Buying or selling a home at auction can be a nerve-wracking experience.
It is not uncommon for a home that has built up a lifetime of memories for its owners, to change hands in an adrenaline rush that lasts less than 60 minutes.
Hunter real estate agents say auctions are fast becoming a preferred method of sale, with ‘transparency’ being touted as the reason.
In a bid to understand concerns associated with buying and selling at auction, Stone Real Estate shared eight of the most common questions they have received from buyers and sellers in regards to the increasingly popular method of sale.
Should I sell my property by private treaty or auction?
Both sales methods have their merits and may yield better results under different market conditions and for different properties. Ultimately the decision is up to you, however your agent will offer important guidance as to which method is likely to secure you the highest price and a quick sale in the current conditions.
A private treaty sale is usually offered to buyers with either a fixed asking price or a price guide asking for offers over a set figure or offers within a set price range. There is no set date by which a buyer needs to submit their offer.
When selling a property by auction there is generally a four-week marketing campaign followed by the auction day. No price is stated however agents will discuss with buyers a likely selling range with purchasers based on expectations from the vendor, feedback from potential buyers, competing properties and comparable recent sales.
In most cases a seller can accept offers and sell the property prior to auction, there are circumstances where this is not advisable, not practical or not possible and your agent or solicitor will point these out where appropriate.
If I’m looking to purchase at auction, what do I need to do in preparation?
Because the purchase of a property at auction is unconditional, you need to ensure that all searches, checks and finance approvals are conducted prior to the auction. The agent and your solicitor can assist you with arranging these. Your solicitor should also seek approval for any changes to the contract from the seller’s solicitor prior to the auction (such as length of settlement, inclusions or repairs).
You should bring the confirmation of any such approved changes with you on auction day and present them to the agent if you are the successful bidder. You should also bring an acceptable form of payment to the auction – either a personal or bank cheque. A bank transfer following the auction is not acceptable.
The agent can assist you in advance should you have any concerns regarding payment of the deposit. It is possible to pre-register to bid at an auction and the agent can assist you with this. If you wish to have someone bid on your behalf, whether you will be present or not, you should let the agent know in advance so they can give you the correct forms for authorising another party to bid for you.
You should always let the agent know well in advance of auction day that you are intending to bid as there may be last minute changes to the contract or other developments that the agent will need to inform all interested buyers about.
How can I get a feel for what a property is likely to go for on auction day?
The sales agent will be able to give you some guidance as to where an acceptable value lies, taking into consideration the interest from other buyers, the seller’s expectations, recent comparable sales and other properties currently for sale.
It is advisable to maintain contact with the agent leading up to the auction so you are aware of any changes in what the property will likely reach on auction day. The agent will also be able to give you feedback on whether the price you are prepared to pay is within the likely selling range. When determining what you’re prepared to pay you should consider where you see value compared to other properties.
How much deposit will I need at auction and how can I pay it?
If you are the highest bidder at auction you will need to hand over a deposit of 10% of the purchase price on the day. This can be in the form of a personal or bank cheque – a bank transfer is not acceptable.
The deposit is paid to the seller’s real estate agent or solicitor who will place the money into a trust account until settlement, when the balance of the purchase price is paid. The interest earned on this deposit is shared equally between vendor and buyer.
What is a ‘vendor bid’ at auction?
The seller has the right to make one bid themselves during the auction, which is known as a vendor bid. If the seller exercises this right the auctioneer will clearly announce that a vendor bid has been made.
You should view a vendor bid as the auctioneer’s indication that the current level of bidding is below the seller’s expectations. If you are intent on buying, you will need to bid above the vendor bid.
Can I make an offer to purchase the property prior to auction?
Some sellers will consider selling their property prior to auction for an acceptable offer while others will not. The agent will be able to give you guidance on whether or not the owner is accepting offers prior and in what form these offers will need to be made. In most cases any offers made prior to auction will need to be in the form of an offer on an Unconditional Contract of Sale.
The seller and the agent are not obliged to inform other interested buyers that the property is going to be sold prior to auction but in most cases will do so.
It is important to let the agent know that you’re interested in a property going to auction as soon as possible. Inform them of what you may consider paying so that they know to contact you if a sale prior to auction becomes likely.
How do I go about bidding at an auction?
When you arrive at the on-site or in-room auction you will need to register as a bidder or have someone registered to bid on your behalf. You and they will require an Australian driver’s licence or other form/s of acceptable ID in order to register.
You will also need to have with you the ability to pay the deposit on the fall of the hammer. A personal or bank cheque is an acceptable form of payment. It is not acceptable to do a bank transfer following the auction. If you or your authorised bidder don’t have an acceptable form of payment with you the agent and auctioneer may refuse to register you.
At auction the highest bidder becomes the purchaser on the fall of the auctioneer’s hammer if the reserve price for the property has been met. The auctioneer will clearly announce that the property is selling to the highest bidder once the reserve has been reached and the seller has instructed that the property is on the market.
The purchaser then immediately enters into an unconditional contract to purchase the property and must pay a deposit, normally 10% of the purchase price unless a different amount has been negotiated prior. It’s important to note that there is no cooling off period when a property is sold under the hammer at auction and the contract is immediately binding.
Should the bidding on the property not reach the reserve set by the seller, the auctioneer will ‘pass in’ the property and begin private negotiations between the seller and interested purchasers. In this circumstance some sellers will prefer to negotiate exclusively with the highest bidder and try to reach an agreement on price and exchange contracts. If an agreement cannot be reached the seller may then negotiate with other potential purchasers including any that may not have been registered to bid at the auction.
Auction conditions continue until midnight on the same day once a property has been passed in, meaning that any exchange of contracts is unconditional and no cooling off period applies.
Make sure you know the maximum price you are prepared and able to pay and don’t exceed your financial capabilities at auction, because once the hammer falls, there’s no backing out.
When should I accept an offer prior to auction?
Your agent will advise you as to whether it’s worth taking an offer made prior to auction or whether taking it to auction will likely achieve a better price. This will depend greatly on the offer made, the state of the market, the level of interest and the number of interested parties who are likely to be competitively bidding. Your agent will always present you with any offers made by buyers prior to auction, for your consideration.
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