Today I will do a short post on buying at auctions.
Firstly, Auction sales and purchases are unconditional. Once your bid has been accepted by the auctioneer, the contract is unconditional.
So if you intend to buy at an auction, make sure you do your research.
You need to go through the LIM report, building report (if any), and any pre-contract disclosures with your lawyer. Do a thorough house inspection and clarify the contractual terms (especially the settlement date and any conditions attached to the auction).
Secondly, Ask the agent who is selling the property to explain the auction process to you. Ask whether vendor bidding is allowed. Vendor bidding is where the owner is allowed to bid during the auction. This practice is often frowned upon but is perfectly legal if the auctioneer has disclosed this is allowed before the auction commences. And at the auction, the auctioneer shall identify each vendor bid as it is made. The vendor can only bid if it is below the reserve price.
Thirdly, the vendor will normally set a reserve price. The reserve price is the minimum price which the vendor will accept. Bidders don’t know what the reserve price is (unless they have inside information). If at the end of the auction, the highest bid is less than the reserve price, the vendor can choose not to sell it.
During the auction, the auctioneer can refuse any bid. The auctioneer can choose an amount by which bidding can be raised. For example, at the start of the auction, the auctioneer can require bids to increase by at least $10,000. If the opening bid was $800,000, then the next bid must be at least $810,000. It can be higher (eg $820,000 or $830,000) but not lower. If the highest bid is less than the reserve price, the auctioneer will stop ask the vendor for further instructions.
The vendor can tell the auctioneer to “put it on the market”. This effectively removes the reserve price. The auction then continues from where it left off. The auctioneer can accept the highest bidder.
Otherwise the vendor can tell the auctioneer to “let the property pass in”. This means the auction ends and if any of the bidders are still interested, they will contact the agent or the vendor directly.
Lastly, remember to have your financing in place before going to the auction. If you happen to submit the winning bid, the contract will be unconditional and you will have to pay the deposit. You will need to arrange the funds to pay the balance of the purchase price on settlement date.
Bonus tip: Have a price range (especially maximum price) in mind BEFORE bidding at the auction.When bidding at the auction, it’s possible to get carried away with enthusiasm and let your ego kick in. Remember as much as a property purchase is an emotional decision, it is also an investment. You worked for years saving enough for a deposit so don’t let it be squandered by overpaying for your property. You know that feeling you get when you have overpaid for your new car!