Buying Property at Auction

Buying at auction can be an exhilarating experience but to avoid disappointment and/or paying an inflated price it is best to undertake as much research as possible - of both the property you intend to purchase and the auction process itself.

How does an auction work?

  • You will be bidding against other parties in an open forum - essentially a small market.
  • The auctioneer will begin proceedings by explaining the contract, terms of the auction and present a sales pitch for the property. Bidding is then invited from the floor.
  • The highest bidder will either secure ownership of the property, or, if the vendor's reserve has not been reached, have first right to make a private offer at the negotiating table.

Preparation - what to do before the auction

  • attend as many auctions as you can
  • if possible, inspect other comparable properties, particularly in the same area, to best gauge price range.
  • consider an independent valuation of the property.
  • visit the real estate agent - ask for a copy of the contract, any condition reports and legal title information.
  • arrange for your solicitor to inspect the contract.
  • arrange at least one private inspection before the auction.
  • If you are selling your existing home in order to finance the purchase of your new property then terms of settlement will be crucial. These are often negotiable. If the vendor seeks settlement 30 days post auction it is not unreasonable to ask the real estate agent for 60 or even 90 days.
  • Visit your lender - if you are the successful bidder, expect to pay 10% of the purchase price on auction day. The balance will be due at the end of the settlement period.
  • Recognise that the agent who is showcasing your potential new home is also acting on behalf of the vendor. The agent will regularly inform the vendor of interested parties and how they are placed to bid prior to auction. Play down your position for it may encourage the vendor to lower their reserve and potentially give you greater bargaining power if the auction ends up at the negotiating table.

Tips to help you get the best deal at Auction

  • Be wary of the excitement generated at auctions. Set your maximum bid before auction and stick to it. It may be your dream home, but it isn't, at least until the hammer falls in your direction. Be prepared to walk away if bidding climbs above your ceiling.
  • Wait until the vendor's reserve has been reached before bidding. The auctioneer will often announce that the house is going to sell but don't be afraid to ask, during the auction, whether the house 'is on the market'.
  • Ultimately the best preparation is attending as many auctions as possible and observing the style of auctioneers and the course of action successful bidders took.
  • the auctioneer may be facilitating the auction but is also a professional retailer - he/she will attempt to engage parties and inflate the price as much as possible by creating excitement, using humour and changing the pace of the auction.
  • Dummy bids - these are bids made by parties who have no intention to purchase the property but wish to inflate the price. This practice is illegal in Australia but acknowledge that some unscrupulous agents still engage in this practice.
  • Guidelines for the code of practice at auctions are regulated by The Real Estate Institute and vary in each State and Territory. Ensure your agent is a member of the institute.
  • Beware of underquoting. It is in the best interest of agents to attract as many buyers to the auction as possible. Generally add at least 10-20% of the estimated price.
  • Auctions can be intense, lively and emotionally driven. Know your financial limitations. If you feel too emotionally attached to the property you may consider nominating someone to bid on your behalf.

What to look out for

  • the auctioneer may be facilitating the auction but is also a professional retailer - he/she will attempt to engage parties and inflate the price as much as possible by creating excitement, using humour and changing the pace of the auction.
  • Dummy bids - these are bids made by parties who have no intention to purchase the property but wish to inflate the price. This practice is illegal in Australia but acknowledge that some unscrupulous agents still engage in this practice.
  • Guidelines for the code of practice at auctions are regulated by The Real Estate Institute and vary in each State and Territory. Ensure your agent is a member of the institute.
  • Beware of underquoting. It is in the best interest of agents to attract as many buyers to the auction as possible. Generally add at least 10-20% of the estimated price.

Other tips and hints

  • Auctions can be intense, lively and emotionally driven.
  • Know your financial limitations.
  • If you feel too emotionally attached to the property you may consider nominating someone to bid on your behalf.
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Published on February 2-th, 2008 in Home Loans
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.

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