Stop! Hammer Time
Everything you need to know about auctions
A property auction is an exciting, fast-paced, public sale. Put simply, the property will be sold to the highest bidder after the seller’s reserve price has been reached.
There are a few things for you to consider before, during and after the auction so lets go through the basics.
Before the auction
Before going to the auction, you will want to do some research into the property you are interested in. For basic information you might look at the property on the agency’s website or another site such as TradeMe. To find out more details you will want to give the salesperson a call – they may also be able to arrange a viewing for you. Make sure you find out as much as you can prior to the auction because any offer you make at an auction is unconditional. Maybe properties are to be sold by auction ‘unless sold prior’. If this is the case, you can contact the salesperson about making a pre-auction offer. The salesperson can help you understand all the information you have gathered and can advise you if you should seek advice from a lawyer for further guidance.
If you think you would like to bid on the property at the auction, let the salesperson selling the property know that you are interested. They will provide you with documents for you to review. This might include the auction terms and conditions and the sale and purchase agreement. The sale and purchase agreement will have details on the deposit amount that the successful buyer must pay and the settlement date. Other useful documents can be a LIM (land information memorandum) or building inspection report.
Because auctions are unconditional, you need to confirm your finances before you attend the auction. You will usually need to pay the purchase deposit on the auction day if you are the winning bidder. Even if you already have pre-approved lending, your lender may want to know specific details about the property so make sure you leave yourself plenty of time to arrange this prior to the auction.
If you want to change anything in the agreement or put any conditions on the sale, you need to arrange it before the auction. Talk to the salesperson and your lawyer about this. It will be up to the seller whether they decide to accept any changes or conditions you propose.
If you’ve spoken with the agent and registered your interest in the property, they should notify you if another buyer makes a pre-auction offer and the offer is accepted by the seller. If you haven’t registered your interest, you won’t be notified.
If you’re unable to attend the auction in person, there are a few ways that allow buyers to still place a bid.
Telephone bidding – To bid by phone you will need to register your interest with the salesperson. You’ll likely be asked to sign a telephone bidding authority form to acknowledge your intent to bid by phone and to permit someone to bid on your behalf. The auctioneer will let all other bidders in the room know that telephone bidders are present. If you are bidding by phone you will be updated by the person assigned to you about what is happening. They will tell you each time a new bid is placed and you can then instruct them when you would like them to place a bid for you.
Nominate someone to bid on your behalf – Another option is to have someone you trust be in the room, bidding on your behalf. It would be a wise move to choose someone who is experienced with bidding at auctions or has bought property before. They will need to have your written permission to bid on your behalf and know the maximum amount you’re prepared to bid to.
At the auction
If you haven’t already done so, you will need to register your interest with the salesperson when you arrive. You will be told when the auction will start and may get a bidder’s number.
If you need support while at the auction you can also ask the listing salesperson to help, but it is prudent to remember that the agent always works in the best interests of the seller, not the buyer.
Before the auction, the seller will set a reserve price. This is the minimum price the seller is willing to accept for the property. The auctioneer will not tell you this price.
Before the bidding starts, the auctioneer will:
- Read out the terms and conditions of the auction
- Provide a description of the property and announce any important issues
- State whether the seller may bid during the auction (Before the bids reach reserve, the seller or their representative can bid on the property to encourage buyers to bid closer to the reserve price. This is called a vendor bid.)
- State whether there are any telephone bidders present.
The auctioneer will work for the seller to get the highest bid possible. Bidding often starts below the reserve price, and anyone can make the first bid.
Once the reserve price has been met, the highest bidder wins the auction. The winning bidder signs a sale and purchase agreement and pays the deposit.
If bidding doesn’t reach the reserve price, there are a few options – Firstly, the seller may decide to lower their reserve. Alternatively, the auctioneer may take the highest bidder to another room to privately negotiate a higher bid. If the seller accepts this new higher bid, everyone comes back out into the auction and the auction continues. The new, higher bid becomes the new reserve so the property can sell at any time. Finally, the property may be passed in. This means the property has not sold at auction, so the seller may decide to try a different method of selling their property.
After the auction
If you’re savvy enough to win the auction, you will then be asked to sign the sale and purchase agreement and pay the deposit.
Any conditions you agreed to before the auction need to be met in the timeframes you and the seller have agreed to. The conditions will have been clearly agreed upon by all parties involved before anyone bids.
If the property is not sold, the highest bidder may be able to negotiate with the seller through the salesperson after the auction.
You must pay the remaining amount agreed for the property on the settlement date stated in the sale and purchase agreement. On settlement day, you will get the keys to your new property!
Now that you’re an expert on auctions it’s time to check out our up coming auctions.