With the property market in Australia ever-evolving, buying a home at auction has become a popular route for many homebuyers. This article dives into Australian real estate auctions and how does a house auction work, the steps involved, and the terminology you’ll encounter.
Whether you’re a first-time homebuyer or an investor, understanding the auction process can provide you with a competitive edge.
Content Table
- What is an Auction and How Does It Work?
- How to Prepare for an Auction?
- What’s the Difference Between an Auction and Private Sale?
- Understanding Auction Language and Bidding
- What Happens on Auction Day?
- Post-Auction: What Comes Next?
What is an Auction and How Does It Work?
An auction involves the public sale of a property, usually conducted by an estate agent acting as the auctioneer. Interested parties submit bids, and the property is sold to the highest bidder, provided the reserve price is reached.
The auctioneer drives the auction, and in some cases, they might use a vendor bid to encourage other bids. This is different from a dummy bid, which is illegal in Australia. The final sale price may go above or even below the property’s estimated value, depending on the interest in the property and the auction dynamics.
Please note that local state laws are subject to change and the following might not be fully accurate. Further research on government sites is strongly recommended
How to Prepare for an Auction?
Before diving into the world of auctions and buying your first home in Australia, it’s essential to have thoroughly inspected the property and know its value. Leading up to the auction, properties may be open for inspection.
It’s also an excellent opportunity to take a final look at the property and familiarize oneself with the surroundings.
Ensure you’re aware of the auction rules and have the necessary information on how to bid at an auction. Secure a home loan pre-approval before the auction, so you’re aware of your budget. Speak to the estate agent to understand any specific requirements or nuances.
What’s the Difference Between an Auction and Private Sale?
In a private sale, the property is on the market at a fixed price or a price range, and buyers negotiate with the seller through the estate agent. This negotiation often involves making an offer. In contrast, an auction is a public event where the price of the property is determined by the highest bid.
One significant difference is the cooling-off period. In private sales, buyers usually get a cooling-off period, but in NSW and many other states, there’s no cooling-off period when buying at auction.
This means, if you’re the winning bidder, you’ll need to sign the contract of sale and pay the deposit immediately after the auction.
In addition to the absence of a cooling-off period for auctions, there are other key differences between auctions and private sales:
- Transparency: Auctions offer unparalleled transparency. Everyone present knows the price, and there’s no hidden agenda. In contrast, private sales involve confidential negotiations, often leaving potential buyers guessing.
- Competition: Auctions can spark a competitive spirit among bidders, sometimes leading to higher sale prices. In a private sale, a buyer may not always know the number or intensity of competing offers.
- Timeframe: Auctions have a defined date for sale, making the process relatively quick. Private sales can sometimes be protracted with extended negotiations.
Understanding Auction Language and Bidding
Familiarizing yourself with auction language is crucial. For instance, if the auctioneer says the property is “on the market,” it means the reserve price has been met, and the property will be sold to the highest bidder.
If the reserve price isn’t reached, the property may be passed in, allowing the highest bidder to negotiate with the seller.
Bidding at auction can be intimidating, especially for first-timers. It’s essential to set a budget and stick to it. If the bidding exceeds your budget, it’s crucial to remain disciplined and not get caught in the heat of the moment.
What Happens on Auction Day?
On the day of the auction, prospective buyers gather around the property or in the auction house to place their bids. The auctioneer starts the auction, and bidders raise their bids until the highest bid is settled. If the final bid made reaches the reserve price, the property is sold.
If the highest bid does not meet the reserve price, the property may be passed in. In such cases, the highest bidder might get a chance to negotiate the purchase price with the seller.
Remember, winning the auction means you commit to buy the property, so ensure you’re ready for that commitment.
Bidding Strategies and Tips
Bidding at an auction is a skill, and like all skills, it benefits from preparation:
- Starting Strong: A confident opening bid can set the tone and potentially ward off some competition.
- Reading the Room: Being observant of other bidders’ behaviors can provide cues about their limits and strategies.
- Pause, then Bid: If bidding reaches a plateau and the auctioneer is about to bring down the gavel, placing a bid can restart momentum and potentially secure the property.
- Stay Within Budget: Always have a pre-determined maximum bid. Emotions can run high during auctions, but it’s vital not to be swept away and end up overcommitting.
Post-Auction: What Comes Next?
Immediately after the auction, if you’ve won, you’ll be required to sign the contract of sale and pay the deposit, usually around 10% of the purchase price. Depending on the state and territory in Australia, there may or may not be a cooling-off period.
It’s crucial to familiarize yourself with the post-auction rules, especially if you’re in NSW or refer to guidelines set by Consumer Affairs Victoria, depending on your location.
FAQ about ‘how does a house auction work’
Can you watch an auction?
Yes, you can watch an auction without bidding. This is a good way to learn about the auction process and to see what types of items are being auctioned off.
How do you buy at an auction?
To buy at an auction, you will need to register with the auction house and obtain a bidder’s number. When the item you are interested in comes up for auction, you will need to raise your bidder’s number to indicate that you are bidding. The auctioneer will then call out the bids and the item will be sold to the highest bidder.
Can I do auction and buy it now?
Some auction houses offer a “buy it now” option. This means that you can purchase an item without having to bid on it. The buy it now price is usually set by the seller and is typically higher than the reserve price.
Can I change my mind at an auction?
Yes, you can change your mind at an auction. However, if you have won the auction, you will be legally bound to buy the item. You may be able to get out of the sale if you can prove that there was a material misrepresentation about the item.
Can you just turn up at an auction?
Yes, you can usually just turn up at an auction. However, it is a good idea to register with the auction house in advance, especially if you are planning to bid on a high-value item. This will ensure that you have a bidder’s number and that you are familiar with the auction process.
