Each has their own advantages. Whichever one applies to the property you are interested in, make sure you understand what’s involved - and your rights as a buyer - before you start.
The auction system is the fairest method of purchasing a property at actual market value. The more you know about the auction process, the better your chances of getting what you want at a fair price.
The benefits of buying at auction
No secret negotiations. It's clear who else is interested in the property and, because offers are made publicly, you always know the state of the play.
Time to form a plan. Auction days are set well in advance, giving potential buyers plenty of time to arrange inspections, finance and even the sale of an existing property.
You won't miss your chance. Auction ensures you get the opportunity to buy. You can be confident that it will sell on auction day and not before - unless it is also available for sale by prior agreement. If this is the case, and you are genuinely interested, your agent will ensure the vendor considers a pre-auction settlement.
Essential preparation for Buyers
What to expect on auction day
Before the auction. By now you will have inspected the property and be satisfied that it meets your needs. You will also have an indication of finance available from your bank. Double check the scheduled time and location and plan to arrive early so you will have time to raise any queries you may have with the auctioneer.
During the auction. The auction will begin with the auctioneer reading the details of the property as written in the Contract of Sale. The auctioneer will then ask for bids.
To bid you have to attract the auctioneer's attention by putting up your hand, calling out your bid, nodding your head or making any other gesture that signifies a bid.
As the auction progresses, the auctioneer will usually ask for smaller bids. Be alert during this time as your next bid may secure the property.
Once bidding reaches the reserve price, the auctioneer will announce that it is 'on the market'. The property will be sold to the final bidder.
After the auction. If you are the successful bidder, you will be required to sign the Contract of Sale immediately and pay a deposit - usually 10% of the selling price. The Contract of Sale must also be signed by the vendor or auctioneer on behalf of the vendor.
If bidding does not reach the reserve price, the auctioneer will usually confer with the vendor and obtain further instructions. In some situations, the reserve price will be revised and bidding will begin again.
Otherwise the highest bidder will have the first option to purchase at the reserve price. If the highest bidder decides not to purchase, the property is back on the market and any interested parties may negotiate with the property consultant (real estate agency) concerned.
Why do I need a Land Information Memorandum (LIM)?
A LIM is a comprehensive report containing everything the local council knows about a property or section, (usually) including potential erosion and slippage, permitted land use and any zoning restrictions, consents and orders affecting the land or buildings.
A LIM also usually records any unpaid rates (which you, as the new owner, may be liable for). As you can see, it’s a document you would be wise to read before you purchase! If you want any other background reports in addition to a LIM, such as a registered valuation, title or trade report, these are your responsibility.
How do I know what the property is worth?
You should research similar properties for sale, or recently sold, in the area where you intend to buy. You can pay for a registered valuation if you wish. However, if others think the property is worth more, then you may be outbid at auction.
What are the ‘Particulars and Conditions of Sale’?
This document is available prior to auction and includes the terms and conditions of sale, including a list of all the chattels included in the sale, and expected settlement date.
You should have a solicitor review it. In particular, your solicitor should check the title. All bidders on auction day are deemed to have accepted the title. Note any special conditions mentioned. Although these conditions will be read aloud by the auctioneer at the beginning of the auction, you should familiarise yourself with them beforehand.
What is a reserve price?
This is the price below which the owner will not usually sell the property. The reserve price is usually known only by the auctioneer and the owner, and will not be made public. Once the reserve price is met, the auctioneer will announce that the property is ‘on the market’ and it will be sold to the highest bidder.
If I want a longer settlement is this possible?
You can ask the agent for a variation of terms before the auction; for example you could ask for settlement in 90 days rather than the standard 30 days. If the owner agrees to this variation, it will need to be put in writing before the auction.
I can’t raise the full 10% deposit, does this mean I am unable to bid?
Not necessarily. Prior to auction you can apply for a variation of the terms to set a lower deposit. This variation applies only to you. Once you have this writing, you can bid with confidence.
If I win the auction, do I need to pay any money immediately?
Yes, you will be expected to pay the deposit, which is usually 10% of the purchase price. You will also need to sign the special auction sale and purchase agreement. The balance of the money is due on settlement day which is usually 30 days after the auction.
Unless specifically asked for, a bank cheque is not required; a personal cheque is fine. If it bounces or is cancelled then the purchaser is in default and special clauses contained in the agreement will be triggered.
What does ‘unless sold prior’ mean?
The seller can choose to withdraw a property for sale before the auction. They may also choose to accept an offer before auction day. Let your agent know before the auction that, if a pre-auction offer is made, you would like to make your own offer. The vendor will consider all offers together. Alternatively, the auction date may be brought forward, with the opening bid being the original offer.
It is becoming increasingly rare for owners to sell before auction. Owners have invested in a marketing campaign to establish what the market thinks their property is worth. They are therefore only likely to sell prior to auction if your offer was very attractive.
I want to buy, but haven’t arranged finance?
You cannot bid unless your finance is pre-approved. When you buy at auction, the purchase is unconditional. You therefore have two choices: You can see your bank or mortgage broker and arrange bridging finance. This puts you in a cash position on auction day. You have both your existing and the new property to offer as security to the bank.
You can take a calculated risk on your existing property selling quickly, say within 90 days, and ask for a variation of terms before the auction; i.e. ask for settlement in 90 days. This variation needs to be in writing before the auction. Make sure you have a backup plan in case your existing property takes longer to sell.
I can’t attend the auction but can I still bid?
You can nominate another person to bid on your behalf. This may be a trusted friend or your lawyer. Extreme care is required however. You should draft a written authority between yourself and your representative which clearly states what amount they can bid up to.
You can also bid by telephone providing you have made prior arrangements to do so (a signed authority is required). The auctioneer will normally announce that there is a telephone bidder, and your bids will be relayed by an appointed agent.
What is a 'vendor bid'?
If the conditions of sale allow, the seller may either bid themselves or instruct the auctioneer to bid on their behalf. Not all real estate companies will make vendor bid’s but, if they do, it is considered good conduct to advise all those present that a vendor bid has been made.
How does the auction run and how do I bid?
First relax; you won’t buy the property accidentally by coughing at the wrong time!
The auctioneer will open the bidding by asking for an opening bid. For example, an opening bid of $200,000 may be placed. The auctioneer will then ask for further bids increasing by a specified amount (e.g. $10,000). In this case, the next person to bid will be offering $210,000.
To place a bid, you simply need to attract the auctioneer’s attention by raising your hand and/or calling out your bid. Once the auctioneer knows you are bidding they will look for signals from you for further bids, whereupon a nod of the head will be sufficient. Once bidding reaches the reserve price, the property is ‘on the market’ and will sell to the highest bidder.
The auctioneer is taking bids in $10,000 increments. Can I offer less?
Yes, you can do this by calling out an amount less that the auctioneer is asking for. For example; “I bid five thousand”. However the auctioneer can refuse your bid if they believe it will slow the bidding down.
What if the house doesn’t sell at the auction?
If the reserve is not reached the property is ‘passed in’ to the highest bidder, who then has the first right to purchase at the reserve price. If that bidder is unable to reach agreement with the owner, the owner’s agents will then negotiate with other buyers. If these negotiations are unsuccessful, the path is now open for conditional buyers to make an offer.
What does ‘private treaty’ mean?
Private treaty essentially means ‘confidential agreement’. It is the sale of a property by negotiation between parties and is not being sold by an auction or tender.
Sale by Tender
Sale by tender involves confidential written offers. Ask the seller’s agent for a copy of the tender documents. Read them carefully, including any conditions or clauses.
There is usually no reserve price, although there may be a price guide. There will be a date when offers must be received by the seller’s real estate agency (close of tender). To make an offer, you must complete a sale and purchase agreement and submit it before the close of the tender. This is a legally binding contract, so ask your lawyer to check it before you sign.
The sale and purchase agreement will include your offer and a deposit cheque (usually five to ten per cent of the offer price) which will be returned if your tender is not successful, and a proposed settlement date. You can include conditions to give you time to check aspects of the land or building.
Bear in mind that the seller may also be considering offers from other buyers at the same time. If the property can be sold before the tender, this must be disclosed. You can then ask to be informed if an offer is made before the tender deadline, so you have the option of making one too.
Following the tender deadline, the seller will consider all offers (and their conditions) and decide which, if any, they want to accept. If the seller rejects your offer, you (the tenderer) are released from any legal obligation and free to pursue other purchase options.
The seller may either accept or reject your initial offer, or they may counter sign it. This means they make written changes to the offer (including the price), then initial those changes, sign the document and return it to you.
You can then do the same in return. You can cross out their changes (including the price), and write new ones. You then initial your changes and return the offer. This process continues until you and the seller reach an agreement, or one of you decides to stop. Your agent will act as the go-between and do everything they can to move the negotiation process closer to an agreement.
When agreement has been reached and both parties have signed the offer and initialed all the changes, the agreement becomes binding.
Sale by advertised price or by negotiation
For sale by advertised price. This method has some advantages. As a buyer, you know what the seller expects from the outset and negotiation can then focus around conditions of sale, rather than price.
You can of course make an offer below the asking price, but bear in mind that properties for sale by advertised price are more likely to attract qualified buyers (i.e. those who can afford the asking price) and you are more likely to have competition.
If you are interested in the property, you will be asked to make a signed written offer. You should have this checked by your lawyer before you submit it.
The agent will then present your offer, along with any others, to the seller who will weigh up which, if any, they want to accept. offers with the least conditions attached will generally be considered more favourably (e.g. if the purchase is not conditional on the sale of an existing property). The seller may also choose to instruct the agent to negotiate further on conditions or price.
For sale by negotiation. There are several ways of selling a property by negotiation. One is to market it as buyer enquiry over (BEO) or buyer budget over (BBO) a certain amount (e.g. ‘BEO $350,000’) or by giving a pricing guide.
These indicate the lowest price the seller hopes to achieve for the property. The seller will then negotiate with prospective buyers through their agent. You can still make an offer below the advertised guide prices
If the property is for sale by negotiation without a guide price, it may suggest that it is hard to estimate the price a property is likely to sell for.
You must then make an offer based on your perception of the property’s market value. Make sure you do your research and ask professional advice before you make an offer and begin negotiating with the seller through your agent