What is a real estate auction?
An auction is a method of selling or buying real estate, whereby interested parties bid on a property. The highest bid wins the property and the house is sold on the day.
When you purchase real estate at auction the sale is unconditional and legally binding. Before the auction, buyers will need to be satisfied they have completed sufficient due diligence on the property e.g. Title search, LIM, builders reports, and the particulars and conditions of the auction. Along with your bank, your solicitor can approve these for you.
If you are the final successful bidder then you are required to pay a 10% deposit on the day of the auction.
Can I bid at auction if I have conditions?
The short answer is no. Auctions are a cash-only method to buy and sell real estate. This means you should carry out all your due diligence before auction day and met all the requirements of your finance lender.
However, in some circumstances, a change in the auction particulars and conditions can be made as long as it is approved before the day of the auction. An example of this may be a change in the settlement date or a reduced deposit, this is called a ‘variation to the contract’.
How do I decide how much to pay?
The auction process allows the market to firstly appreciate what the house has to offer and then determine what the price may be. We find many people are able to estimate reasonably accurately what a home is worth. They do this by drawing on their knowledge of the homes they have looked at in their particular price bracket. Your sales consultant will be able to provide you with recent sales statistics in the surrounding area as well as a guide price.
You may also decide to get a valuation.
How do I borrow money when I don’t know the exact price?
Most lending institutions are familiar with all selling methods, including auctions. Once you have worked out the price you believe the property is worth, discuss this with your bank or mortgage broker. You will find they agree to lend you an approved amount, so you will know how high you can bid at an auction.
What is a vendor bid?
The auctioneer has the right to bid on behalf of the vendor to either start the auction or increase the bidding during the auction. The auctioneer will clearly disclose all vendor bids. Vendor bids are only allowed to be exercised up to the reserve price.
Can I buy before auction day?
If a property is listed with the words ‘unless sold prior’ then the owners may consider selling before the auction day. Any offer would need to be substantial enough to convince the sellers to end the marketing campaign early in order to sell prior to the auction. The offer will also need to be unconditional.
If an acceptable pre-auction offer is accepted then the auction process is not stopped, it is simply brought forward. The auction will open at the accepted pre-auction price and be available for any interested parties who would like to bid.
In some instances, bids can be placed that exceed the original offer and the property can be sold to a different buyer. In other instances, a pre-auction offer can be a quick way to acquire property with little competition.