A property auction is a public sale where potential buyers place bids, and the property is sold to the highest bidder once the bidding meets or exceeds the reserve price. Auctions are a common sales process when the property is unique, in the high-end of the property values, and when the property market is competitive with high buyer demand. Auctions are a tool to create a competitive and successful result for sellers by having serious buyers bidding at the same time in a high-pressure environment.
Due to these competitive factors, these key differences apply to an auction sale:
- No cooling-off period applies.
- Bidding is unconditional to ensure the sale is completed.
- The sale deposit is paid on the day of the auction.
- The contract is signed immediately after the auction closes with a bid accepted.
- Property inspections happen before the auction and isn’t subject to any further or future inspections—including at settlement.
An auction is designed to ensure that the seller (vendor) achieves the highest possible sale price and creates a simplified contract to ensure a smooth sales process that significantly reduces the seller’s risk in having to put it back on the market.
This article discusses:
- Pre-approved finance.
- How properties are advertised for auction.
- Before auction steps.
- At auction steps.
Pre-approved finance
You must get pre-approved finance before bidding and therefore buying at a property auction. This is because buyers are bidding unconditionally i.e. without contract terms like ‘subject to finance’. And as it’s a contract without cooling off periods, there’s no recourse for change of mind or being unable to afford it.
Getting pre-approved finance with Get Real Finance ensures clients are properly prepared for buying at any potential auction. Our brokers educate and support clients to understand which lenders are best placed to give pre-approval for an auction scenario and what’s required from our clients meet their obligations in successfully obtaining pre-approved finance.
Not all lenders provide pre-approved finance that can stand up to an auction purchase process. This makes those pre-approvals unreliable and creates serious legal consequences to an uncompleted contract. Those consequences include:
- The amount of the winning bid.
- The seller’s cost of re-auctioning the property.
- Any shortfall amount between the next auction’s winning bid.
How properties are advertised for auction
The lead time for an auction is usually four weeks total with three weeks for advertising and sales campaigns and the auction is scheduled in the fourth week. This gives the real estate agent (on behalf of their sellers/vendors):
- Time to generate valuable interest in the property.
- Qualify buyer interest to support their buyer-seller relationship by giving assurance that the auction will be successful and therefore should go ahead.
- Prime the buyers for the auction day selling conditions to be motivated to place attractive/high bids.
Here’s what you need to know about the real estate agent relationship in an auction scenario:
- It’s important to have a good relationship with real estate agents in general. It’s also useful to have a good rapport with them so you can get the information and insights you need to assess the property and position your potential bid.
- They’re always advocating for their client’s interest and are duty bound to get the best possible price for their seller.
- If they believe you’ll buy the property at a substantially higher price than their other interested buyers, they may approach you to buy outside of and before the auction. This approach ensures they don’t have an auction with a ‘price leader’ and low bidders that reduces the competition and the potential high sold price.
- They don’t need to see any pre-approval documentation or be told how much you’re pre-approved for.
- They don’t need to be told how much deposit you have.
- You can say you’ve got pre-approved finance and a good deposit ready.
- They can’t give you a “price guide” for an auction. It’s illegal both the seller and their agents to say/give.
Before auction steps
In the weeks before the auction (more time = the better), interested buyers must follow these steps:
- Get pre-approved finance.
- Inspect the property.
- Get a property valuation, get searches on title and land tax clearance. Review building inspection and pest inspection reports (and if applicable: swimming pool/solar system inspections) supplied by the real estate agent. Consider if you want independent reports at your cost.
- Give a copy of the contract for your lawyer/solicitor to review.
- Ask the real estate agent what the deposit percentage is and what the payment options are (personal cheque, bank cheque, deposit bond, or electronic transfer).
- Set your budget and bidding increment amounts.
- Decide if you, a buyer’s agent, or a friend/family member is bidding at the auction.
At auction steps
On the day of the auction:
- Register with the auctioneer using your Australian Driver Licence and receive your bidder number paddle.
- On the market status: The auctioneer has discretion of whether they say the reserve price has been reached in the bidding process, but they mustn’t say the amount. If the reserve price isn’t reached in the bids, then the auction is closed and no sale is reached. If your bid was the highest before the auction was closed, then the real estate agent can contact you to try and negotiate outside of an auction process i.e. by private sale. Note: If a sale is negotiated within two days of the auction, then no cooling off period applies as if it was an auction sale.
- If your bid wins, you must sign the contract immediately and pay the deposit.
- Once the contract is signed, you must organise building insurance from 5pm on the business day after the contact was signed. The exception is for strata properties (units, apartments etc.) as the body corporate holds building insurance.
Beyond guiding clients through the auction process and getting your finance pre-approved, your broker at Get Real Finance has a great network of professionals and trades who can help you with buying and managing real property. Just ask your broker for a recommendation.
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