Unlike private treaty sales, where the price is negotiated between buyer and vendor, auctions move quickly and when the hammer falls the sale is final. In fact the bidding can all be over within a matter of minutes. At auctions, the property is sold to the highest bidder and there is no cooling off period. As a buyer, you may feel under intense pressure to bid, so it takes a cool head and a careful strategy to buy at auction.
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Home buying advice - Buying your first home at auction
Buying your first home at an auction can be thrilling, but it’s hard not to get swept away in the atmosphere and bid above your budget. See our tips below to keep calm and maximise your chances of securing your property at the right price.
Steps to take before the auction
Do your research
Property auctions move fast, and people who have not attended these events in the past often get lost in the shuffle. If the property you want will be going to auction, take the time to attend other property auctions name and observe how the process plays out.
It also pays to keep an eye on the quoted price of a few auctions even if that means speaking with a few real estate agents. You can see how this quoted price compares with the actual auction price and know what to expect at your own auction.
Undertake pre-purchase inspections
Organise a pest and building inspection report long before auction day. If the report identifies key faults, ask the selling agent if you can take your builder for an inspection of the property to get an idea of likely repair costs.
Ask your solicitor to check the contract
Do not bid on a property until your solicitor has given you the all-clear. Contracts for sale by auction are complex and without the benefit of a cooling off period, you’ll have to live with any nasty surprises about the property if you're the highest bidder.
Arrange loan pre-approval
Making a bid at auction without the certainty of loan finance is a very high risk strategy. It makes more sense to secure loan pre-approval as this will give you confidence as a bidder and set an all important limit on your bidding.
Know your limit and stick to it
With loan pre-approval you should have a good idea about how much you can afford to pay for a property. But you should only pay what you think the property is worth based on similar homes in the area. Paying more could mean waiting years for your home to grow in value.
Tip: When you do know your budget, keep it secret. Letting the agent or the seller know your limit won’t do you any favours. This information can be used to ensure that the price goes as high as your limit, and provides no benefit to you.
Register to bid
Check if you need to register to bid. This is a requirement of some state governments, and where it applies you will be given a bidding number to use. You may also want to consider using a friend or buyers’ agent to bid for you.
Get your cheque book ready
If you’re the winning bidder on the day, you’ll be required to pay a deposit of 5-10% of the purchase price on the spot.
Talk to your local broker today
What happens on auction day?
Before bidding starts, the auctioneer will give a full description of the property and then invite bidding to begin, usually from a nominated starting point.
Where possible, avoid bidding early - you may push the price up prematurely. It can pay to wait until bidding is drawing to a conclusion (and bids are being made in small increments) before raising your hand.
The best time to place your bid is after vendor bids have been placed.
If the auctioneer declares the property is "on the market", it means the vendor's reserve price (the minimum they will accept) has been reached and the property will be sold when the hammer falls. If bidding stalls prior to this, the property will be “passed in” and you have the option of entering further negotiations with the agent.
Finally, stick to the golden rule - no matter how intense the pressure, resist the urge to bid above your budget. It could mean facing difficulties funding your property once the excitement dies down.
Tips for auction day
Ensure you stick to the golden rule - no matter how intense the pressure, resist the urge to bid above your budget. It could mean facing difficulties funding your property once the excitement dies down.
As such, it is important for you to have a limit and stick to it, no matter the outcome.
Legally binding auction rules
The rules of the auction that are legally binding can vary from one state to the next, but here are some general laws that relate to most property auctions.
- Sellers are usually able to make one bid on the property. The auctioneer will announce this bid as a vendor bid. Some states allow sellers to make more than one bid.
- Auctioneers will announce the bidder when requested to do so.
- People who have not bid on the property are not allowed to say that they have placed a bid.
- Bidders are not allowed to disrupt the auction.
There are some terms of bidding at auction that are not formally written out. However, these implied regulations are followed by people who are experienced in bidding on properties at auction. Getting to know these rules will help you establish yourself in the property auction community.
- Read through contracts on your own instead of believing what others tell you about these terms. Auctions can be very competitive, so you shouldn't expect your bidding competitors to let you know about how the process is going to work.
- Agents are notorious for undershooting the start price that they give you before the auction begins. If your budget is close to the quoted start price, you may be out of luck.
- Rely on your solicitor to advise you about the legal implications of bidding on a property at auction. Some people rely on agents, but auction agents are interested in making a commission.
- Your highest bid should be a secret until it comes time to make this bid. Revealing this information gives competitors an edge.
Get in the zone before you go ...
Attend a few auctions to familiarise yourself with the atmosphere and processes so you're comfortable when it's time to bid.
Enlist the support of family and friends on auction day to keep you focused.
Even if you aren't successful in winning your property, remain optimistic – there are plenty more opportunities out there.
It helps to talk to a mortgage broker beforehand, because of their extensive knowledge of the home buying process.