Testament to this is the fact auction clearance rates in Sydney and Melbourne throughout most of the first half of 2015 have been at historically high levels and hovering around the 80% mark.
A property auction is a method of public sale conducted by an auctioneer and governed by strict rules. An auction is always advertised to occur at a specific time, date and place.
In the lead up to an auction the selling agent will actively promote and market the property in an attempt to draw in as many potential bidders on the day as possible.
A typical auction marketing campaign lasts around 4 weeks.
On auction day prospective bidders will offer bids and if the reserve price, being the minimum amount the vendor is willing to accept, is met the property will be sold to the highest bidder.
If you are contemplating buying a property at auction here are six things you absolutely need to know before you raise your hand to bid:
1. There is no cooling off period – With an auction sale this is the number one thing you absolutely MUST know if nothing else. So what does no cooling off mean? Well it basically means there is no changing your mind. If the reserve price has been met and you are the highest bidder the auctioneer will pass the property to you and announce you as the new owner. You need to be absolutely sure about a property if you’re going to bid at auction. Changing your mind after the fact is a very costly exercise.
2. You must be registered to bid – While all states and territories are different, in NSW there are strict requirements to ensure the integrity of the auction process. When a person wants to bid at auction they must show identification proving who they are. This must include some form of photo ID such as a driver’s licence or passport. This rigour restricts just anyone from showing up and bidding. The same rule applies to someone who maybe a proxy bidder for someone else such as a buyers agent, friend or relative.
3. Someone else can bid for you – There are often genuine reasons someone cannot attend an auction, whether it be a holiday, business trip or important family occasion or event. If for some reason you are not available on auction day you can nominate someone else to bid on your behalf so long as they are over 18 years of age. It makes sense that if you are serious about a property you shouldn’t have to miss out for the mere fact you can’t physically be there on the day.
4. Contracts are exchanged immediately – With an auction sale contracts are exchanged immediately after the auction has concluded. The contract should be reviewed by your solicitor in advance of auction day. Any contract variations should be agreed and documented by both sides prior to auction in the event you are the successful bidder. If you have requested contract variations in advance, such as a shorter or longer settlement period, take documentary evidence of this so it can be attached to the contract.
5. The property doesn’t have to be sold – Unless the reserve price set by the vendor is reached at the auction the property will not be sold and instead will be ‘passed in’ by the auctioneer. The reserve price is essentially the minimum sale price the vendor is prepared to accept on the day. If the reserve price is reached the auctioneer will usually announce something to the effect that the property is on the market or otherwise make it very clear that unless there are any further bids the vendor’s instructions are to sell.
6. The highest bidder gets to negotiate first – If the reserve price is not met on auction day the property will be passed in and the selling agent will look to negotiate with the highest bidder in the first instance. If the desired price cannot be negotiated the agent will call on the other bidders or target a new pool of buyers through a renewed marketing campaign. If you are really keen on a property, strategically it pays to be the highest bidder in the event the property is passed in.
You might be surprised to know that many a tale has been told in real estate circles over the years of a scenario where someone drives past an auction, having never inspected the property before, stops and then joins in the bidding and successfully secures the property.
Problem is they find out later on they paid way too much or there were other serious issues with the property that they didn’t know about. Whatever you do don’t make that same silly mistake.
Buying a property at auction has serious consequences. It is something that absolutely must be taken seriously and definitely not something you want to enter into being uninformed.
Are you contemplating buying at auction? Check out 5 signs you need a professional auction bidder.
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Shelley Horton is the founder of Sydney based exclusive buyers agency Albion Avenue. With a 20 year career honing her skills in every aspect of the property industry Shelley knows what makes a property worth buying and how to get the best deal.
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