A property auction is a gathering of potential buyers for a property. It is run by an auctioneer and is covered by very strict rules. If you are planning to buy a property this way here are a few things for you to know and consider seriously. For example, if you are the highest bidder when the hammer falls, you are legally required to sign the contract to buy the property then and there.
Some terms to know
Reserve price – before the auction, the vendor (seller) will set a price with the auctioneer that is the minimum price they will accept. If the reserve price isn’t reached during bidding, the auctioneer will privately ask the vendor if they will sell at a lower price.
Passed in – if bids do not meet the vendor’s reserve price, the auctioneer will seek more bids. If bids still do not meet the reserve, the property may be ‘passed in’ or ‘withdrawn from auction’. The highest bidder then gets first right to negotiate privately with the seller.
Fall of the hammer – towards the end of the auction, the auctioneer will call for any final bids. Once there are no more bids, the auctioneer will count down the ‘fall of the hammer’, which will signal the end of the auction. No bids can be made after the fall of the hammer and the highest bidder is legally obliged to sign and exchange contracts on the spot.
How an auction works
To participate or bid at an auction, potential buyers must register with the vendor’s agent and be given a bidder’s number. The auctioneer oversees the bidding process. They take bids from potential buyers and keep track of the current bid price. Before auctioning a property, the seller will nominate a reserve price, which is usually not advertised. If the bidding continues beyond the reserve price, the property is sold at the fall of the hammer. If you are the successful bidder, you must sign the contract of sale and pay the deposit on the spot (usually around 10 percent of the purchase price).
The day of the auction
On the day of the auction, the property may be open for inspection, usually half an hour before the auction starts. Use this opportunity to take a final look at the property, the contract and auction rules.
Agents must give all potential bidders a copy of the Bidder’s guide before the auction. The Bidder’s guide contains important information you need to know, such as how you register to bid and what kind of identification you must provide to register. It is important to know how to register as you cannot bid if you are not registered. Agents are also required by law to have a list of the following auction conditions clearly visible for all potential bidders:
- The highest bidder is the buyer, subject to any reserve price
- The auctioneer is entitled to make one bid only on behalf of the seller
- Before the auction, the auctioneer must announce that the auctioneer is permitted to make one bid on behalf of the seller
- The auctioneer must announce immediately before, or in the process of making the bid, that he/she is making a vendor bid
- The auctioneer can refuse a bid that is not in the interest of the seller
- The auctioneer has no authority to accept a late bid (a bid after the fall of the hammer)
- If there is a disputed bid, the auctioneer is the sole arbitrator and makes the final decision
- The successful buyer’s name must be given to the auctioneer as soon as possible.
Attend a few auctions as a spectator to become familiar with the auction process. If the price is getting too high, you need to be able to walk away. This may be one of your biggest decisions, so it is worth making the right one, and being as well prepared and informed as possible about buying property.
If you have any questions about this type of purchase – please contact Select Conveyancing Lane Cove