Selling or buying a property at auction can come with fierce competition, a degree of apprehension, rapid-fire bidding and the promise of a swift transaction wrapped up in a matter of a few (sometimes anxious) minutes. As one of Australia’s most popular real estate sales methods, there’s plenty to unravel if you’re looking to sell or buy. So, whether you’re a seasoned investor or a first-timer, our guide will have you poised for auction action. We’ll dissect the different types of auctions, break down how the process works, teach you how to prepare to bid, share the pros and cons, and, of course, provide you with some tips from the experts.
Understanding auctions
From sterile auction rooms to backyard bidding wars, dealing with reserve prices or sealed bids, there’s plenty of variation in the presentation and methods used in an auction. Here are some of the most common types of auctions you’ll face:
- Reserve auction – seller sets a minimum sale price (reserve). The property will only sell once this is met.
- Absolute auction – there is no reserve price; the property is simply sold to the highest bidder.
- Live auction – participants physically attend, and bidding is done in person.
- Sealed bid auction – also known as a silent auction or Expressions of Interest (EOI), bidders submit their ‘sealed’ bids to the auctioneer, and the highest bid wins.
- Multi-property auction – often taking place in an auction room, multiple properties are presented, with each treated as a separate lot. Bidders can participate as they wish.
- Minimum bid auction – similar to a reserve auction, but the minimum bid is disclosed. It’s also the starting point of the auction.
- Online auction – this is when the entire auction process happens digitally! Registered and verified bidders can participate; often, anyone can access the live auction worldwide.
- Adaptive auction – in this process, the auction can be brought forward, or offers can be presented before the originally established auction date.
- Mortgagee auction – also known as a foreclosure auction, this is when a property owner defaults on their loan, and the property is sold to recover the debt.
- Bank-owned auction – also known as real estate-owned (REO) – occurs when a property has gone through the foreclosure process and has now become bank-owned.
- Tax lien auction – outstanding property tax debts can result in a lien being placed on a property. The property can be auctioned to recover the debts.
Navigating the auction process
While some people love them for the complete transparency and real-time action, the high-pressure, public environment where quick decision-making can win the day makes some people squirm. Whichever side of the fence you sit on, thoroughly understanding the process will help remove any fear of the auction hammer – particularly for first-home buyers. Here are the typical steps involved:
1. Do your due diligence – before the auction, make sure you’ve got your finances sorted (including a deposit at the ready), your solicitor has looked over all of the property and sale documents, and preferably, you’ve had a building and pest inspection undertaken by a professional.
2. Time to bid – on auction day, it’s time for action. You’ll need proof of identity to register as a bidder and are then led by an auctioneer. They’ll keep the bidding rolling until the final bid is reached.
3. Sold! Or not – if the property has a reserve price and the bidding has exceeded this, the property will be sold on the spot. If not, the property is passed in, and negotiations will typically occur with the highest bidder.
4. Payment pronto – the winning bidder must pay a deposit on the spot. The deposit is a percentage of the sale price (usually 10%). This can be paid using a personal cheque, bank cheque, an electronic deposit, or, in some cases, by credit card.
5. Signed and sealed – after paying a deposit, you’ll sign the sales contract and make it official. Auctions are unconditional and legally binding, so there’s no backing out!
6. Get settled – settlement periods vary and will be expressed before the auction. During this time, you’ll need to pay the purchase price balance (minus your deposit). Once this is done, it’s all yours!
Why auctions win on the day
They’re one of the most popular sales methods in Australia and New Zealand, and rightfully so. Selling at auction comes with a whole host of benefits for buyers and sellers, such as:
- Speed of sale – whether you’re buying or selling, chances are, you want the process to be over with as soon as possible. Auctions can provide buyers and sellers with a definitive date of sale (auction method dependent) and condense the process into a mere four-week time frame.
-Transparency – sometimes, it’s hard to know what’s going on behind the scenes when buying a home through a private treaty or tender. In an auction, you can see the bids unfold in real time – it doesn’t get more transparent than that!
- Fierce competition – humans are naturally competitive, and auctions play on this trait. Often, bidding wars ensue, which can lead to higher sales prices.
- Discover a property’s worth – the fair market value is reflected in what bidders are willing to pay on auction day.
- Condition-less action – auctions are unconditional sales, meaning the likelihood of deals falling over is minimised. For sellers, this means the process doesn’t drag out, and for buyers, it means all their ducks need to be in a row before bidding.
- Sale certainty – in an absolute auction (where there’s no reserve price), the sale of the property is certain (provided there’s at least one bidder).
Auction cautions
As with any property sale, there are some things to watch out for and be aware of when buying or selling at auction. The main factors to consider are:
- Its value is decided on the day – while a seller can set a reserve price, this is typically the absolute minimum acceptable price. With an auction, you often rely on competitive bidding to inflate the price. There’s always a risk that this won’t happen.
- Emotionally charged – if you’re one to get swept up in the moment, it can be hard to call it quits during a bidding war. If you plan to bid, be clear and stick to your limit.
- Limited marketing – auction marketing campaigns typically run for four weeks; this can limit the pool of potential buyers.
- Fees irrespective of sale – specific fees, like auctioneer costs and preparing the property for sale, may be payable regardless of whether the property sells under the hammer or not.
- Buyer time pressure – if you’re trying to buy at auction, there’s a degree of time pressure to ensure you’ve completed the relevant checks and secured pre-approval. Sometimes, this leads to potential issues being overlooked – particularly as there are no contingencies with auctions.
- Market influence – economic and market conditions can influence auctions’ clearance rate and success. In a slow market, fewer bidders can affect sale prices.
Expert tips for buying or selling at auction
Auctions can be a strategic and successful way to buy or sell real estate when you’re armed with the right information. The First National Real Estate team have witnessed their fair share; here are their top tips for buyers and sellers.
Buyer checklist:
- Research and research some more – get well-versed on market values and attend plenty of auctions so you’re familiar and comfortable with the process.
- Enlist the pros – partner with solicitors and property inspectors for a thorough understanding of the property – cutting these corners can be expensive. Your solicitor should also run you through any necessary details in the auction agreement.
- Get your pre-approval – if you need finance, get this sorted early (but beware, often this is only valid for 60-90 days). It’s no fun scrambling to secure finance at the last minute.
- Be clear on your maximum bid and stick to it – auction hype is very real, and putting up your hand one more time can be tempting. Stick to your budget to avoid overextending.
- Bring back up – consider bringing along a real estate agent or someone experienced in auctions. They’ll guide you throughout the process and help you avoid acting on emotions.
- Be ready for action – everything from the auctioneer’s calls to the bidding can happen lightning fast. Familiarise yourself with standard bidding increments, and be prepared to make quick decisions.
Seller checklist:
- Partner with those in the know – surrounding yourself with the best possible team increases your likelihood of achieving the best possible results. Work with an experienced auctioneer, a good local real estate agent and a trusted legal advisor specialising in property.
- Auction type and goal alignment – work with a real estate agent with a solid understanding of the local market. They’ll be able to recommend the best possible auction type to align with your goals. Also, decide whether you’re willing to consider pre-auction offers. These can provide a quick sale without going through the whole auction day process.
- Realistic reserves – if you’re setting a reserve, ensure it’s achievable, or you could be wasting your time. Once again, a local agent who understands the market in your area will be invaluable in guiding you on this.
- Put your property’s best foot forward – firstly, make sure your home is well-presented and market-ready. Ensure the agent you’re partnering with has a thorough and robust marketing plan to showcase your home at its finest.
- Information overload – more is often more when it comes to the information you can provide potential buyers. Offer access to detailed property information such as property surveys, inspection reports and title information. This exudes transparency.
Experience, knowledge and know-how = best possible results
Whether you’re buying or selling, the success of a property auction comes down to preparation, research and insightful decision-making. Partnering with a knowledgeable, local real estate agent means you’ll have plenty of experience and insight on your side – and the best possible opportunity to achieve your desired outcome. Find your local First National Real Estate Agent now.
DISCLAIMER
The following advice is of a general nature only and intended as a broad guide. The advice should not be regarded as legal, financial, or real estate advice. You should make your own inquiries and obtain independent professional advice tailored to your specific circumstances before making any legal, financial, or real estate decisions. Click here for full Terms of Use.