Auctions are a popular method of selling property, particularly when
- demand for property is high
- the property is unique
- the location is in high demand.
At an auction the bidders ultimately decide how much they are willing to pay for the property. All bidders will be given an opportunity to place a bid and the auction is considered complete when the highest bid has been reached. The auction must be conducted by a registered auctioneer.
A reserve price must be set by the vendor in writing before auction day. This is the lowest amount they would sell the property for. It isn't made known to bidders and the vendor can decide to lower this amount if the price isn't met at auction.
If the bidding doesn't reach the reserve price the vendor may choose to:
- lower their reserve price and accept the highest bid made
- hold over the auction to allow negotiation over the selling price with the bidders
- pass in on the auction.
If a property is passed in the vendor can decide to sell the property through private treaty instead.
The auction process
Before the auction
Anyone interested in purchasing the property should:
- contact their lending institution to finalise their finances and organise any valuation inspections the lenders may require
- organise for any inspections to be carried out - eg building inspection
- collect a copy of the vendor's statement from the vendor or the agent
- register to bid at the auction.
The vendor or their agent must:
- make the completed vendor's statement available for at least three working days before the auction and advertise this through a public notice - eg newspaper ad
- set a reserve price in writing
- engage a registered auctioneer to conduct the auction
- decide on a settlement date to be included in the contract of sale.
On the day
Anyone interested in buying the property must register to bid with the agent or auctioneer. If you are unsure about bidding you can ask a third party to represent you - eg a real estate agent, family member.
On the day of the auction the vendor or their agent must make the completed vendor's statement available to the public for at least 30 minutes before the auction starts.
All registered bidders must be provided with a copy of all of these documents:
Before the auction can start the auctioneer must announce that the standard conditions of auction apply as binding contractual obligations.
Throughout the auction the auctioneer or the agent must keep a written record of any bids made, who made them and the outcome of the auction.
If the property is sold it is usual for the contract of sale to be signed and the deposit paid as soon as the auction finishes. Buyers aren't entitled to a cooling off period if the property was sold either at auction or on the day of the auction - ie the auction was held over and the price negotiated with the buyer.
Register to bid
Anyone who is interested in making a bid on the property must be registered. This can be done at any time before the auction - eg during open inspections, on auction day before it starts. There is no obligation to place a bid if you have registered to do so.
To register you will need to show proof of ID to the agent or the auctioneer. You don't have to let them either keep your ID or take a copy of it.
If you are registering to bid on behalf of a third party you will also need to provide:
- proof of their ID
- written confirmation from them that you are bidding on their behalf with their consent
- the incorporation certificate if you are bidding on behalf of a company.
If you arrive late to the auction and want to register this decision is up to the auctioneer. They will decide whether the auction can be stopped to allow you to register.
A person intending to place a bid must not hinder, harass or prevent another bidder from placing their bid. This is an offence and can carry a fine of up to $20,000.
Dummy bidding is when one or more persons are asked to pose as genuine bidders in order to increase the bidding price. This is illegal and carries a fine of up to $20,000. An auctioneer can't knowingly accept a dummy bid.
A vendor is entitled to make up to three vendor bids. These bids must be lower than the reserve price. The auctioneer must announce any vendor bids as and when they are made.
A vendor is likely to require a deposit on the day of the auction. The amount of this deposit is negotiable but is likely to be 10% of the final sale price. You may be able to negotiate a lesser amount prior to auction or arrange to provide a bank guarantee. The deposit should be paid to the vendor’s agent who will place the money into a trust account until the settlement date. Your cheque should be made payable to the appropriate trust account and marked ‘not negotiable’. By law, the agent must pay the deposit into a trust account as an extra safeguard for consumers. The final balance is usually paid at settlement, often between 30 and 90 days. The date of settlement may be announced at the auction or negotiated between vendor and bidder prior to auction.