Auctions are a popular method of selling a 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 acceptable to the vendor must be set in writing by the vendor before the auction starts. This is the lowest amount they would sell the property for and cannot be more than 10% of the minimum acceptable selling price. It isn't made known to bidders and the vendor can decide to lower this amount if the price isn't met at auction.
Before the auction
Anyone interested in buying the property should understand that they would become responsible for the property if their bid is accepted. Before the auction all bidders 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, for instance, a building inspection
- collect a copy of the vendor's statement from the vendor or the agent
- register to bid at the auction
- make sure they have appropriate insurance (cover note) in place as a property owner.
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 such as a newspaper ad or promotional material on their website
- 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
- approve each registered bidder and their specific conditions such as deposit amount and settlement period requests.
Registering 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, for instance during open inspections or on the day before the auction starts. A person registered as a bidder does not have to place a bid.
To register, a person will need to show proof of ID to the agent or the auctioneer. The auctioneer or agent cannot keep the ID or take a copy of it without consent.
If they're unsure about bidding they can ask someone like a real estate agent or a family member to represent them. If represented by a third party make sure details of the agreement are put in writing.
A person registered to bid on behalf of a third party 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.
The auctioneer will decide whether the auction can be stopped to allow someone who arrives late to the auction to register as a bidder.
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.
On the day
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:
- the bidder's guide (formR4)
- the collusive practices statement (form R5)
- the buyer's information notice (form R3) .
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.
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.
If the property is sold
If the property is sold, it's 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 is sold at auction or on the day of the auction – eg the auction was held over and the price negotiated with the buyer.
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 highest bidder
- pass in at the auction.
If a property is passed in, the vendor can decide to sell the property through private treaty instead.
If the vendor wants to increase their acceptable price they must wait until the sales agency agreement has expired. A new agreement with a different agent can be made if the original agency agreement is mutually cancelled.
Paying the deposit
A vendor is likely to require a deposit on the day of the auction. The amount of this deposit is negotiable and can be as much as 10% of the final sale price.
A lesser amount may be negotiated before the auction or a bank guarantee is arranged. The deposit should be paid to the vendor’s agent who must place the money into a trust account until the settlement date.
Cheques should be made payable to the appropriate trust account and marked ‘not negotiable’. The final balance is usually paid at settlement, often between 30 and 90 days. The date of settlement can be announced at the auction or negotiated between vendor and bidder prior to the auction.