How to buy a property at auction
BUYING a property at auction has its advantages.
It is often a faster process than buying a property via a private treaty. It is a transparent process, as you can witness all the other bids in real-time. It is highly regulated with potential buyers required to formally register beforehand and there is the possibility to “snap up a bargain” at auction if the vendor needs to sell urgently and demand for the property is low.
Buying a property at auction also has its disadvantages.
A faster process also means you need to have all your finances in order faster too. Buying a property at auction often comes with higher competition, particularly for properties in high demand suburbs, meaning it might be harder to secure a property at your desired price. And when you buy a property at auction, you are buying an unconditional purchase, meaning any issues are then your responsibility.
>> READ MORE: ESSENTIAL TO-DOS BEFORE BUYING A HOME
In this month’s tip, we look at the Queensland Government’s guidelines on buying a property at auction.
Before auction
- Before buying a property at auction, there are a few important things you need to know.
There is no cooling-off period for buying at auction
A cooling-off period is generally five business days and means if you’re not completely happy, you can cancel the contract during this time.
But, auctions have no cooling-off periods.
If you are the successful bidder at an auction, you will be required to settle the contract even if you change your mind, can’t afford it or the house doesn’t pass inspections.
A cooling-off period also does not apply to a private treaty contract entered into within two days of an unsuccessful auction of a property in which the buyer was a registered bidder at the auction.
At an auction, the terms of a sale usually require you to bid on an unconditional basis meaning you can’t have any conditions like the sale being subject to finance or the completion of another sale.
It is recommended you go to a few auctions first to see how they work before attending one as a bidder.
Once you have attended a few auctions and are ready to bid, there are a few things you have to do first:
- Inspect the property
- Research the local market
- Get a property valuation
- Arrange your finance and note any price limits your lender sets
- Get a copy of the sales contract and seek legal advice about the terms and conditions
- Complete all necessary checks, such as title searches, a building inspection and pest inspections, a land tax clearance search and a swimming pool inspection (if relevant)
- Ask the agent how much deposit they will ask for on the day and how you’ll need to pay it
The vendor or agent will not be able to give you a price guide for an auction property. It is illegal to do so because they cannot know how high the bidding will go.
A property going to auction might appear on a real estate listing website when you search by the price but this is only for purposes of a web search and is not designed as a price guide.
Sometimes, with the vendor’s approval, you might be offered a comparative market analysis (CMA), which provides information about what similar properties in the same area have sold for.
>> READ MORE: HOW TO MOVE FROM RENTING TO BUYING
At auction
Once you have been to a few auctions and think you are ready to go and bid, here’s what you need to do:
- Set a budget and stick to it
Because if you are the successful bidder at an auction, you will have to settle the contract, even if you can’t afford it.
2. Register to bid
If you want to bid at an auction you need to register with the auctioneer after asking them if there have been any late changes to the contract (they must announce the terms at the start of the auction too) and any questions you have about the property.
Only registered bidders can bid on the day at an auction and you will receive a unique identifier, such as a numbered paddle, from the auctioneer when you register.
3. Know auctioneer’s responsibilities
The auctioneer at the auction must have a current and valid licence. Only an auctioneer licence permits a person to auction real estate and the auctioneer will have to either display their name prominently at the site of the auction or announce their name at the start of the auction, if displaying it is impractical due to instances such as the auctioneer is moving around a large outdoor area or there is inclement weather, such as heavy wind.
You can check then check the auctioneer’s licence online by doing a free search here.
The auctioneer also needs to announce the conditions of sale, which they may get from the unsigned sale contract and might include the required deposit, inspection details and any other relevant details.
4. Know the reserve price
The reserve price is the minimum sale price that the vendor will accept. A vendor doesn’t have to set a reserve price, although most do, and this reserve price is set in writing with the vendor’s agent before the auction.
The auctioneer can tell you whether or not a vendor has set a reserve price but not what the price itself is.
During an auction, the property will be “on the market” once the reserve price is reached during bidding or if no reserve price is set. The auctioneer doesn’t have to announce this moment but can do so if they wish and if they do, it must be truthful.
A property that reaches “on the market” means the auction must result in a sale where the winning bidder must purchase the property and the vendor must sell.
If the property doesn’t reach the reserve price to go “on the market”, you can negotiate with the vendor after the auction. Keep in mind, if this negotiation leads to a sale within two days of the auction, you will not receive a cooling-off period. If an agreement is reached more than two days after the auction, a cooling-off period can be accessed.
>> READ MORE: HOW TO BUY A PROPERTY GUIDE
5. What are vendor bids?
Vendor bids are bids on behalf of the seller or bids from the seller or their representative and can be accepted by the auctioneer but only up to the reserve price.
If an auctioneer accepts a vendor bid before bidding reaches the reserve price, the auctioneer must announce the vendor bid and if a vendor bid is announced, you know the reserve price has been set but it hasn’t yet been reached.
After the reserve price has been met, any more vendor bids will become “false bids” and these are illegal.
6. What are dummy bids?
After the reserve price has been reached, a bid by the vendor, their family or friends, the auctioneer or any other “planted” individual in an attempt to raise the bidding is called a dummy bid.
Dummy bids are also illegal.
After auction
If you are the successful bidder at an auction you must sign the contract immediately.
If you cannot settle the sale on time, there are some very serious legal consequences you will have to face. You may be forced to pay the amount of your winning bid, regardless of whether you have access to the money, the cost of re-auctioning the property or any shortfall between your offer and the winning bid at the next auction.
This is general information only and should not be taken as constituting professional advice. For more information see the Queensland Government’s advice on buying a property at auction.
