Don’t lose out on your dream home because you haven’t done your homework. Here’s what you need to understand if you want to bid at an auction
It is very important that you are mentally prepared before you attend an auction. If you have not been involved in an auction before it is worth attending a few to get a realistic idea of the process. Auctions can be very stressful and you need to be able to make split-second decisions that involve large sums of money.
Commit to a top price before you go to the auction and stick to it. Do not get carried away by emotions and reactions to such a competitive atmosphere. It is easy to make a few bids over your budget and then find you have suddenly committed to paying a lot more than you had originally intended.
Here’s what you need to be aware of:
1. Reserve price
Before the auction, the agent and the vendor will decide on a reserve price. This is the figure that needs to be reached during bidding for the property to be on the market. The agent and auctioneer do not reveal what the reserve price is to the bidders. It is very rare for properties not to have reserve prices.
If the reserve is not reached and bidding has stalled the auctioneer may halt the auction and consult with the vendor about adjusting the reserve, or the auctioneer will pass the property in. When a property is passed in, the agent will then attempt to negotiate a sale with prospective buyers, many of whom will have been registered to bid at the auction.
By law negotiations start with the buyer who made the highest bid, but they do not need to be limited to the top bidder, and may go on over a period of days. If this is not successful the vendor will decide on some other way of selling their property, often by negotiation or expressions of interest above a set price.
2. Vendor bids
A vendor has the right to bid at an auction with a reserve price on behalf of themselves if the property has not reached the reserve price. Before the auction the auctioneer will advise of vendor bids and during the auction has to clearly identify a vendor bid. Once the property has reached the reserve there can be no more vendor bids.
Usually this is a strategy to keep an auction moving along— people are often hesitant about making opening bids, or things may slow down as an auction progresses. In the fast-paced auction process it is often easy to get carried away and not pay attention to the detail of what an auctioneer is saying other than the bidding prices, so be mindful that you may be bidding against the vendor who is seeking a higher sales price.
3. Auction etiquette
Before the auction starts the auctioneer must read out the terms and conditions of the sale, inform if there will be vendor bids and any other important considerations about the property.
Once bidding has opened the offers will increase incrementally in set amounts. Any of the registered bidders can kick start the auction. The auctioneer has the authority to set the amount the bidding increases by – often bidding will start at lots of $10,000, falling to $5,000, and often finishing at increments of as little as $500.
If there is strong competition for a property with multiple interested parties, bidding may increase very quickly. It can be useful to have a companion jot down the prices on a piece of paper as they stack up so that you can keep pace with the action.
Once the reserve has been met, then the bidder who outlasts all others and offers the top price at the auction is the ‘winner’. The sale is then unconditional – you cannot back out of it – and the deposit must be made and sales documents signed.
Photography by: David Straight, Kate Claridge, Helen Bankers, Kate Claridge, The Virtue.