The intention behind the process of publicly negotiating the price is to ensure the property is bought or sold at its true market value at the time of the auction. Often, the reason for holding an auction is that the seller is not sure of the property’s market value. So, if there’s a chance there will be a fair bit of interest in the property, the seller may decide that holding an auction is a good way to get ‘the market’ to determine the value of the property.
Before some weeks of actual auction, the seller’s real estate agent will use this pre-auction period to get feedback from people who view the property about what they think it is worth. This information will be used to help the seller set a realistic reserve price for the property at the auction. The reserve price is the lowest price the seller is willing to accept for the property. Usually, only the seller and their estate agent and the auctioneer will know what the reserve price is.
Sometimes, the seller may be willing to take offers before the auction. This will be made clear in the marketing information about the property. If you’re interested in the property, make sure you register your interest with the property’s real estate agent. That way, if they do get any pre-auction offers, they will also give you a chance to make an offer.
Pre-Auction Unconditional Offers
For making an offer before an auction is held, it will have to be an unconditional offer and be accompanied by a deposit, usually 10% of the full offer price. The deposit must be paid into the trust account of the seller’s lawyer. If the offer is successful, the lawyer will hold it ‘in trust’ until the property is transferred to the buyer, at which point it will become part of the settlement amount. If the offer is not successful, the deposit will be refunded in full.
If the seller is interested in your pre-auction offer, their real estate agent will contact all other potential buyers or people who have previously indicated they want to attend the auction to bid on the property, to tell them someone has made an offer on the property. If these people are also interested in making an offer, then the seller has two options:
- The seller could arrange for the auction to be brought forward. The highest pre-auction offer received will then become the reserve price for the auction. The person who then makes the highest bid will win the auction.
- The seller could decide they are willing to accept the highest pre-auction offer. Their agent will then begin a process of calling all the potential buyers who want to make an offer until they receive the highest unconditional cash offer.
Things to do Beforehand
Buying a property at auction is an unconditional purchase which means that, when the auctioneer’s hammer falls, you have bought the property as it is. Therefore, you need to do all your research on the property before the auction.
i. To bid at a property auction you need to have sorted your finance. Merely being ‘pre-approved’ for a loan is not sufficient, as this only means you are eligible for a loan. Your bank will still need to approve lending you the money for that specific property, so will probably require a property valuation for the property. As soon as the hammer falls at the property auction, you will have to hand over the required deposit (usually by cheque) and pay the balance of the purchase price on the settlement date, when you take possession of the property. So, you have to have your finance completely sorted before the property auction starts.
ii. Before the property auction, get your lawyer to check the property title to ensure there are no problems with the title. Ask your lawyer to carefully explain all aspects of the title to you.
iii. Usually a set of Particulars and Conditions of Auction for the particular property will be made available to you prior to the property auction by the seller’s estate agent. Make sure you go through these carefully with your lawyer before the auction to ensure you understand everything, especially any conditions that might apply to the property.
iv. Always get a building inspector to thoroughly check the property and provide you with a written report on it before the property auction. If you’re the successful bidder at the property auction, you cannot decide after the auction that you don’t like something about the property.
v. Make sure you get an LIM or Land Information Management report before the property auction as this contains the local council’s records on the property.
Do not make Emotional Investments
Don’t let this financial, and associated emotional investment, or your competitive spirit, affects your bidding in the heat of the auction. Decide beforehand what the absolute maximum price is that you are willing or can afford to pay for the property, and stick to it. By the time you’re at the property auction and in the bidding process, you’ve probably already spent a fair bit of time and money on the property, paying for building and LIM reports, and all the other before-the-auction homework. There is no point in taking on something that you cannot afford.