Auctions are one of the most popular ways to buy property in Australia. With the drama of the bidding content, Auctions can be an exciting yet also daunting experience. Make sure you're prepared with an understanding of how they work and what you need to know before bidding.
Auctions are subject to a range of rules and regulations that vary by state. This quick guide provides an introduction to what to expect and how to be ready if you plan on bidding at an auction.
Because of the public nature of the bidding process, and the need to pay the deposit and sign the contract after the winning bid, it’s important to be well prepared before going to bid at an auction. Here are the key things to bear in mind.
Common auction terminology
Anyone looking to bid at auction should have a good understanding of the jargon that goes along with it.
- Reserve price: refers to the price under which the auctioneer can’t sell without the express approval of the owner. In other words, it’s a bit of a safety barrier for the seller. If and when bidding at an auction reaches this price the property is regarded as ‘on the market’ and from there the seller will accept the highest bid.
- Passing in: This is when a property fails to reach the seller's reserve price so it doesn’t sell at auction. In this situation, the highest bidder will get the first option to negotiate a sale with the seller
- Vendor bid: Basically, a vendor [seller] is legally allowed to make a bid on the property to help move the auction along - either to get things started or if the auction stalls. There’s no restriction on vendor bids in Victoria, but only one per auction is allowed in New South Wales, while in Queensland vendor bids are permitted only up to the reserve price.
How auctions work
The auction process is governed by general rules that apply Australia-wide. For example, all auctions are unconditional and do not have a cooling-off period. In addition, deposits must be paid and contracts signed immediately following an auction.
Beyond this, there are a number of differences by state. For instance, in New South Wales it is an offence for agents to underquote the selling price of the property ahead of an auction. New laws passed in 2016 require agents to produce evidence for their property appraisals.
In New South Wales & Queensland, buyers need to register to be allowed to bid on auction day, while in Victoria, for example, buyers can turn up and simply start bidding for the property.
It’s always a good idea to do your research on what the auction rules are in the state or territory where you’re planning to buy. Here are some helpful links for you to do your research:
- New South Wales Fair Trading
- Consumer Affairs Victoria
- Queensland Government
- South Australian Government
- Western Australia Department of Commerce
- Tasmanian Government Consumer Affairs and Fair Trading
- Northern Territory Government
- ACT Government
Remember to also check if there are any restrictions and new processes for auctions as a result of COVID-19. Find out more here.
The importance of home loan pre-approval
It is always a good idea to have your home loan pre-approval ready before you start house hunting. Pre-approval is when a lender or mortgage broker assesses your finances and credit rating to arrive at a decision on how much you can afford to borrow. With this information, you can then start looking for properties that are within your financial range and not get too carried away. This will also help ensure you can keep up with the mortgage repayments in the future.
Learn more about how much you could afford in our handy guide: Everything you need to know about home loan affordability.
It's important to note that pre-approval does not mean you are 100 per cent guaranteed to receive final loan approval. However, if you’re able to maintain stable employment and income for the period your pre-approval is valid, the chances are high.
Deposit requirements and cooling-off period
Although you can agree on a different amount of deposit with the vendor, the deposit amount is typically around 10 per cent of the property’s sale price. It is important to know that there is no cooling-off period for properties sold at auction, so if you are the highest bidder you will have to put down a deposit immediately.
If you can’t follow through with the contract you will lose that deposit and may be liable for any damages suffered by the seller.
Check with the agent before the auction on what payment methods are available and make sure you have enough in your account to make a large transfer on the day.
Tips for making a winning bid
There’s no sure-fire formula for success at auction, but there are some auction tips you can follow to make the best of your chances. Chief among these is simply bidding confidently and maintaining clear lines of communication with the auctioneer so you understand when the property is on the market – something that may not necessarily be announced.
The other key thing is to remember to be civil, polite and respectful - which can work wonders in the event of negotiations.
Given the demands on the winning bidder at an auction – paying the deposit and signing the contract – it is essential that anyone looking to buy a property in this way is aware of the legal requirements in their state, the terminology involved and the health of their own finances. With all this in place, an auction can be a fruitful and exciting way to purchase property.
Want more tips for buying at auction? We've collated some expert top tips for buying at auction.
If you’re considering purchasing your first home through an auction, start with our simple home loan borrowing power tool to see how much you may be able to borrow with Pepper Money. You can also contact one of our Lending Specialists on 13 73 77 to find out more about your home loan options today.
All applications are subject to Pepper's normal credit assessment and loan suitability criteria. Terms, conditions, fees and charges apply.
This article provides you with factual information only, and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser. Neither Pepper nor its related bodies, nor their directors, employees or agents accept any responsibility for loss or liability which may arise from accessing or reliance on any of the information contained in this article. For information about whether a Pepper loan may be suitable for you, call Pepper on 13 73 77 or speak to an accredited Pepper Money broker.