Auctions are one of the most popular ways to buy property in Australia. With the drama of the bidding contest, 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 tips on how to prepare 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, you need to be well prepared before going to bid at an auction. Here are some things to bear in mind.
Anyone looking to bid at auction should have an understanding of the jargon that goes along with it. Whilst this is not an exhaustive list, here are some of the key terms you’ll need to be across:
- 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 net for the seller. When bidding at an auction reaches the reserve price, the property is regarded as ‘on the market’. Once this happens the property seller will accept the highest and final bid.
- Passing in is when a property fails to reach the seller's reserve price and it isn’t sold to the highest bidder. However, the highest bidder will get the first option to negotiate a sale with the seller.
- Vendor bid is a bid from the property’s seller or owner - usually to get things started or if the auction stalls. There are regulations and restrictions on vendor bids in different states and territories, so we suggest you visit one of the relevant government page below for more information.
Auctions do not have a cooling-off period and are usually an unconditional offer, unless the buyer and owner agree on any additional clauses prior to the auction commencing. If your bid is successful, the deposit must be paid and contracts signed immediately following an auction. It’s important you go into an auction prepared to complete the sale if your bid wins. If you pull out of the sale, your deposit will be lost and you could be liable for any damages the seller suffers as a result.
It’s always a good idea to do your research on what the current 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:
It may be a good idea to have your home loan pre-approval ready before you start house hunting. A home loan pre-approval is when a lender 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.
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 a pre-approval does not mean you are 100 per cent guaranteed to receive a final loan approval. Be sure to keep your lender up to date with your financial situation including the property you plan on bidding for.
Although you may be able to agree on a different amount of deposit with the vendor before the auction starts, the deposit amount is set in the contract of sale and is typically 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 provide a deposit immediately after the auction ends.
The seller sets the settlement date in the contract of sale. As a general rule, property settlement periods are usually between 30 and 90 days, however, this may vary.
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.
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