Property Auctions: How they work and what you need to know

How Auctions Work & What You Need to Know


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.

Common auction terminology

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.

How auctions work

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:

Understanding home loan pre-approval

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.

Deposit requirements

Deposit requirements

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.

Settlement date

Settlement date

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.

If you are unable to follow through with the contract, you will lose the deposit paid and may be liable for any loss suffered by the seller.

Tips on bidding at an auction

Whilst there’s no sure-fire formula for success at auction, here’s some general tips that may help:

Do your research

Do your research

You’ll need to have conducted all your pre-purchase checks and research before auction day. Think of pest and building inspections, strata reports for units and undertaking your own due-diligence.

Know your obligations

Know your obligations

Given the demands on the winning bidder at an auction – providing the deposit and signing the contract, and the fact that there is no cooling-off period – it is essential that anyone looking to buy a property at an auction has sought advice on  the legal requirements in their state or territory, the terminology involved and the health of their own finances.

have your finances in-check

Have your finances in-check

Because you need to pay a deposit at the conclusion of the auction, you’ll need to have your finances ready to go before registering on the auction day. This includes having your deposit readily accessible.

Bid confidently

Bid confidently

Try to maintain clear lines of communication with the auctioneer and ensure they know how much you want to bid and what increments you’d like to increase your bid by.

Know your limits

Know your limits

When making split-second bidding decisions, it’s important to know your upper financial limits; have an ideal price range and an upper limit to know when you need to stop bidding.

Online auctions: What are they and how they work

 

eBay for houses? Not quite, however the advent of online auctions has allowed for property auctions to continue throughout COVID-19 related lockdowns given they comply with social distancing measures.

This could allow potential purchasers to see the outcome and bidding process of other comparable properties before bidding for real.

How do you register for an online auction?

If you’re intending to bid, you’ll need to set up an account on the chosen platform ahead of time and complete an ID verification – usually requiring your driver’s licence. The details will be passed onto the agent you’ll have visited when inspecting the property.

How can you watch one?

Online auctions can be watched by anyone with a registered account on the chosen platform. Create a free account on a platform such as AuctionNow and search for properties in your area.

When the auction kicks off, you’ll see a livestream of the auctioneer who could either be on-site in the property or even in their office or a dedicated broadcast space. It all depends on the agency and auctioneer setup.

From thereon in the auction process is virtually identical to a physical auction with the same framework followed; vendor bids need to be announced, the auctioneer will make it known when the property is officially on the market, and you may notice the real estate agents will be speaking with serious bidders throughout the process.

The major advantage for onlookers is easily getting a summary of the bidding history throughout the auction. You’ll be able to see who made what bid, and the increments bidding increased by. This is a great way for potential purchasers to get into a rhythm of auctions and understand how the bidding process could work.

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 137 377 to find out more about your home loan options today.

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