Auctions are happening everywhere at the moment. Vendors have been taking advantage of the lack of property supply and the influx of first home buyers and investors and capitalising at auction.
The fine print
Auctions are governed by strict rules, the bidding process is public and if you are the highest bidder when the hammer falls you will have to sign the contract immediately. An auction is different to a private sale as there is no cooling off period. This means when you register to participate in the auction you must be sure that you are bidding on a property you can buy and understand the contract conditions. It is recommended that you have a solicitor go over the contract, including condition reports, before the auction. If you are not ready to exchange and complete the sale, you may lose your deposit and be liable of any damages suffered by the vendor.
What did he say?
Auctions have their own language which can confuse the newly initiated. Let’s have a look at the 3 most common:
- Reserve Price – the vendor will, before the auction commences, set a price with the auctioneer that is the minimum they are willing to accept. If the bidding does not meet this price, the auctioneer will ask the vendor if they wish to sell at a lower price.
- Passed in – If bids do not meet the reserve price that has been set by the vendor it may be ‘passed in’ or withdrawn from sale. At this stage the highest bidder will have first right to negotiate with the vendor.
- Fall of the hammer – Once it becomes clear that there will be no more bids and the reserve price has been met or exceeded, the auctioneer will then count down ‘the fall of the hammer.’ No more bidding is allowed after the fall of the hammer and the auction is officially finished. At this stage the highest bidder is legally obliged to sign and exchange contracts.
What’s the process?
- Pre-auction necessities – 30min before the auction commences, the agent is required to display all the information regarding the property. Then as the auction is commencing the auctioneer will make an announcement detailing:
- Rules applying to the auction – including vendor bids
- State laws. Laws can vary state to state.
- Starting Bids – the auctioneer will ask for bids to begin the auction, at this time they will also set an amount by which bids will rise (i.e $10,000 increments). You can bid other amounts, however it is up to auctioneer if the amount is accepted.
- Fall of the hammer – When bids have reached or exceed the Reserve Price the property is then considered ‘On the Market’. Once the final bid is reached the auctioneer will announce “going once, going twice, three times” and if no more bids are presented they will then announced “Sold.”
- Settlement – Immediately after the auction a deposit is due. This is usually 10% of the auction price. The balance is then needed at settlement, which occurs 30, 60 or 90 days after the auction.
