How does an auction work?
An auction is usually held in an Auction Room hired for the occasion or on-site at the property itself. You will need to register with the auctioneer before you bid, giving your name, address and telephone number. Proof of identity such as a driver’s licence, passport or credit card is required to ensure that you cannot skip the scene once you have placed a bid. You may be given a number to display that you hold up during bidding.
The auctioneer starts proceedings by explaining the contract, terms of the auction and a description of the property. Bids are then invited from the floor. Some people may ask a real-estate agent or other person to represent them if they are unable to attend but they must notify the auctioneer in writing.
Following are a list of pros and cons you should consider when attending.
- The sale is legally binding; the vendor cannot gazump you if someone later makes a better offer. This can be appealing in a strong market.
- It’s incredibly fast. Settlement can occur within a month.
- You don’t have to spend as much time dealing with real estate agents.
- You could end up with a bargain.
- If it is passed in, you are in a stronger negotiating position.
- It can be an exciting experience.
- It can force you into a purchase if you find you are prone to procrastination.
- It allows the seller to set the terms of the sale.
- Buying at auction is riskier as the pre-auction period often doesn’t provide enough time to conduct the necessary inspections.
- It can be stressful.
- There is no cooling off period. The bid is legally binding.
- You may get carried away and pay more than you planned.
- You may succumb to agent pressure to put in higher bids – agents canvas the room to establish the major bidders and will try to take a seat next to you.
- The seller can act as a bidder to try and push the price up, so stick to your own calculation. You can check by reading the Auction Particulars and the Conditions of Sale of Freehold Property. The seller is required by law to show in this contract if they intend to bid. They often reserve the right for ten bids.
It is advisable to prepare carefully for auctions, as it is very easy for someone inexperienced to be dudded in the process. Following are a few tips to help you get the best result.
Be familiar with the auction process
Attend as many auctions as you can beforehand to understand the processes, the tricks of the trade and the nature of the players. Not all auctioneers are the same.
Beware of underquoting
Many real estate agents will quote unrealistically low prices to try to attract buyers to auction. This means you could waste a lot of preparation money on a lost cause, or worse, because you have spent money upfront, feel compelled to buy beyond your means.
Stick to your limit
Calculate the amount you believe the property is worth, decide your limit, and then don’t budge. If you exceed your limit, the property can become a liability as you struggle to make mortgage repayments.
Organise your finance beforehand
Make sure you completely understand your financial situation or you may risk falling into serious debt. Remember, you cannot get out of the sale once it has been made as there is no cooling off period.
Instruct your solicitor to check the sale contract
Your solicitor will pick up on some things that you may have missed or don’t understand. To protect yourself, have the solicitor check the contract so that you are fully aware of all sale conditions, your rights and responsibilities.
Inspect all reports before the auction
Make sure that before you bid, you gain all necessary termite, building, structural and engineering reports as well as crucial legal title information. This will ensure you are not left with the cost of damages you only discover after the sale.
Don’t bid until the property has been called on the market
Hopefully, your attendance at previous auctions will have alerted you to tricks of the trade like “first phase” auctioning and “dummy bidders”. The first phase of many auctions will often start with dummy bids that are used to draw genuine bidders into the fray. The agents and sellers will then confer, often having identified key bidders, and then the second or genuine phase of the auction will start with a declaration like “on the market”. The best way to maintain an advantage in these situations is to hang back and not bid until the second phase of the auction begins.
Never bid against yourself
If everyone else had stopped bidding, do not give into auctioneer pressure to raise your bid. It is easy to fall into this trap when you are overwhelmed by the excitement of the bidding process.
Get someone you trust to bid for you
It is often a good idea to get a close friend or family member to bid on your behalf or to hire an expert auction bidder. This is a great insurance policy to ensure you don’t let your emotions take hold and exceed your limit.